Of all the music-business trends ushered in by the pandemic year, the ascent of the back catalog may feel the most counterintuitive. Musicians are stuck at home without the ability to perform or tour, and yet the worth of their old music catalogs is sky-high. What gives? Here are the factors on all sides of the negotiating table that have led to the current catalog acquisition boom — and the high-profile artists, producers, and songwriters who’ve cashed in so far.
First, why are buyers buying?
The likes of Hipgnosis Songs Fund and Primary Wave are heavily disrupting the way the industry operates. Publishing rights usually stay with publishers and songwriters and recorded rights belong to labels and performers — but in the past few months alone, these two upstart companies have snapped up such rights related to artists including Fleetwood Mac, Neil Young, Shakira, John Lennon, and Dire Straits. By acquiring music rights, these companies can reap the money from royalties, licensing, brand deals, and other revenue streams that would have gone to the artist.
Hipgnosis is traded on the London Stock Exchange, in addition to getting cash from debt; Primary Wave is backed by institutional investors including BlackRock who place money into funds for the music company to spend. Both firms have benefitted from investors of all stripes noticing that the value of music assets are stable, or even growing, during a turbulent time for the markets (thanks to everyone consistently streaming and buying records). As Merck Mercuriadis, founder and CEO of Hipgnosis, put it: “If Donald Trump did something crazy, the price of gold and oil are affected whereas songs are not… [Songs] are always being consumed.”
In addition, borrowing money is particularly cheap right now due to historically low interest rates (“rock bottom”), which some experts believe will be here to stay until 2023 due to the fragile economic landscape created by the pandemic.
And there’s another factor: The music industry’s traditional giants, the major music companies, aren’t going to let startups like Hipgnosis pinch their most prized assets without a fight. That’s why Universal Music Group paid somewhere near $400 million to fully acquire Bob Dylan’s song catalog at the close of 2020.
Why are artists and songwriters selling?
Covid-19 is a primary factor in the decision of some top artists to flog their catalogs. No touring means no touring income, and even for acts as established as David Crosby, that means alternative revenue sources must be found for bills to be paid. Here are some other reasons rich stalwarts of bygone counter-cultural movements — like Neil Young and Bob Dylan, who don’t necessarily need the cash — might have offloaded their catalog rights:
1. Tax benefits
A beneficial tax window in the United States is currently closing fast. Joe Biden’s tax plans include altering U.S. capital gains tax so that it falls in line with income tax for any asset sale over $1 million. In layman’s terms, that will increase the tax rate on the sale of a lucrative asset from around 20% to around 37% for high-earners. Consider Bob Dylan, who sold his publishing catalog for $400 million: At 20% tax, he’s due to pay $80 million to the government; at 37%, he’d need to turn over $65 million extra.
There is another way taxes come into play: Why would an artist sell their rights if they can just wait for that same amount of money (say $400 million) to trickle in via royalty income, over a number of years or decades? Well — if they opt for that route and those royalties put them into the higher-earner category (and for someone like Bob Dylan, they almost certainly would), they would face a 37% tax bracket annually. Exchanging that for a one-time multimillion-dollar payout with 20% tax can be a lot more prudent.
2. Personal circumstances
Not to venture too far down the unedifying road of musical legends’ domestic concerns, but we do know the following: Bob Dylan is nearly 80 years old, has had six children, and will surely be thinking about his estate planning. A lump of $400 million is far easier to divvy up than a lifetime’s patchwork of publishing copyrights. Shakira, meanwhile, was embroiled in a tax-evasion case in Spain in the past two years, with the local government accusing her of owing more than $16 million in back-taxes. We can’t say if any of this informed these artists’ decision to sell their music, but it’s a helpful reminder that superstars have familial and administrative headaches, too.
3. Reading the market — and their own legacies
According to a recent Hipgnosis investor report, the company is paying artists and songwriters an average multiple of “14.76x historic annual income” — i.e. 14.76 years’ worth of predicted royalty profits — for their catalogs. The bigger the superstar, the bigger the multiple: Universal is believed to have paid Bob Dylan a multiple in excess of 25-times what his song catalog banks each year.
Taking this money upfront rids artists’ lives of several unpalatable uncertainties. First, since music streaming revenue growth is slowing down in major (“mature”) markets like the US and UK, how much bigger is the record industry going to get? Also, could a new technological menace blind-side everyone in the next 20 years, destroying the value of artist’s works in the same way Napster and Limewire did? Plus, with 40,000 new tracks being uploaded to Spotify each day, and fresh megahits (think “Old Town Road” and “Drivers License”) emerging every year, what happens to the evergreen “canon” of standard music classics? If a new classic goes in, does an older classic have to be booted out? How can today’s veteran singer/songwriters be certain they’re going to remain as resolutely popular in 2031, or 2041, as they are in 2021? Such concerns surely pass through the cerebrums of artists when chewing over the idea of taking a guaranteed payout rather than rolling the dice.
Who’s sold what to who, in chronological order:
In 2018, Merck Mercuriadis’s newly minted investment firm Hipgnosis Songs Fund made careful plays for rights from The D-ream and songwriter Poo Bear, the latter of which brought over rights from Justin Bieber’s “What Do You Mean?” and the English-language version of “Despacito.”
That same year, publisher and talent management company Primary Wave spent $50 million on parts of the publishing rights of Bob Marley.
In 2019, Hipgnosis focused on acquiring copyrights from hit songwriters like Johnta Austin (who’s written songs for Mary J. Blige and Mariah Carey) and Sean Garett (who has penned tracks for Beyoncé and Usher, Ciara, and Beyoncé). It also bought Timbaland‘s catalog, which covered six albums from Missy Elliott and five albums from Justin Timberlake.
Throughout 2020, Hipgnosis kicked into high gear, snapping up various copyrights from the likes of Bon Jovi’s Richie Sambora, Blink-182’s Tom DeLonge, the cofounders of Blondie, Mark Ronson, Jack Antonoff, Rick James, and Barry Manilow in quick succession.
Hipgnosis also bought out pieces of the publishing rights of 33,000 songs when it fully acquired Kobalt Music Copyrights in November; the deal included copyrights from hit writers including Skrillex, 50 Cent, Nelly, and Christina Perri.
Publishing and recording company Concord Music Group acquired publishing rights in the Imagine Dragons catalog, for a rumored nine-figure sum.
DJ Calvin Harris sold his publishing catalog to Vine Alternative Investments, and the catalog-acquisition industry locked eyes on yet another new player.
Taylor Swift‘s recorded music rights were sold to Shamrock Capital — albeit not by her, but by Scooter Braun, who bought Swift’s rights from her former label boss Scott Borchetta and sold them on without her approval.
In November, The Killers sold their publishing catalog to Eldridge, a Connecticut investment management company chaired by Todd Boehly.
In December, Stevie Nicks sold the majority of her publishing rights to Primary Wave, in a deal valued around $100 million.
Days after Nicks’ announcement, Bob Dylan made major waves when he cashed in to the tune of some $400 million selling his songwriting catalog to Universal Music Publishing Group. The deal also came with rights to The Band‘s first album, including hit track “The Weight,” thanks to a quirk in Dylan’s history with Robbie Robertson and co.
Neil Young fired a starting pistol into 2021 when he sold half of the worldwide copyright and income interests of his 1,180-song catalog to Mercuriadis’ Hipgnosis.
In the same breath of that first week of 2021, Hipgnosis also managed to snag Lindsey Buckingham‘s publishing rights as well as Jimmy Iovine‘s producer royalties and Shakira’s publishing rights.
Not to be outdone by his Fleetwood Mac bandmates, Mick Fleetwood cashed out on his recorded music rights in a sale to BMG this week. (Of note: Nicks’ and Buckingham’s deals covered publishing rights, while Fleetwood’s covers recorded music rights; the royalty streams and level of creative control are consequently going to be different for the different buyers.)
Also this week, OneRepublic’s Ryan Tedder, who’s also written for artists including Adele and Beyoncé, handed over his catalog to KKR, an investment company with deep pockets. The deal here is particularly significant because of the buyer: It indicates a new phase of catalog acquisition coming up, as Wall Street giants begin to get (back) into the music investment game.