David Guetta is the latest addition to a growing number of artists selling their musical rights. The French superstar is said to have earned around $ 100 million from the sale to Warner Music.
Why have so many artists recently sold their rights for such large sums of money? And what exactly are they selling?
Who sells, who buys?
Bob Dylan ($ 300-400 million), Neil Young (unknown), Stevie Nicks ($ 100 million), Paul Simon ($ 250 million), Imagine Dragons (> $ 100 million), Shakira (unknown), Lindsey Buckingham (unknown), Calvin Harris ($ 100 million), Red Hot Chili Peppers ($ 140 million) and the list goes on. And more offers are to be expected; Noel Gallagher could be the next to sell his rights.
In recent years, many famous artists have sold (part of) their rights. Some sold their rights to existing publishers (eg Bob Dylan and Paul Simon), while others sold them to investment funds such as Vine Alternative Investments (eg Calvin Harris) and Hipgnosis (eg RHCP ).
Especially the latest fund (Hipgnosis) frequently appears in the limelight. If this is not because of yet another purchase of a catalog of rights from an international musical legend, then because of the announcement of new injections of capital to be able to acquire even more rights. Since its inception in 2018, Hipgnosis has spent over $ 2 billion on rights catalogs. The fund is reportedly already worth over $ 2.21 billion.
The music rights market is also of interest to private investors. Earlier this year, one of the world’s largest private equity funds, KKR, announced a collaboration with BMG to make its debut in the world of music rights investing. KKR and BMG immediately set aside an investment budget of at least $ 1 billion.
The trend of music investment funds has also spread to the Netherlands, where Pythagoras Music Fund (founded by famous composer John Ewbank and others) has been active since the beginning of this year.
What exactly are artists selling?
The burning question is: what exactly are all these artists selling for these big sums of money? The media often report that artists have sold their “music rights” or “music catalog”. Sounds good, but what does it entail? In practice, this seems to differ from artist to artist to some extent.
It seems that, so far, most of the cases relate to the sale of copyrights (or at least the right to profits from their exploitation). In other words: the rights of composers regarding music composed by them and the rights of songwriters regarding lyrics written by them. This, for example, seems to be the case for Bob Dylan, Paul Simon and Shakira.
In other cases, artists only sell a certain part of their musical rights, namely the publishing rights. This means that they remain owners of part of the copyright, namely their so-called writer’s part.
In still other cases, it is not a question of copyright, but of the sale of neighboring rights, or neighboring rights. These are the rights to a certain performance of the musical work (for performers) and the rights to the recording of the musical work (for music producers or record companies). The last mentioned rights are also called master rights. It seems that David Guetta has sold his neighboring rights to Warner Music.
Well-known record producer Jimmy Iovine (record producer and engineer for artists such as Bruce Springsteen, Tom Petty and U2, plus co-founder of Beats by Dre) sold his rights as a record producer (presumably the rights neighbors that have been assigned to him).
In addition, some artists sell not only the rights to already existing music, but also the obligation to assign the rights of future music to the buyer (Lindsey Buckingham will assign 50% of future copyright to Hipgnosis and David Guetta and Warner Music have also agreed to certain arrangements for future recordings). Often, additional deals are made as well, such as the deal between Stevie Nicks and Primary Wave on the basis of which they have entered into a joint venture to sign new songwriting talent. Imagine Dragons sold its copyright share in its copyright, but also part of its publishing rights, while the other part of its publishing rights remains in the possession of Universal Music Publishing.
What often happens is that artists don’t sell all the rights they own. Some artists only sell part of their catalog, while others only sell a certain percentage of their rights. Neil Young, for example, only sold 50% of his rights and kept 50% for himself. Stevie Nicks sold 80% and kept 20%.
How is the purchase price established?
The amounts that some investors are prepared to pay for catalogs of rights are enormous. The purchase price is often calculated using what is called a multiple, ie: X times the (average) annual income generated by the exploitation of the rights concerned. For Bob Dylan, Neil Young, Stevie Nicks and RHCP, the multiple would be 25 to 28 times annual income. In the case of Paul Simon, we even say that the multiple is 30. Presumably, the multiples are calculated on the average income of several years (probably the last years); Ultimately, validation is based on a combination of past results and expected successes in the future. Before establishing the purchase price, artists will therefore need to provide an overview of their administration and profits over the past few years. The buyer will need to conduct a due diligence investigation in order to be able to establish how much revenue certain songs have generated in the past.
Why are all these artists suddenly selling their rights?
The sale of rights catalogs has become a booming business in recent years. This has several reasons, of which I will mention a few:
- Instant income: the first reason is the most obvious. The sale of (part of) your rights is instant cash in the bank for the artist. This means that you don’t have to expect fluctuating profits from year to year. You receive a large lump sum payment, which gives you short-term certainty. You will never know in advance if you would have made the same amount of money by keeping the ownership of the rights (the market could collapse, your music could become less popular, etc.). The downside is of course that after the sale you cannot profit from any possible increase in popularity or income. That is, if you haven’t kept some of the rights for yourself, of course. An artist can now earn millions of dollars in one case when he is not sure if he could achieve the same over a longer period of time. In addition, age can be a factor for some artists; Maybe you would rather make a quick $ 100 Million when you’re eighty rather than wait for a big chunk of the profit to come in when you’re already dead.
- Prevent battles over inheritance: a second reason is that artists want to prevent their heirs from fighting over the exploitation of rights. By selling their catalog before their death, the potential conflict is limited to the distribution of money. This may be easier to resolve in a will than a plethora of rights scattered all over the place. In addition, the artist is then able to decide for himself what exactly happens to his rights. For example, Noel Gallagher joked the following about negotiations with Hipgnosis over the sale of his rights: “My fear is to leave it to my children and they will exchange it for chocolate ice cream or a Playstation.“
- Profits from the exploitation of musical rights increase: A third reason is that the profits from music rights have grown rapidly in recent years, especially since the introduction of streaming. After the (illegal) downloading revolution and the slow death of CDs, part of the music industry was declared dead. However, the revival has been so strong that the profits from recorded music are now higher than ever. The Covid-19 pandemic has contributed to this, as demonstrated by the most recent substantial increase in streaming (and vinyl sales) in the United States. Higher profits mean more interest from investors, who see music rights as a relatively safe long-term investment.
- Fiscal advantages: a fourth reason – and not negligible – seems to be that the sale of musical rights (at least in the United States) could constitute a tax advantage. Apparently, the sale of rights is seen as a source of long-term financial profit in the United States, which is taxed significantly less than the profit generated by royalties, which are considered “regular” profit. Additionally, Joe Biden has proposed changes to the tax law that could result in higher taxes for artists. By selling their music catalog now, artists can prevent their income from being subject to these higher tax rates.
- Money problems: a fifth reason is linked to the first: some artists may encounter cash flow problems, possibly linked to the Covid-19 pandemic and / or spending habits, etc. After all, the profit generated by live performances seized to exist almost completely and for many artists this was precisely the greatest source of income. In such circumstances, an artist may be forced to sell their rights immediately to provide financial security.
Many artists will follow
For the moment, no end to these developments is in sight. Presumably, even more artists will sell (some of) their rights to investors in the years to come. I am also expecting the first public announcement of the sale of a rights catalog in the Netherlands shortly.
Noel Gallagher already knows what to do with the profit of a potential sale, when it happens:
“What are you doing? Leave it to your children? They don’t value music. Or do you take the £ 200million and buy yourself the superyacht and the Learjet and go, “Fuck it, come on! I think the latter. I’m going to buy a superyacht, I’m going to call it ‘Mega Mega White Thing’. I’m going to spend a year at sea. People can come and visit. I’m going to pull out my hairdresser, Neil, and pay £ 40,000 for a haircut. I will have a leader.“