You don’t need me to tell you who’s caused the most noise in the music industry this week. Yes, it’s Taylor Swift — with her eloquent, stinging response to the news that Scooter Braun has sold the master recordings to her first six albums to an investment fund in a $300 million deal without her consent.
It’s easy to see why Swift’s pissed: She claims that, once again, she wasn’t given the chance to make a fair-market bid for her own masters. And the deal clearly benefits Braun: It means he effectively acquired Swift’s former label Big Machine Label Group for a negligible fee, having bought the whole company, including Swift’s masters, for a similar $300 million-ish price tag last summer.
But what’s the thinking from Shamrock Capital (aka Shamrock Holdings), the quiet Los Angeles-based investment company that splurged over $300 million to acquire Swift’s masters from Braun? Swift is already pressing ahead with plans to re-record the masters that are now under Shamrock’s ownership; she also still has the power to block sync license requests for her old recordings, which she has already been doing with abandon. Many insiders have been scratching their heads over Shamrock’s motivations in the last 24 hours.
Peek beneath the surface, however, and there are actually good reasons Shamrock — and the investors in its $400 million IP fund — may still end up smiling over the deal in the long-term.
1. First, in the grand scheme, the sync roadblock is minor
Shamrock was surprisingly unflustered about Taylor Swift’s public refusal to endorse the firm’s acquisition of her recordings. “We made this investment because we believe in the immense value and opportunity that comes with [Swift’s] work,” said the company in a statement on November 16th. “We fully respect and support her decision and, while we hoped to formally partner, we also knew this was a possible outcome that we considered.”
What was the formula behind Shamrock’s “consideration,” exactly? Perhaps this: According to stats released by the RIAA, the US recorded music industry in 2019 generated $11.1 billion in gross revenues — but only 2.5% of this figure was generated by synchronization fees (i.e. the money paid when music is used in a commercial format like an ad or TV show). Even on a wholesale basis, sync’s $276 million contribution only made up 3.8%.
Swift can block Shamrock profiting from sync, sure — but she can’t stop the company making money from physical music sales, digital downloads, and streaming. Those, according to the RIAA, are income streams that cumulatively made up 97.5% of all US industry revenues last year.
2. Replacing old music with re-records will still be tough
Let’s say Taylor’s re-records of classic hits like “Shake It Off,” “Bad Blood,” and “I Knew You Were Trouble” go as swimmingly as they possibly can. Considering the vastness of her talent, I’m going to go ahead and suggest they’ll be of tip-top quality. Let’s also suppose she gets good support from the likes of Spotify and YouTube to promote the re-recorded albums, and that Taylor’s army of Swifties do their duty, rinsing plays of her new masters in place of her Shamrock-owned originals. Let’s also suppose Swift’s recorded music partner, Universal Music Group, throws everything and the kitchen sink at marketing her new re-records.
That takes care of music industry headlines long into 2021. But in two, five, or ten years time, will any of this matter? When Spotify’s algorithmic tinkering reverts to normal, when UMG’s megabucks spend is through — what happens then? Won’t consumers, not to mention advertisers, ultimately want to hear the version of these songs that soundtracked their first kiss, their wedding dance, their teenage heartbreak? And how can even the most diehard Swift fans ensure they’re always streaming the new albums and not the old recordings by accident (especially when such choices are increasingly at the mercy of Alexa)?
I’m not the first music biz watcher to have doubts over the prospect of re-records usurping the tracks they’re looking to replace. Glenn Tilbrook of the band Squeeze appeared in this column last year to explain what happened when his group faithfully re-recorded their hits on the appropriately-named 2010 album, Spot the Difference: Squeeze’s strategy was Swift-esque, with a plan to get the new tracks synced at budget prices that advertisers and movie-makers wouldn’t be able to resist. But the plot fell flat. “10 years later, we’ve not had a single uptake,” admitted Tilbrook.
Despite wishing Swift well in her endeavor, Tilbrook also warned the superstar that “it takes an awful lot of time, trouble, and money.” This adds another under-considered dimension to this story: For her newer albums, Swift owns her masters, and may well therefore be on the hook for recording costs. If her re-records become a loss-making enterprise — and I’m not saying they will, but if they do — how long will it be before, say, green-lighting a big Coca-Cola Superbowl sync for the original version of “Shake It Off” becomes a temptation? (Swift, one has to remember, also does profit from the publishing rights on her Shamrock-owned songs.)
What about a blockbuster Taylor Swift biopic — but one for which a movie studio needs to license the recordings made by Swift when she was 14, 17 and 20, rather than 30? As we’ve seen with the Bohemian Rhapsody movie, such projects can provide a huge career boost for the popularity of artists amongst the next generation of listeners. Swift’s doing fine on that score, obviously — this year’s Folklore is one of her most popular and acclaimed albums yet — but, years from now, will she really turn down such a lucrative opportunity out of enmity towards Braun?
Shamrock will be hoping not.
3) Then the two magic words: merch and multiples
Swift’s now-public letter to Shamrock, sent in late October and revealed on her social media this week, had an interesting nugget: She said she “was so disappointed when I learned that under the terms of your acquisition, Scooter Braun and Ithaca Holdings would continue to receive many years of future financial reward from my music masters, music videos, and album artwork.”
I haven’t yet quite got my head around why Scooter Braun might continue to earn a revenue stream from Swift’s recordings now they’re owned by Shamrock — but the fact the investment fund also appears to own or co-own rights to the artwork of her first six album sleeves is, potentially, a prosperous piece of business. Not only could this deliver Shamrock a significant annual slice of the multi-billion dollar merchandise market; it’s an asset that, unlike those re-records, Swift is presumably legally prevented from trying to duplicate.
There’s another ‘M’ that might end up having the biggest industry impact of all from Shamrock’s buyout: Multiples.
Thanks to disruptors like Merck Mercuriadis’ Hipgnosis Songs Fund, publishing rights have started selling for anywhere from 15-times to 20-times multiples on their Net Publisher Share (aka gross profit). Master rights have been lagging behind this trend, selling less frequently and for smaller multiples — but the big-money Swift-Shamrock deal could change everything.
You can bet your bottom dollar that the representatives of the biggest recordings catalogs in history are now salivating. Because if Taylor Swift’s first few albums are worth $300 million in the modern, institutional investor-driven business, you have to wonder — what could the first few albums by Drake, The Beatles, Michael Jackson, Whitney Houston, U2, Madonna or Led Zeppelin fetch?
Shamrock might just have lit the blue touch-paper on an acquisition frenzy that quickly escalates multiples on master rights. Eventually, that could leave the firm’s buyout of Swift’s music looking less like a blooper, and more like a bargain.
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.