Rolling Stone recently heralded Biden and Harris as offering “progressive solutions to every major problem facing the country”. It appears a majority of music’s most successful superstars agree. (No, not you, Kanye.)
Beyoncé sent her congratulations to America’s new leaders on November 8th. Earlier in the week, Ariana Grande suggested that November 3rd was a “beautiful day to vote for Joe Biden + Kamala Harris”; Taylor Swift long ago came out in support of Biden, while everyone from Stevie Wonder to Billie Eilish campaigned for Donald Trump’s ultimate vanquisher in the run-up to the election.
Behind the scenes, leaders of the commercial music industry, with its power bases in Los Angeles and New York, generally seem just as happy with the U.S. election result as their biggest pop icons, judging by the feedback I’ve received from every senior exec I’ve spoken to in the past few weeks.
Yet there’s one thing that many in the music market aren’t quite so excited about when they look forward to Biden’s presidency — and it’s going to lead to a flurry of big-money deals in the next 70-odd days.
If you read my regular columns here, you’ll be well-versed in the current boom in catalog music rights sales. The likes of Hipgnosis Songs Fund, Round Hill Music, Concord, Primary Wave, and others have raised billions of dollars in acquisition capital in the past couple of years, and spent it on buying up music rights, at prices (and at multiples) never before seen in the music industry. What this ultimately means is lots of professional songwriters and producers selling their music catalogs, forgoing their future royalties for a big upfront check. One little-mentioned motivator behind this avalanche of sell-offs — in addition to those big multiples, and those big checks — is the tax perk of doing so.
By selling a catalog to a fund or company, songwriters are transferring an owned asset for monetary value. As such, they have to pay a one-time capital gains tax on this asset. Under the Trump administration, that usually meant handing over around 20 percent of the sale price (as a long-term capital gains asset) to the U.S. government.
Annual royalty payments are taxed differently, depending on the individual structure a successful artist or songwriter has, and can often incur far higher rates of U.S. taxation than this 20 percent ballpark. That’s especially true if the royalty income is counted within the personal income tax liability of a high-earning star. (The top-earning bracket of income tax in the States currently carries a 37 percent rate.)
Here’s where things get interesting. According to Biden’s campaign website, the president-elect is planning a major change to capital gains taxes in the U.S., by “asking those making more than $1 million to pay the same rate on investment income that they do on their wages.” Judging by a study from the budget hawks at the Committee for a Responsible Federal Budget (CRFB), via Reuters, this means that the capital gains tax rate for any songwriter selling a catalog for more than $1 million could increase from 20 percent to 37 percent if Biden’s tax plan becomes law.
I checked in with a couple of megabucks-backed, frequent acquirers of copyrights in the U.S. industry over the past few days, and, sure enough, it seems that music publishing catalog holders are very clued up about this potential change in the tax code. I’m told that acquisitive company inboxes filled up on Sunday, less than 24 hours after Biden’s victory in the election was called in news reports. Catalog holders are very keen to close multi-million dollar deals before Trump leaves the White House. (He is going to leave, right?)
Merck Mercuriadis is founder of Hipgnosis Songs Fund, which has spent more $1 billion in the past two years alone on buying copyrights and song royalty streams. He also has a strong track record as a politically progressive music executive (see his advocacy earlier this year for the killers of Ahmaud Arbery to be brought to justice in Georgia).
Texting me his thoughts on Biden’s election over the weekend, Mercuriadis was clearly thrilled with the result. However, he also noted the potentially chilling effect that Biden’s capital gains plan could have on songwriters’ willingness to cash in on their catalogs in the years ahead.
“There’s jubilation in the creative community with the Democratic victory, but also still some concern it will bring an end to [preferential] capital gains treatment and a higher tax for songwriters selling their assets,” says Mercuriadis. “We are hopeful that in the long run the Biden administration will look favorably on the important contributions of the songwriting community and not make any adverse changes.”
Biden’s tax plan would still need to pass both houses of U.S. Congress to become law, which means any change in the tax code could be many months away. It’s also important to note that Biden’s proposed plan aims to help working families with new tax credits for child care, elder care, health insurance, and home ownership; his proposed increase on capital gains exceeding $1 million is part of that broader agenda — one that many of those earning millions for their songwriting catalogs support.
In the short term, though, look for substantial music catalog sales to speed up in anticipation of Biden’s tax plan becoming a reality.
“We are still months away from knowing whether the new administration will have a mandate to control the Senate and we therefore do not expect any changes anytime soon,” Mercuriadis adds. “In the meantime, we are working hard to close our deals before the end of the year as regardless we want our great songwriting community to have peace of mind.”
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.