Hello, hello I hope folks are enjoying the summer months and if you haven’t completed the short reader survey, I’d really appreciate it if you did. Otherwise, y’all know the deal. If you enjoy this newsletter, please forward it and recommend to friends, acquaintances, and even people you've never met. Now let's explore the subtly shifting world of song catalog purchases in 2022.
Over the last decade, many big-name artists (Justin Timberlake, Neil Young, Shakira) have sold off parts, if not all, of their recording and publishing rights for headline-grabbing sums of money. Back in 2020, I traced the early origins of this trend to banks financing large-scale music publishing acquisitions since the 80s, and narratives coming out of firms like the Hipgnosis Songs Fund about the potential of the song asset class. However, over the last few months, the foundation of this sales explosion is starting to shake. Persistent rising inflation from the aftermath of the Covid-19 pandemic led the United States Federal Reserve to raise interest rates, both of which represent a marked shift in monetary policy and economic winds that made music catalogs such an appealing opportunity for capital investment.
Earlier this year, Jimmy Stone, a managing partner at Alderbrook Companies, in his Substack explored the financial viability of music catalog purchases at this current moment. He raised a number of questions, less about the underlying assets, but rather about the high multiples being spent and holding higher scrutiny about what catalogs are and aren't worth investing. The piece closed by saying: “In a low-interest-rate environment, cash flowing music IP assets have been viewed as an attractive asset class. Over the past few years, deal activity has reached all-time highs. However, rising interest rates may have a significant impact on music valuations going forward. If buyers require higher rates of return going forward, catalog cash flows need to accelerate, in order to maintain the same purchase multiples...”
Well, if the economic and monetary forces that were leading to such marvelous evaluations are now facing headwinds, then let's look a bit closer at this market. Over the last few years, I’ve kept track of nearly all publicly announced deals for music catalogs and money raised for said acquisitions, and tried my best to backfill data. First, when examining how much money is being raised, there’s a noticeable uptick over the last decade, with 2021 ballooning to over $7 billion alone. That dramatic increase appears to be hitting a wall in 2022. (See the graph below)
There’s only been $1.5 billion raised for song catalogs with the vast majority of it coming from two deals between Influence Media Partners, Warner Music Group, and BlackRock, and Kobalt Music Group raising $550 million in debt with JPMorgan Chase and HPS Investment Partners. The former deal is curious because WMG only a few years ago worked with Providence Equity Partners to make Tempo Music Investments, which closed a few deals but seemed oddly quiet, and its former CEO Clarke Soares left to start HarbourView Equity Partners with a billion dollars from Apollo Global Management. The revolving door of money with these new funds might be slowing down. Slower fundraising is also starting to be mirrored in catalog sales.
In April, Bloomberg ran the headline: ‘The Music Catalog Boom May Be Coming to an End’. The story focused on the Michigan Retirement Systems, a state pension fund, struggling to sell Concord Music, an older player in this space of financialized song catalogs. The multiple billion-dollar price tag the pension fund sought looked less and less likely according to the reporting. Quotes in the piece cite similar concerns made by Jimmy Stone about why there may be a pullback investment. Below are two graphs, the first shows the number of reported catalog sales since 2012; the next looks at sales per month since the beginning of 2021.
Since March there’s been a marked drop off in deal public announcements, which happens to line up with when the Federal Reserve began raising interest rates. This is still fairly early data but it mirrors the reporting above, along with other financial data I’ve pulled. Warner Music Group, in its yearly financial report, mentions the amount of money spent on music catalogs and other expenses. Below is a graph that looks at how much they’ve invested in catalogs and other expenses since 2014. Again, the spike in money spent only began over the last few years.
This may account for why back in 2019 Warner partnered with Providence Equity Partners to create Tempo Music Investments, as the company wasn’t traditionally in the business of large-scale acquisitions. This thinking can also be seen in Sony, who in their Q1 2022 earnings statements said their primary interest is in top-tier artist catalogs, which their big-ticket buys from Bob Dylan and Bruce Springsteen bear out. (Though it should be said that Springsteen's deal was done in partnership with Eldridge Capital, so even then the company wasn’t willing to front the money alone.)
Even Universal Music Group, in their 2021 financial recap, showed a marked decrease in the sum of money spent on catalogs from 2020 to 2021 and were similarly skeptical of throwing large wads of cash at whatever catalog is put on the sales block. Major labels may be forced to keep an eye on important catalogs that may go up for sale, but unlike other firms in this space, they’re already sitting on the majority of the money makers and aren’t as desperate to gobble up whatever might open up onto the market.
The first half of 2022 shows a number of signs that the songs catalog market is cooling off. The impact of a potential economic cool-off, especially in the technology space, might create an interesting knock-off effect. Stone, in his Substack piece, mentioned that music catalogs could gain additional revenue streams from tech platforms like Peloton and TikTok; however, those firms may not be willing to write such large checks as they also see tougher economic outlooks. That’s just one other wrinkle to throw in this mixture. Still, the overall pace of sales is already outperforming all previous years, but we’ll see how this asset holds in a more recessionary moment.
The big news this week is that the Copyright Royalty Board affirmed a 44% increase for songwriters/publishers' royalties for on-demand streams that dated back to 2018, but ended up getting caught up in endless legal back-and-forth. Streaming platforms received a few concessions from the original ruling but overall this represents another victory for the artists and advocacy groups that continuously voiced opposition to deeper-pocked trade organizations that attempted to maintain the status quo. Speaking of governments dipping into the world of streaming, France established a minimum streaming royalty rate for musicians back in May, although the actual number wasn’t given. And Canada is looking to establish a minimum volume of Canadian content to be promoted by platforms like YouTube and TikTok. More details are needed to provide substantive commentary but it's interesting to see these regulatory actions move forward.
A Note of Financialization
To close out June, Universal Music Group purchased Frank Zappa’s complete publishing and recording rights along with his film archive, name and likeness, and allegedly his disembodied soul. Jokes aside, I mentioned in the main essay that major labels aren’t shopping for any old collection of song rights; they’re clearly wanting to own all potential revenue streaming from marquee artists. That contrasts well with Reservoir Media purchasing an undisclosed chunk of the legendary rap producer Marley Marl’s publishing catalog; Irv Gotti sold the master recordings of Murder Inc Records to Iconoclast for $300 million. Then, last Cutting Edge Media Music, who recently raised $125 million from Blantyre Capital, bought a couple of upcoming film soundtracks from Anton.
Back in 2020 I wrote about Triller and cautioned against the fairly obvious media narrative it was trying to construct about itself as a TikTok competitor (manipulating user numbers, paying TikTok stars to join Triller, etc.). Well, our friends are back with their old tricks. Brendan Carr, a Trump-era FCC commissioner, came out with a recommendation at the end of June to remove TikTok from American app stores over concerns about China accessing American user data. A couple of days later, Triller told the press it was filing to go public; a fairly obvious play to build upon negative press around a rival firm. Over the last couple of years, the company bought a number of no-name celebrity-backed tech companies and repeatedly faced accusations of not paying fighters for its still relatively new fighting division. All are signs of a company ready to go public. Unrelated, Deezer, the French music streaming platform, went public last week and saw its stock value dip by a third.
6 Links 2 Read
Spotify’s Billion-Dollar Bet on Podcasting Has Yet to Pay Off - Bloomberg
Lucas Shaw explores the status of Spotify’s attempt to corner the podcast market. Remarkably, the company made real strides in gaining significant market share in this emerging medium, but there’s increasing skepticism about the reach of this audio-only format.
why does youtube feel so lackluster and stale right now? | Internet Analysis - Tiffany Ferg
This video essay explores why certain corners of YouTube are seeing a dropoff in creator participation and user engagement. The essayist posits that creator burnout, the emergence of TikTok, and YouTube’s algorithm shifts, all play a factor. I’d also observe that according to Google Trends, YouTube searches peaked around the mid-2010s, so the platform may be experiencing a natural decline as younger users gravitate towards other media channels.
If Elvis Presley Wasn’t a Songwriter? Why was He Paid Like One? - Billboard
An exploration of mid-20th century publishing practices shows the differing splits and fights that could happen among songwriters vs. publishers and even songwriters vs. other songwriters. Another good example to show that there may be bigger investors in song assets in the 21st century; many of these legal fights hold a near-century worth of tradition.
Churn in the Era of Dynamic Retention - Midia Research
Mark Mulligan suggests that understanding digital subscription churn may need to become more nuanced because one can leave, and sign back up, with far less friction than traditional cable deals. A subtle observation but one that feels increasingly relevant as streaming platforms are struggling to find new paying users.
Critic Explains Why People Know BTS But Can't Sing Along - Korea JoongAng Daily
Shout out to Kara from Idolcast for pointing out this article to me. The South Korean music critic succinctly drills into many familiar topics from Kara’s show such as manipulative marketing tactics used by labels and management companies, and an over-reliance on shoddy industry metrics that obscure real popularity in favor of intra-fan skirmishes.
The DALL-E are Coming - Design Harder
Not music-related, but my former MTV News co-worker Erik Carter explores the potential implications of the DALL-E artificial intelligence. The program allows users to create crude images with keyword terms for professional graphic designers. He suggests this technology could be to the benefit, not harm, of professional designers and illustrators, by isolating what work is and isn’t worthwhile for employees in this field to take on.