Sing for your supper: How music rights became the smart play

A catalogue buy-out craze, new licensing methods and a surge in streaming have seen Bruce Springsteen, Taylor Swift and Justin Bieber cash in on a music rights revolution. Muireann Bolger finds out more.

There seems to be no shortage of musicians or late artists' estates willing to part ways with back catalogues.

At first glance, it’s not hard to see why. An unprecedented market demand for star-making tunes, the advent of digital streaming and some eye-watering offers have transformed the way music IP rights are viewed and treated.

Last month, Sony Music Group agreed to buy half of Michael Jackson‘s publishing and recorded masters catalogue in a deal that is said to be somewhere in the region of $1.5 billion—the largest sale so far in a market that has already seen some remarkable figures.

In December 2021, ‘the boss’ aka Bruce Springsteen sold his master recordings and publishing rights to Sony Music for more than $550 million. Two months later, folk singer Bob Dylan offloaded his entire back catalogue to the same entertainment conglomerate for an undisclosed amount.

David Bowie’s estate followed suit a year later by selling to Warner Music Group.

Then the most startling deals to date. Last year, at a couple of years shy of 40, Katy Perry sold her back catalogue to Litmus for $225 million, while Justin Bieber—aged just 28—relinquished his music rights to Hipgnosis Songs Capital for a reported fee of $200 million.

Merck Mercuriadis, founder and then chief executive officer of Hipgnosis Song Management, said at the time of Bieber’s deal that: “this acquisition ranks among the biggest deals ever made for an artist under the age of 70”.

New revenue streams meets new law

But what exactly is fuelling these deals and what implications do they have for future music rights?

As Guy Henderson, president of International at Sony, tells WIPR, several factors are at play.

“It’s a very active area of our business because the values for music generally have gone up a lot in recent times,” he explains.

And thanks to streaming growth, the promise of long-term digital revenue has further whetted the appetite of buyers.

Cast your mind back to 2022—a milestone year for the music industry. Global royalty collections for songwriters and composers reached a record high of €10.8 billion ($11.7 billion), marking a 28% year-on-year increase, according to the Confederation of Societies of Authors and Composers (CISAC).

What’s more, digital beat broadcast for the first time to become the industry’s largest global income stream, as users flocked to music streaming platforms such as Spotify, Netflix and Twitch.

And a new law has increased the tempo within the marketplace.

With the introduction of the US Music Modernization Act in 2018, the Mechanical Licensing Collective emerged to collect royalties from digital platforms on behalf of copyright owners.

As Michael Poster, chair of music acquisitions and financing and a partner in Michelman & Robinson, explains: “It made the process of collecting that income much more accurate and reliable. And so it created this significant uplift in royalty income—when you have more efficient collections and higher rates, that means more money.”

These developments, adds Henderson, mean that forecasts for the future values of music copyrights and catalogues are looking rosy.

And where strong assets emerge, venture capitalists are never far behind. In addition to Hipgnosis, investors such as Primary Wave and Helios Towers have entered the fray.

A shift in attitudes

On the face of it, such buy-outs aren’t exactly new. As Henderson points out: “People have continuously sold catalogues over the years, but recently a lot of big artists sold them in a relatively short period of time which has obviously dominated the airwaves”.

But rewind even 15 years ago, and things looked quite different.

Poster says catalogue buyouts “were only really available to well-established or ‘legacy musicians’.” And even then, they faced accusations of auctioning their artistic integrity in tandem with their catalogue.

As a result, the sale of any magnum opus tended to be done in secret to avoid the ire of fans and fellow musicians alike.

“Selling a catalogue was, in many cases, looked down on,” adds Poster.

Not anymore: increasingly, the catalogue buyout craze of recent years has offered many artists’ unparalleled opportunities for financial planning.

“The closest equivalent is the real estate model, for example, if you're sitting on land that's very valuable but is illiquid,” explains Poster. “However, if the underlying asset has a lot of value, you can potentially monetise that while you can, and then take that money and use it for other things.”

For older, more established artists, it removes a potential headache further down the line.

According to Laurie Soriano, head of KHPS Law music department and co-chair of entertainment industry practice group, “a lot of artists realise that in some ways it is easier to bring in a large sum of money and manage the money itself”, rather than to manage the actual music.

“Some legacy artists would rather sell and let their heirs be left with financial assets rather than having the heirs bear the responsibility of managing the musical assets,” she explains.

If the price is right

In the case of artists at their peak—Perry and Bieber spring to mind—it seems that many have decided that both youth and opportunity are on their side.

What’s more, adds Henderson, if an artist is still generating music, there’s no reason why they can’t start again and sell a second batch of copyrights in 15 years time.”

This route for artists, he adds, has long been the norm in regions outside of the west, particularly in Southeast Asia.

“It’s not seen as unusual or newsworthy in some Asian countries. A songwriter sells his or her work after say five years of administration by a publisher and may do the same five years later. It has become fairly standard practice,” says Henderson.

Poster agrees, providing his own telling anecdote.

“I represented a prominent, young songwriter in the sale of his catalogue. Somebody said to him: ‘So after you sell this catalogue, what are you going do tomorrow?’”

His reply: “I'm gonna go off and write some more hits.”

“And that’s exactly what he did”, laughs Poster. “Since then he's penned a string of number one hits for other people”

The dotted line

As ever, the devil is in the detail, and recording contracts can have quite different IP terms depending on the negotiating power of the artist.

Jowanna Conboye, partner at Spencer West, is particularly aware of the pitfalls that wrongfoot naive musicians, given that she represents artists at the start of their careers—as well as small independent record companies.

“Earlier on in their career, an artist may have agreed to transfer the ownership of the copyright in the ‘master recordings’, ie, the original recordings of songs to the record company and the sometimes even copyright in the musical arrangement and lyrics of the song itself (if the artist wrote it),” she explains.

“It’s quite common for this to happen when the artist is young, and there's big money on the table and pressure. There's a big moral argument about how the record industry does such things. That’s why we work with emerging artists to ensure they are getting a fair deal.”

Indeed, for every artist who has negotiated a savvy deal, there are more who have bitterly regretted signing on the dotted line.

“Some feel this way because they end up regretting the loss of control over their art and some because they realise that they would have made a good deal more money if they’d held on to their art,” agrees Soriano.

A swift masterstroke

Unsurprisingly, Henderson takes a pragmatic stance.

“The world has changed rapidly in the world of music, but you do have to take a view at the time that you are valuing a catalogue,” he says.

“If you sold or bought a catalogue back in 1985, there's no way in the world you could predict that one day films would be streamed to a television, or that music would be available on a mobile phone that you carry around with you.”

In some cases, artists have used innovative IP approaches to tackle thorny issues concerning past deals—with global superstar Taylor Swift delivering a masterstroke.

In 2019, Swift fired a broadside at her former record company when she announced she would be re-recording her first six best-selling albums in their entirety to regain control of her work.

As Conboye explains, Swift signed with the record label Big Machine when she was 15, transferring the rights to her master recordings.

“This gave Big Machine the right to licence Swift’s recorded songs for adverts, television and films as well as gaining the profits from plays of those songs on streaming services across the world,” she adds.

Swift later joined Republic Records, part of Universal Music Group, in 2018, negotiating a new deal giving her ownership of all her work.

Following a protracted battle with equity firm Shamrock—which had bought Big Machine’s catalogues, including Swift’s—the singer threw down the gauntlet to the private equity firm and began re-recording.

On Instagram, she wrote at the time: “I do want my music to live on. I do want it to be in movies, I do want it to be in commercials. But I only want that if I own it.”

For music pundits it was an inspired and unprecedented move.

“I would love to have been in the room when they made that decision,” laughs Conboye. “I don't know if it was her idea, or whether it was her IP lawyer’s. But it was so out there at the time, and brilliant.”

But few musicians have the same financial clout as Swift, so Conboye cautions that any deal–no matter how enticing–demands forensic scrutiny.

“Entering into a contract with the wrong company or person could really backfire depending on the artist, and how much they care about their reputation,” she warns.

Buyer beware

But buyers, it seems, should also tread softly in this market.

For instance, Hipgnosis—arguably the world's best-known music IP investment and song management company—saw a sharp reversal in fortunes last year following a slew of catalogue deals.

When the City of London gave sharp shrift to its music royalties business model in the face of high interest rates, shares tumbled fast.

The investor was then forced to propose selling some of its catalogues for $440 million to Hipgnosis Songs Capital—a private company owned by asset management giant Blackstone.

In January, the embattled music investor called for a shareholder meeting to vote on “a special resolution” that could help the company come out of limbo and draw potential bidders.

Given this salutary tale, the big question is whether the market for music rights is bubbling towards bursting point.

Not anytime soon, is the firm answer echoing across music IP circles.

Poster does, however, concur that: “There has been retrenchment in parts of the industry, partially driven by high interest rates and the fact that the most prominent buyers such as Hipgnosis and others have pulled back from their acquisition activity.”

No shortage of interest

But while the fate of Hipgnosis may hang in the balance, it doesn’t appear to have tempered the enthusiasm of prospective buyers.

“New market players as well as new funds are coming in every day, whether it's private equity or banks,” says Poster.

“There's no shortage of interest and I'm hard pressed to think of what would cause a bubble burst scenario to happen.”

“There are a lot of buyers who are still looking for catalogues,” chimes Soriano. However, she strikes a more cautious note than Poster.

“Because interest rates have been high over the past couple of years, the prices on offer have come down, so the market isn’t as exciting as it was a few years ago,” she says.

Also, she adds, some of the world’s most valuable catalogues have already been purchased, so the number of deals will likely go down “because you can’t just replenish the supply of truly fabulous catalogues that were available”.

Henderson, however, remains unruffled.

“It has gone a bit quieter, but interest rates change,” he says. “So if we get back to low interest environments, it could easily turn up again.”

He believes that time is firmly on the side of this particular buyers' market.

“There are still, and always will be, some big names around,” he says. “After all, the next big names are being created as we speak, and more will be made tomorrow.”