Why companies are eager for massive music catalog deals
Music superstars are taking advantage of a booming market.
Justin Bieber joined a growing list of iconic singers on Tuesday who struck mammoth deals to sell their music catalogs — or, in some cases, their masters — for hundreds of millions of dollars.
Song management company Hipgnosis said it acquired the rights to Bieber’s entire music catalog in an acquisition that “ranks among the biggest deals ever for an artist under 70. years”. Although terms were not disclosed, Billboard reported the price to be $200 million.
The news comes amid a larger trend — one that’s been on the rise since Merck Mercuriadis founded Hipgnosis in 2018 and began buying rights to legendary tracks. “What I wanted to do on behalf of the whole songwriting community is really establish music as an asset class and create a market,” Mercuriadis said Tuesday, equating the value of hit songs to the gold or oil. “I wanted to demonstrate to the financial community that these great proven songs have very predictable and reliable earnings and are therefore investable.”
Mercuriadis has certainly helped lead the way in this regard. In recent years, generational stars have signed nine-figure deals to cede the rights to their catalogs. Bruce Springsteen sold his masters and publishing rights for $500 million. Bob Dylan sold his catalog for $300 million. And young artists got in on the action too, with singers such as John Legend and Iggy Azalea striking deals.
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So why are these transactions taking place in recent years? For several reasons.
The age of streaming has made music more valuable than ever. At first, Top 40 stations exerted a strong grip on music sales, sending fans to stores to buy physical CDs of their favorite artists. Today, services like Spotify and Apple Music have revolutionized the music industry. And it is a business that is still ahead.
“The streaming market, especially if you think globally, has grown steadily,” said Serona Elton, a former recording executive who now teaches as a music industry professor at Frost. Miami University School of Music. “It has expanded into new markets as the costs of cellphones, wifi and cellular services come down.”
At the same time, the pandemic has deprived artists of touring income, forcing them to seek other lucrative opportunities to expand their source of income. And the poor economic conditions created by the pandemic have helped business people realize that music is a “recession-proof asset,” Elton said, explaining, “Even if someone loses their job, he always listens to music.
Mercuriadis agreed wholeheartedly, saying, “Our emotional barometer as human beings is married to music. If we’re living our best life, we’re doing it to a soundtrack of music. And, likewise, if we are challenged, whether by a pandemic or inflation… we comfort ourselves and escape with these songs. Songs are always part of our lives.
Finally, there’s the newer TikTok factor. Short-form video apps have accelerated music discovery by sending older tracks viral, driving streams and causing spikes in downloads. That is to say, songs from the past are experiencing a resurgence in popularity.
All these factors are heating up the market. The Wall Street Journal reported that investors and music management companies “buy catalogs up to 30 times their average annual royalties.”
Elton indicated that there is a risk for these artists to sell to relatively new companies, such as Hipgnosis. Unlike traditional companies, these new companies do not have a long track record in music management. “Those of us who aren’t involved in buying and selling, but are watching, wonder: how is this going to play out over time?” asked Elton.
But Mercuriadis argued that not only does he “manage these songs with great responsibility,” but that his boutique-style business is a better steward than the old record labels. Labels, he said, often have a disparate set of goals, including creating new hits, which could distract them from the singular mission of managing older music. And, Mercuriadis noted, they run massive libraries — not a narrower library of highly concentrated hits.
“We’re fully focused,” he said, “on dealing with tried-and-true songs from the past.”
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