Inside the Boom of Catalog Sales and Music Royalties
Bob Dylan sold his entire music catalog to Universal Music for more than $300 million, Paul Simon sold his to Sony Music for roughly the same, and Dolly Parton might be next… What’s the cause behind this sudden boom?
Though these recent multi-million dollar deals seem to be popping up out of nowhere, the truth is, catalog sales have been booming for far longer than the past year, and have an incredibly steady history. Over the past year, however, there has seemed to be an exponential increase in music catalog sales. Could this be due to the pandemic shifting the spotlight away from the live music and entertainment aspect to a new side of the industry?
In a recent Excelsior webinar, music industry experts joined our founder, Brian Adams, to explore specific factors that have driven recent success in the industry.
Topics that were discussed:
- Copyrights as an asset class
- How do companies value catalogs?
- Who are the buyers/sellers?
- What is the reason for sudden demand?
- How companies differentiate themselves in the market
Has this been the year of catalog sales?
As equity continues to flow into the music space, many are questioning whether this has been the year of catalog sales. With many big-name artists selling their catalogs, it certainly has been a significant period for the industry as a whole. We brought in industry experts, John Ozier, Paul Steele, and Andy Moats, to discuss the cause behind the recent boom.
John Ozier is the Executive Vice President at Reservoir and former hit song writer, and he was able to provide great insight from both the buyer and seller sides. Our next panelist, Paul Steele, is the Executive Partner at Triple 8 Management, Principal at Good Time Entertainment, and Broker at Music IP. Our last panelist, Andy Moats, is the Executive Vice President of Pinnacle Bank, where he runs the music, sports and entertainment group here in Nashville.
The Cause Behind the Recent Boom
Ozier took lead of the conversation, saying “In the last two to three years, people have really seen copyrights, whether that be on the publishing side (lyric and music), the masters (sound recording), or the royalty income participation (producer, artist), really become known as an asset class… In the last month alone, there’s been $2.5 billion of private equity coming into the space, and that’s just including the ones we know about.”
As catalog sales have become an increasingly sought after asset class, there have been a few additional factors that have catapulted these investments to the top:
- Low interest rates
- The pandemic forcing artists to find options besides touring to bring in money
- Capital gains potentially changing
- Favorable legislation issues: “There was recently a $454 million collection of the music monetization act. Congress is the dictator of how this art is valued, and this is going to guarantee that publishing is worth more for the next five years,” Steele shared.
- Monetizing the art of music: “The music industry is just now an industry. Before the private equity money came in, and before Spotify, the entire entertainment business contributed less than 1 percent of the GDP to America… We’re monetizing art that’s been free for thousands of years.”
Streaming is Driving Growth Right Now
In today’s environment, it has become incredibly easy for artists to collect money from their songs. For both buyers and sellers, now is a very exciting time for the industry as a whole. There’s multiple new ways to make a profit, whether it’s from streaming, social media, new products like Peleton, etc., there’s a variety of platforms that didn’t exist until recently.
Streaming, in particular, has been a catalyst for success in the industry. Steele shared that most people aren’t aware that, outside of the United States, streaming platforms like Spotify and Apple Music are just now onboarding. Emerging markets implementing these platforms are going to play a huge role over the next few years.
When is it the Right Time to Buy or Sell?
The beauty of the music industry is that each buyer is looking for something different; the trick is to find the right IP that will sustain over time.
Moats started off the conversation on buying and selling by saying, “There’s a lot of left to center stuff that can be really stable, as well, and trades at lower multiples. You hear about the Bob Dylan’s of the world, but sometimes there’s an equally interesting case for some of these left of center assets.”
In terms of return on investment, you have to back up and look at the various players on the equity side in this space. “Ten years ago, it was a very mom and pop business. Today, there are many major private equity players in terms of investment and music IP.” Moats is seeing this playout first hand, with 2-3 inbound calls per week from institutional investors looking to place millions, even billions, of dollars into the space.
Ozier also gave insight into how Reservoir typically handles buying and selling: “Typically what we do is take a 3 year average. There’s a huge amount of data from a ton of different sources, whether it’s Apple, Spotify, Amazon, labels… you’re getting tons of different sources from where royalties come. At Reservoir, we like to work backwards; we look more at ROI… people like to look at multiples because it’s easier to digest. It depends on the asset. For me, when I was a country song writer, it takes an average of 40 weeks for a song to peak at number one, so around 9 months. They’re going to pay at a peak and then decay really quickly in the country market.”
The emotional component:
One important aspect to keep in mind is the emotions that come into play during these transactions. Ozier says that “For a lot of people, it’s their heart and soul. When I sold my catalog, it was an emotional thing. We have this saying in our business that ‘a hit song changes everything’… if you have financial problems, marital problems, touring problems, whatever it is, a hit song in 3 minutes can change that.”
What does the future look like?
The panelists agreed that streaming isn’t going anywhere anytime soon. There may be a disruptor in the future, but for the time being, streaming will continue to grow. Technology is a double edged sword for the music industry; with the ease of production, it both accelerates growth and allows more accessibility for royalty income participation deals but can also cause a disruption as it continually changes.
The key takeaway for those looking to invest in the music space: Don’t bet everything on streaming or a single form of technology because the ways to monetize are just going to grow as technology expands.
If you are interested in learning more or have any questions, please do not hesitate to contact us.
The Ultimate Guide to Commercial Real Estate Investing
Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.
How Much Money Do I Need to Start Investing in Commercial Real Estate?
We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”
Benefits of Owning Commercial Property over Residential
While both types of real estate investments have their benefits, investing in CRE can be more advantageous for several reasons.
The Revolution That Wasn’t
How has technology impacted modern finance and created an asymmetrical relationship between Wall Street and individual investors? In this episode, we speak with Spencer Jakab, the author of The Revolution That Wasn’t and editor of the Wall Street Journal’s Heard on the Street column.
Tax Savings Secrets: How Cost Segregation Analysis Can Save You Money
How can cost segregation analysis help real estate investors maximize their returns? In this episode, John Hanning explores the potential benefits of cost recovery studies and depreciation.
What is a Family Owner’s Manual and Do I Need One?
It’s time to make sure you and your family are set up to continue success for generations to come. Today, Josh Kanter shares his journey transitioning from practice as a transactional attorney to reorganizing his family’s activities under a single-family office.
Key Characteristics of High-Performing Family Offices
Are family offices becoming more popular? In this episode, Robert Daugherty dives into the importance of having a functional family office, and the role of the Chief Learning Officer in it.
Talking to Your Parents about Their Finances
As your parents age, you may find that you want or need to broach the often-difficult subject of finances. In this episode, Cameron Huddleston, an award-winning personal finance journalist, discusses how to have meaningful conversations with your parents about their finances.
Pros, Cons, and Features of Robo-Advisors for the Wealthy
Learn how to amass wealth – the right way, for you. In this episode, Barbara Friedberg, a former portfolio manager and university investments and finance instructor, delves into how robo-advisors have revolutionized traditional financial advisory services.
A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.
Interested in learning more about Excelsior's investment opportunities?
Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.