Exclusive: Music rights, capital investment and the future
By Andrew Knoll
23:50, 17 December 2021
Musician Bruce Springsteen sold his catalogue of 20 studio albums to Sony Music this week for approximately $500m (£377.17), a story and figure first reported by Billboard.
The sum represents the largest on record for a music catalogue, surpassing the $300m deal struck by Universal for the copyrights to more than 600 of Bob Dylan’s songs last year. There's been a period of frenetic activity surrounding the purchase of publishing rights to artists ranging widely in age and musical style in recent years, from Paul Simon to Lil Wayne.
In an exclusive interview with Capital.com, industry innovator David Pullman, who first securitised publishing rights in the 1990s in a landmark arrangement with artist David Bowie, discussed why investors have been so keen on catalogues and why artists have become increasingly amenable to sales arrangements.
“It validates everything we did with the original Pullman Bonds,” Pullman said. “This was a great asset class: music, entertainment and other intellectual property. We’re seeing these deals happen one after another.”
Why has demand increased?
The deals can allow artists, who typically have a five-year creative peak, to liberate themselves of any uncertainties related to the industry, such as what occurred during the Napster era of free downloading or, more recently, when the pandemic limited the earning potential of artists' live performances.
“You cannot look away from the magnitude of these deals. What is prompting the magnitude is that the multiples are much higher, and they will continue to rise,” Pullman said.
Pullman said that where other types of entertainment content, such as television and film, can become dated, music has greater potential to appreciate. He cited examples from the 1950s and 1960s, such as the Isley Brothers’ “Shout” and James Brown’s “I Feel Good” as songs that generate more revenue today than when they were released.
Large sales of rights have skewed toward singer-songwriters, who often wrote and recorded most of their music solo and retained ownership rather than sharing it with band members. The most bankable ouvres, Pullman said, have drawn the highest valuations and the greatest competition among investors.
“These catalogues are redwood trees, they’re not building another one of these overnight. You have the largest and most sophisticated private equity funds coming into the market and getting involved in music,” Pullman said.
Who is buying?
Private equity has entered the market, with plenty of music industry experience in the investment side. Legacy record labels like Universal and Sony have invested billions into rights purchases, and the marriage of executives and musicians begat companies like Hipgnosis, a venture capital outfit focused squarely on the music rights sector. Low interest rates, a robust equities market and a push for diversification have funnelled different types of investors into the music rights sphere, which is not tethered to the stock or commodities markets.
Music labels in particular have extensive evaluative data and a proximity to the product that allows them to gauge a firm pulse of the industry, and other players in the sector have attempted to bring that type of expertise into the fold as well.
“It’s not just hedge funds or private equity or traditional investors, you’re seeing the music majors get involved in it,” Pullman said. “They certainly know the music business and they’ve done acquisitions for years, so they’re making decisions.”
What makes the rights profitable?
The methods, platforms, modes of delivery and other characteristics of utilisation for music have also proliferated greatly in the digital age. Where once a collector would invest thousands of dollars into home stereo equipment and recordings, today YouTube and similar platforms dominate the mode of delivery by offering relatively comprehensive archives at little or no cost to users over their televisions, phones, computers and other multipurpose devices.
That shift has functioned as a sort of crowdsourcing with complex, multi-stream revenue sharing across technologies, platforms, services and modes of delivery. Sampling, interplots and other forms of cover recordings or mosaic compositions have also grown in prevalence and profitability since the 90s.
Meanwhile, the applications for music have grown across film, television, streaming services, advertising, corporate uses and a wide variety of ever-expanding applications, all of which generate revenue for rightsholders.
Music expanding as asset class
In short, Pullman said, intellectual property and music specifically is expanding as an asset class and its value has been rising. Even during a relatively dark period, the early- to mid-2000s when illegal file-sharing threatened the viability of the music industry, underlying demand for music was increasing, and the industry soon found new ways to monetise it.
Pullman will forever be linked to David Bowie, his first securisation client in 1996, who was a visionary in terms of valuing his music and seeing the potential of strong content going forward. Bowie, he said, bet on his future success rather than hedging against potential failure, as many artists did in the past
“David Bowie said ‘music could sell like water or electricity, like a utility,’ and it does,” Pullman said, pointing out that every radio, streaming service, satellite radio station, television commercial and film production pays for its music. “That’s true, but most of the time when people listen to music, they think it’s free.”
Although low interest rates have helped spur interest in acquisitions and uncertainties surrounding tax laws in the US and other developed nations may have gently nudged artists, the industry trend hardly seems transitory.
In the Springsteen deal, for example, the artist’s work generated an estimated $15m last year, but Sony, the parent company of Springsteen’s label Columbia, is banking on multiples continuing to rise. New applications such as the use of old songs in new recordings and, even more so, the ongoing increase in utilisation across a plethora of new contexts, may well validate those projections.
“All technology, over time, caused disintermediation. Talking films versus silent films, the record then the 8 track then the cassette then to CDs to digital downloads and streaming, they all disrupted music,” Pullman said. “We don’t know what media will be next but certainly history has shown that there tends to be new media.”