Written By: Adriana Zahirovic with contribution from Sharon Ayi
Over the past five years, there has been a notable increase and upward surge in the purchase and sale of music catalogues with major music publishing companies (including the likes of Universal Music & Warner Chappell) and large scale investment funds such as Hipgnosis, Kohlber Kravis Roberts (KKR) and Round Hill Music to name but a few, making waves on the scene through significant investments in music assets and IP.
Recent multi-million dollar deals have sparked momentum, with various artists such as Dr. Dre, Future, Lil Wayne and Justin Timberlake securing million dollar pay cheques for the sale of their catalogues. We hope to give an overview of the buying and selling of music catalogues, the legal considerations and a discussion into who benefits from the overall value exchange.
What is a music catalogue?
A music catalogue is a group of songs that are created and registered under an individual artist or entity, and once combined form what is recognised as a catalogue of songs. The owner of the catalogue owns the copyrights in the music and receives income generated in the form of royalties, each time the music is played and/or used.
Usually, the copyrights to songs are divided among the parties who have worked on creating the music. The performing artist or band, songwriters, publishers, record labels etc may all get a share of the rights and can add them to their respective music catalogue. The same song can be part of multiple different music catalogues and share earned royalties. Artists/songwriters can also own 100% of the copyrights, collecting 100% of the royalties depending on the business model being used to exploit their music.
What is being ‘sold’?
When purchasing a catalogue, an investor is typically aiming to acquire the ‘music rights’, with a view to profit from the royalties earned via licensing, brand deals and other revenue streams usually enjoyed by the artist. Deal negotiations will vary across the board with some writers choosing to sell anywhere upwards from 50% to 70% of their catalogue allowing them to keep stock of their remaining catalogue or retain an element of control as to how the music is used. Earlier this year, it was reported that acclaimed producer, Dr Dre was in separate negotiations with Shamrock Holdings and Universal Music Group to sell a collection of his music assets for more than $200 million dollars. On the other side of the spectrum, David Bowie’s estate finalised the sale of the prolific singer’s publishing catalogue in 2022 for over $250 million dollars.
Copyright is automatically attributed when a piece of music is fixed in a tangible form with protection beginning when music or lyrics are recorded or written down in a document. Traditionally, the author (songwriter/artist) is the person(s) who has created the work thus having ownership of the song/composition right which can then be assigned to music publishers and collecting societies on the songwriters behalf. Depending on the commercial context, the artist/songwriter may assign such rights to a record label giving the right to reproduce the work, prepare derivative works (e.g., sampling/remixes), distribute copies of the work (recording rights), and publicly perform it (performance right). With the changing landscape of the music industry, some independent artists choose to maintain ownership of the above rights whilst still working with commercial intermediaries to monetise such rights to earn revenue via ‘label services deals’.
The Copyright, Design & Patents Act 1988 is legislation which protects the literary and musical intellectual property of songwriters and recording artists in the UK.
The right to the musical composition, also known as the publishing copyright, arises when songwriters have written the composition or the lyrics, and get the copyright to the song attributed to them. Recording a song creates a separate music copyright for the sound recording. Music copyright includes the right to the song and right to the recording, which is known as the master copyright, and usually the final version of a recording. Both rights can generate income through royalties and licensing fees from music being used in advertising, film etc.
Artists also have performers rights, which prevent people from making recordings; broadcasting a live performance; recording directly from a broadcast of a live performance; making a copy of the recording; issuing copies, renting, or lending to the public, and uploading the recording online. These rights allow artists to receive payment for performances played in public and for sound recordings made available to the public through royalty payments. These rights can also be assigned and licensed to generate an income stream.
In addition to the above, artists hold moral rights: the right to be identified as the author of their work, the right to object derogatory treatment and object to changes made to their work. However, these rights cannot be sold, only waived by the holder.
Copyright law works to protect artists and songwriters musical works to help create a variety of revenue streams for the individual. So why are artists selling over their rights?
Benefits for artists:
During the Covid-19 outbreak, one of the principal incentives for artists selling their music catalogues was to give rise to an alternative stream of income as performing and touring had become all but impossible. It greatly secured a lump sum of money for legacy artists who were incentivised to sell at a time when catalogues were being purchased for 10 times and upwards of their expected royalty revenue. In more current times, this means artists who are unable to perform, or have other commitments and priorities as their lifestyles change, can reap the benefit of their musical success.
It is worth noting that recent artists such as Calvin Harris, Future and Justin Bieber (who received over $200 million dollars for the sale of his back music catalogue earlier this year to Hipgnosis) are also cashing in on the fruits of their labour for hefty negotiated sums on offer from the investment funds.
It is widely recognised that artists benefit through different revenue streams when it comes to exploitation of their music rights whether it be through live performance, streaming, publishing, and sync opportunities for use in film, advertising, television, or being sampled in other musical compositions. However, this tends to be based on different factors including the demand for the artist’s music, the opportunity to tap into different revenue streams available, and the continuing rise in emerging popular artists. The populated market of recorded music means that competition continues to grow at a faster rate than ever before. Securing a guaranteed lump sum may be in the artists or songwriters’ best interest, proving more advantageous than the risk generating income from their music catalogue over time if negotiated strategically. With music trends constantly changing, some artists may deem this as an advantage to sell a portion of their catalogues to create other investment opportunities.
There are also downsides to selling a music catalogue as an artist loses control over how their music will be used, exploited, and presented to the public. As appealing as a pay-out may seem, the artist will no longer benefit from revenue accumulating from things such as licensing and streams, although as reported by Music Business Worldwide, music streaming revenue growth slowed down in Q2 of 2022 which could be an indication of things to come in the wider sense.
The pattern of deals across the sale of music catalogues has seen heritage artists such as Bruce Springsteen and Bob Dylan negotiate significantly larger deals as they come out of their tenured label deals. Later genres of music such as Rap and EDM are yet to hit the same peak in terms of buyouts but the numbers are still proving to be profitable for contemporary music overall.
The music industry has long held the discussion around artists negotiating ownership of their masters in their sound recordings (a set of different rights to that of a music publishing catalogue as referred to above) but the last few years have shown that there appears to be somewhat of a shift in attitudes from songwriters who are willing to sell their catalogues for the right figure. An artist and/or songwriter may find a catalogue sale appealing because of the assured lump sum and channel for increased income via a one off payout. On the other side of the table, publishers and investment funds will view the acquired catalogues as long term assets, using the opportunity to prolong the artists legacy through marketing and promotion of the music whilst earning revenue on the use of such songs.
Will we see the like of Wiley, Skepta, Dave or Jae5 go on to negotiate such deals in years to come with the evolving business model? Or will they form their own investment outfits as music creators to exploit their catalogues for future use ? Only time will tell…..
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