Justin Bieber, Fleetwood Mac, Shakira, and Neil Young. What do all these artists have in common? Aside from having a classic discography, all of these artists have recently sold the rights to their catalogs for multi-hundred million dollar deals. In a trend that is turning the industry upside down, the buyers of these catalogs are investment firms. Let’s explore what is happening, who is buying the rights and why, the incentives for artists, and who is the winner in these deals.
Generally speaking, the value in a record boils down to the rights of the master recording, which is the literal music itself, and the publishing, which is the composition and ideas behind the song. The former is owned typically by a record label, while the latter is typically owned by a publishing company. Publishing rights are what is being purchased, and they lead to a pay out across a multitude of situations, including when a song is streamed, performed live, or synchronized to a tv show, movie, or commercial. Because record labels maintain ownership of master recordings, publishing rights have become a powerful tool for artists to gain significant financial leverage. Most major labels have coinciding publishing entities, but newer companies such as Hipgnosis and Primary Wave have entered the publishing space with a perspective similar to that of an investment company. Hipgnosis has been on a tear recently throwing lump sums of money at artists, including estimated deals of $200+ million with Justin Bieber, $140 million with the Red Hot Chilli Peppers, and $150 million with Shakira. Clearly, these companies see immense value in ownership of publishing rights, but why invest in music in the first place?
First and foremost, the greatest value of music investment is consistency. One thing that is similar between artists selling their rights is their music will always have its fans. Whether you enjoy the Biebs or not, you can’t argue that his music is beloved all around the world, and these companies recognize this will not change for a long time. As decades roll on, these artists’ music will continue to reap financial rewards because their art is timeless. Moreover, the revenue acquired through publishing is very stable compared to the rest of the economy. The COVID-19 pandemic caused a major hit to the global stock market, but streaming numbers rose dramatically. It’s nearly impossible to think of a scenario in which the demand for music consumption is tanked, and for that reason, ownership of publishing rights is a safe investment.
Aside from the security, publishing rights actually pays a high yield for an owner. Yield is a calculation of how much revenue an investment makes over a given period, and typically safer investments result in a lower yield. A secure investment into the S&P 500 typically maxes out at around a 4% yield; comparatively, music investment firm Royalty Exchange boasts a dividend yield of 12% (via Rollingstone). With stability, security, and high rewards, it’s no wonder why music catalogs have been an investment craze on Wall Street.
All this begs the question, if the rights are so valuable, why would an artist want to sell them? The easy answer is timing and convenience. There shouldn’t be any need to explain why making money as an artist is difficult; dozens of years of hard work for these world renowned musicians may not create as much income as you’d expect, with every paycheck taking a massive cut to the cogs of the industry. By selling their catalogs, these artists get a clean pay out that they can utilize to build their retirement and estate plans, liquidate the value of their creations, or release themselves from the financial pressure to tour their music. What these investment companies really have that the artists don’t is the time and patience to wait for the long-term returns of publishing ownership; if artists undersell the value of their catalogs but don’t have to deal with decades of slow gains, it starts to make sense why so many artists are accepting these deals.
So who comes out as the winner? Presently it’s hard to say. At the moment, it seems like a win-win for the two sides. Is it possible that these investment firms recognize the value of pub is actually much higher and artists are getting the short end of the stick? Absolutely. But this would hardly be the first time that talent gets taken advantage of in the music industry. At least this way, the artists are receiving deals that guarantee multi-generational wealth. We’re going to have to wait and see how these transactions fare in music history, but if one thing is for sure, it’s clear that these deals are going to play a major role for years to come.