From Copyrights to Capital: How Big Money is Changing the Music Publishing Landscape
You can’t find the hottest trend in music on the Billboard Hot 100, Spotify, or Tiktok, since it is instead being remixed on the accounting books of JP Morgan and Goldman Sachs. The capital being invested into the purchase of music composition copyrights (“publishing”) is at unprecedented highs, providing some artists with once-in-a-career windfalls and others with difficult questions about retaining ownership.[1] In the last twenty-five years, songwriting catalogs were sold at a price point of around eight to twelve times the net publisher’s share (the revenue generated by the songs, less any royalties paid to performers and songwriters).[2] In the last few years, however, valuations have grown to as high as twenty-five or thirty times the publisher’s share.[3] Bob Dylan and Bruce Springsteen alone have cashed their catalogs out to the combined tune of nearly a billion dollars.[4]
There is no definitive reason for the sudden influx of capital––it could just be a natural market response to renewed growth in music industry revenue since the worldwide adoption of digital streaming.[5] Some have posited that the ubiquity and consistency of music is attractive; even when the majority of the economy shut down during the coronavirus pandemic, people continued to listen and pay for music.[6] In this sense, publishing catalogs are attractive to investors because they are uncorrelated with general economic activity.[7] Many institutional investors may see publishing catalogs as a hedge against rising inflation and federal interest rates.[8]
The changing legal environment surrounding music composition copyrights may indicate investors’ betting on windfalls of their own over the next few years. The Music Modernization Act (“MMA”) was passed in 2018 and changed the system for payment and collection of “mechanical” royalties, public performance royalties, and royalty rate calculations.[9]
First, the MMA created a blanket licensing system for streaming services to pay mechanical royalties (part of the songwriting catalog revenue) to publishers.[10] If streaming services cannot match songwriters with their mechanical royalties, the royalties accrue with the MMA statutorily created non-profit, the Mechanical Licensing Collective (“MLC”), which works to distribute these royalties to copyright owners.[11] The MLC has more than $424 million of unpaid royalties that these owners may soon be entitled to.[12]
Second, the MMA changed the way in which rates for broadcasters to pay public performance royalties are calculated.[13] Now, these rates subject to market analysis by a rotating panel of judges.[14] Payouts are expected to increase in this market-driven royalty environment.[15]
Finally, in 2018, the Copyright Royalty Board (“CRB”) increased the rate that streaming services must pay to publishers by 44%.[16] While streaming services are litigating this increase, the CRB isn’t waiting––instead it is already holding its next rate setting tribunal that could increase this rate even more into the future.[17]
These changes in the legal and macroeconomic environment surrounding the music industry are just some of the possible reasons that big money has ponied up to purchase music composition catalogs in the last few years. For artists, the question remains: do you hit the high note and sell while prices are topping the charts, or do you keep your copyrights and hope to get paid for life?
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