The Ongoing Gold Rush in Music Catalog Sales
Bob Dylan, Bruce Springsteen, and Stevie Nicks. Acclaimed musicians, iconic cultural figures and a few of the many artists who have recently sold copyright ownership in their songs. And the sums paid for such music catalog rights have been downright dizzying. The Nobel Prize-winning Dylan signed away his copyrights for nearly $400 million. Springsteen, the swashbuckling balladeer, sold his catalog for roughly $550 million. Nicks, of Fleetwood Mac fame, exchanged her copyrights for nearly $100 million. All told, roughly $5 billion was spent on catalog and rights acquisitions in 2021. These staggering figures are primarily a function of investors entering the space as they recognize the value proffered by such publishing rights, as well as myriad externalities that have prodded musicians to sell.
For some background, every piece of music has two copyrights attached to it – the publishing (songwriting) and the master (recorded performances of compositions). Notably, the recent boom in music catalog sales has been concentrated in the publishing space. Unlike master copyrights (commonly owned by record labels), the writer of a composition generally owns their share of the publishing outright. Such publishing copyright holders receive royalties and licensing fees whenever their compositions are streamed, sold, synched (that is, used in a movie, TV program, or ad), or covered by another artist. Thus, publishing copyrights are lucrative and perhaps the most powerful copyright retained by recording artists.
Investors’ interest in music royalties can be partly attributed to streaming services enabling artists to benefit from the on-demand streaming structure which has increased the revenues songs can generate. Users listen to a more varied selection of music (and more music in general) when they have access to everything. For instance, between 2015 and 2020, global streaming revenues grew at a 42% compounded annual growth rate. Music publishing royalties also offer a stable income stream not directly correlated to other asset classes. In 2020, the 10-year U.S. Treasury yield was 0.7% and the S&P 500 Dividend yield was 1.8%. In contrast, that same year, Royalty Exchange (a platform for buying and selling royalty assets) reported that the average annualized return for catalogs it sold exceeded 12% and the Mills Music Trust (a publishing company receiving recurring royalties from songs it owns) had a dividend yield of 9.6%. Simply put, music listeners feverishly consume their favorite artists’ music (and thus generate streaming revenue) irrespective of what is happening in the outside world. Further growth potential also abounds, as forecasts posit that paid music streaming will generate ~$30bn by 2030 (up from the $18bn generated in 2018). Likewise, as of 2019, there were only 341 million paid streaming accounts, a mere 11% of the 3.2 billion global smartphone users. For these reasons and more, investors are rapt by music publishing catalogs and are insatiably clamoring to invest in the space.
Similarly, artists have lately had sound reasons to part with their publishing catalogs. Some artists, desperate for supplemental income, sold their catalogs when touring revenues (a sizable portion of artists’ incomes) ground to a COVID-induced halt in 2020. Such sales also provide artists with enhanced estate planning control, in that they can ensure that their heirs are taken care of financially. This is particularly appealing due to the 2006 Songwriter’s Capital Gains Equity Act, which allowed catalog sales to be treated as capital gains (a lower tax rate than for traditional income). In the same vein, some publishing sellers are wary of tax rate increases that the Biden administration may yet bring. The administration’s proposed tax plans include aligning U.S. capital gains tax with that of the income tax for any $1mm+ asset sale, which would in effect move the catalog seller tax rate from ~20% to ~37%. Lastly, many artists are selling directly due to the heated market for such assets. The myriad private equity and other investment funds keen on buying catalogs has led to skyrocketing purchase multiples that are paid for catalogs.
Thus, this potent combination of bullish investors cognizant of the strong investment value possessed by publishing copyrights, coupled with strong externalities that have incentivized musicians to sell these rights has led to an environment akin to a “gold rush.” As music consumption (via TikTok, streaming services, etc.) becomes more common and perceived by consumers as a necessary component of life (and not a discretionary purchase), the space may continue to experience a rapid growth in revenues. Ultimately, publishing copyright sales may represent a way in which financial markets and the music industry can intertwine, making sweet music for all involved.