For Music Publishers, Is Quarantine a Thrilling Opportunity or a Ticking Time Bomb?

Music publishing has never been more commercially vibrant — from some perspectives, at least.

Institutional investors are increasingly viewing evergreen music copyrights as hot property. Merck Mercuriadis’ Hipgnosis Songs Fund is paying notoriously high multiples to acquire songwriter and publishing catalogs, and it hit an all-time share price high in mid-September. As recently covered on Rolling Stone, Concord has spent over $100 million not once but twice this year to acquire publishing related assets (PULSE Music Group and the Imagine Dragons catalog, respectively) — and it predicts billions of Wall Street dollars are now “waiting on the sidelines” of the music business, ready to be splashed on copyrights. Meanwhile, publishers capitalizing on the global lull in breakthrough artists have been on a signing spree for rising talent.

Away from these high-stakes worlds, however, a less rosy story of 2020’s music publishing industry is emerging.

GEMA (whose full name is a mouthful) is Germany’s equivalent of ASCAP and BMI, a collection society that scoops up royalty money on behalf of publishers and songwriters whenever their songs are played in restaurants, bars, and other venues, as well as by broadcasters and on streaming platforms.

Many of the sources of GEMA’s collections this year have been curtailed by the virus. But last week, GEMA — which paid out over USD $1 billion to music rightsholders in 2019 — gave an explicit warning to its members that things are about to turn ugly. The collection society said it expects a “massive decline” in annual collected income in 2020, thanks to the pandemic.

There was depressing news about next year, too: Directly addressing songwriters, GEMA’s CEO Harald Heker said, “From a financial perspective, 2021 will be even more difficult for many of you. Our revenues will be lower than in 2020, and we will therefore pay out less to you.”

Heker’s words arrived six months after the chairman of ASCAP, Paul Williams, cautioned his own organization’s publisher and songwriter members that “the pandemic will have a material and negative impact financially on almost every category of licensing.” Williams confirmed that ASCAP was preparing for both its revenues and member payouts to decline in 2020.

Quite how savagely this plunge in performance-royalty collection will hit publishers and songwriters is difficult to ascertain right now, because money collected by the likes of GEMA and ASCAP can take anywhere between six months to over a year to actually land in rightsholders’ bank accounts. But it’s definitely going to hurt: According to financial filings, public performance revenues made up around a quarter of the $488 million that Warner Chappell Music — the world’s third-biggest music publisher — generated in the first nine months of its fiscal 2020.

Warner Chappell, like its fellow major publishers Universal Music Publishing Group and Sony/ATV, will be far more insulated from the negative impact of the pandemic than many indie publishers — largely because the majors’ vast catalogs ensure they see consistent financial upswings from global growth in streaming subscriptions. Warner Chappell also has a comfortable cushion of profitability: in those same nine months to the end of June 2020, it posted a $114 million OIBDA (Operating Income Before Depreciation and Amortization).

“There are [publishing] companies out there with business models that I can see hitting the rocks before too long, particularly with the effects of Covid. There is going to be an impact on live performance that will take a year to wash through the system.” — Guy Moot, CEO of Warner Chappell

Guy Moot, CEO and co-Chair of Warner Chappell, is under no illusions about Covid’s potentially lasting impact on elements of the music publishing industry — especially companies with thin profit margins. Speaking to MBW’s Q3 Music Business UK magazine, Moot said: “There are [publishing] companies out there with business models that I can see hitting the rocks before too long, particularly with the effects of Covid. There is going to be an impact on live performance that will take a year to wash through the system.”

What might make it worse when the damage does “wash through” next year for music publishers is how differently situated their record-industry friends will be.

Although major record labels have been affected by the pandemic’s impact on public plays of their music — not to mention declines in the physical recorded music space — they are also seeing vast commercial benefits from the continued growth of streaming. Streaming contributes a significantly larger slice of record companies’ overall revenues than it does for publishers: Over 65% of Universal Music Group’s total recorded music revenues in H1 2020 (including the firm’s licensing income) came from the likes of Spotify, Apple Music and Amazon Music.

It was therefore eyebrow-raising to spot this line the other week, within the RIAA’s latest half-year report on the U.S. record industry in H1 2020: “Paid subscription revenues grew faster in Q2 2020 than in Q1.”

Yes, the pandemic appears to have actually accelerated stateside music-streaming revenues — the lion’s share of which end up with record companies, rather than publishers.

When an accurate picture of the damage wrought by Covid does “wash through” to publishers’ balance sheets, the already lopsided commercial balance of music’s record industry and publishing industry looks likely to tilt a bit further.

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.