Why Great Artists Sell Their Music Catalogs
John legend. Bruce Springsteen. Imagine Dragons. Bob Dylan.
Sounds like the lineup for an upcoming mega world tour. In fact, it’s a who’s-who of major musical groups that recently sold the rights to their publishing empires.
The deals have garnered quite a bit of attention, if not for the sky-high sums, at least for the nostalgia for some of the world’s most recognized songs. They include “What’s love got to do with it?” by Tina Turner, “Go Your Own Way” by Fleetwood Mac and “Legs” by ZZ Top. All of these artists have sold their music catalogs.
Legend’s sale alone encompassed some of his popular tracks – ‘Ordinary People’, ‘Green Light’, ‘All of Me’ and his 2014 Grammy and Oscar-winning track with Common, ‘Glory’.
Although catalog sales are not a new phenomenon – as far back as 1985, Michael Jackson outbid Paul McCartney for the rights to the majority of Beatles songs – today’s sales are indicative of a number of new factors, including technological changes in the industry and the current economy, according to Northeast professors.
“When interest rates fall, the value of an asset rises,” says Russ O’Haver, who teaches economics at the D’Amore-McKim School of Business. “The asset here is the future royalty stream attached to the music catalog.”
Typically, when an artist’s song is played in restaurants or used in a movie or TV commercial, Fatboy Slim’s hit “Praise You” has been featured in a Mercedes ad—royalties are primarily tracked by two organizations: BMI and the American Society of Composers, Authors and Publishers.
The royalties are then paid to the artist, who owns the copyright to the recording and possibly the underlying music. There are tax implications associated with these payments. Politicians in Washington were debating last summer whether to raise personal income taxes to boost revenue.
The idea was later scrapped, but had it become law it could have resulted in a bigger tax bite for artists. “That could have been a motivation for them to start offloading their wallets to the highest bidder,” O’Haver says.
This may be especially the case for older legacy artists, such as Springsteen, more so than for younger ones, such as Legend. Springsteen has sold his music rights for over $500 million to Sony Music Entertainment in what may be the biggest sale ever for songs by a solo artist. The deal includes “Born to Run”, “Born In The USA”, “Dancing in the Dark”, and “Glory Days”.
“I am thrilled that my legacy will continue to be supported by society and the people I know and trust,” Springsteen said in a press release issued by Sony, owner of its label, Columbia.
O’Haver says Springsteen, 72, is “going on in years” and may be inclined to cash in now rather than leave it as part of his estate. “They are rock stars after all,” O’Haver said. “Delayed gratification is usually not a big part of their personality.”
Before becoming a teacher, O’Haver worked for a large consulting firm. One of his clients was fellow aging superstar McCartney. O’Haver was responsible for determining the value and tax implications of using the ex-Beatle’s name and likeness in different countries.
For example, some of the copyrights to McCartney’s songs belong to his company in London. And he may have a US affiliate in New York trying to get his music into a Hollywood movie or TV commercial. “These are two different tax jurisdictions with two different tax rates,” says O’Haver.
The cost of placing a McCartney song in a United States advertisement is split between the London and New York entities and is known as transfer pricing.
How does a singer make money?
There are at least forty-two sources of income in the music industry, split between the songwriter and composer side, and the performer and recording artist side. The flows could come from, among other things, tours and merchandise sales.
From there, revenue for recording artists can be generated actively, meaning they get paid immediately, and passively, which is compensation in the future.
“Copyright is probably the most prolific of these future revenues,” says music teacher Charles Alexander, known as “Prince Charles” when he had a funk band in the 1980s. He would later become a producer and sound engineer for Mary J. Blige, Puff Daddy, Boyz II Men and Sting, among others.
Copyright usually involves editing – serving a composition – and writing.
“When you create a song, you already own 100% of the writing side and 100% of the publishing side” if you don’t have a record deal, says Alexander.
For those lucky enough to have the backing of a record label and all the funds that go with it, writers have the opportunity to sell part of their business. “And the part of the business that most people sell is publishing; so they will sell half of their releases to the record label and keep the other half,” he adds.
The author retains all writing rights; so the recent string of artists selling the publishing side of their business for tens of millions of dollars doesn’t necessarily mean they’ve given up all of their passive income going forward.
“Think ‘Shark Tank’,” says Alexander. “When people make a deal with record labels, they say, ‘I’ll give you X amount of my releases instead of your ability to get my music out there around the world.'” In some situations, a rock star will also sell records. percentages of their writing because it is a separate asset and also negotiable.
With a long career, each song may have a different chord type. These days, a catalog is more valuable than an individual song due to the growing presence of digital streaming platforms such as Spotify and Pandora, Alexander explains.
Disrupt the flow of income
“Everyone likes to tune in to them and get music for free, but being free makes it harder to track who’s playing what” because we’re not dealing with physical disc albums anymore, says Alexander. “Obviously we don’t live in the physical world anymore, so streaming is really affecting things.”
The music industry as a whole has yet to find a tracking or compensation system for streamed tracks, making it difficult for up-and-coming artists compared to their more established peers, who benefit from a big recording contract.
music teacher Melissa Ferrick explains it this way.
“Before digital streaming, people bought products,” she says.
“Let’s imagine that I wrote a song and Taylor Swift fell in love with it, and she recorded that song. And let’s say that was in 2000, before iTunes and Spotify. That song would go on a compact disc and I I would get paid every time that CD was pressed. If they pressed a million CDs, I would get 0.091 cents a million times whether those millions were sold or not.
The process works differently for unknown artists on a major label.
“Let’s say the label presses 250,000 CDs. I get paid for the 250,000 times they put my song I wrote on this album,” Ferrick says. “The singer is signed to the label, but the label presses these CDs, so the label receives the money each time a CD is sold. But the label still has to pay everyone who wrote each song.
Ferrick was one of many plaintiffs in a class action filed a few years ago against Spotify regarding the payment of royalties. The streaming service has agreed to settle the case for $43 million.
Just because the trial is over doesn’t mean streaming has made life easier for well-known acts. Listeners are often less likely to choose songs from a legacy artist given the huge varieties of new music, which affects their bottom line, Alexander says.
“Look at Sting – fifteen years ago he was making maybe eight to nine figures a year,” he says. “It was probably 60% hit. Sting’s $50 million payout is now $18 million. So for the world, he is very rich. But in the meantime, he’s probably figuring out how to keep the lights on.
This partly explains why some artists make up for lost revenue by selling their catalogs to a publishing empire or a Wall Street firm, which views royalties as a cash cow.
“The stability of projected future royalty streams is really what makes it attractive to investors,” O’Haver said.
What’s next on the horizon for the music industry?
The next shoe likely to fall is the growing presence of so-called micro-royalties on quick-take platforms such as TikTok and Snap, says Ferrick, who has seen the industry evolve since signing his first record deal in the 1990s. Today, she records for an independent label, Kill rock stars. The thirtieth anniversary of his first album is next year.
“I’m excited for the one-and-a-half-minute song to come back,” she says. “It was kind of like that when rock and roll started. We had real little songs, like a cappella bands singing under the lamp post. It was the time of short, catchy songs.
Does Ferrick’s vision of the music industry envision a world without CDs? Barely.
“I always tell my students, ‘Don’t forget the girl who’s driving home from her shift at a rest stop in Nebraska,'” she says. “And your song is on that CD and she cries on the way home because your song saves her life. When my students say, “Nobody cares about CDs,” I’m like, “That girl from Nebraska does.”
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