Why music’s biggest stars are selling out their song catalogs

“So if someone would do a cover of Justin Bieber We’re sorryBieber would get some royalties as one of the songwriters, but the record label and he as an artist wouldn’t get any royalties because it’s no longer his recording,” Mulligan said.

Mulligan said booming music rights buying over the past five years has focused on songwriter rights, but recording rights are increasingly being sought.

David Vodicka, founder of Australian music law firm Media Arts Lawyers, said modern pop tracks often have multiple songwriters, meaning pop stars like Bieber often share publishing fees with many others.

“There are tons of different permutations … but the simplest thing is usually selling the right to earn the income stream from a set of rights,” Vodicka said.

Bieber’s deal means his share of ongoing royalties from releasing copyrights, master recordings and related rights to all songs he released prior to 2022 will now go to Hipgnosis, which is listed on the London Stock Exchange. In return, Bieber gets a big lump sum up front.

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Why are more and more musicians paying the big payday?

Both Mulligan and Vodicka said streaming has changed the financial picture of music. For established artists, Mulligan said selling their music rights allowed them to capitalize on their success and provide security as listening habits and revenue streams evolved.

“One constant in the music business over the past 20 years has been change,” he said.

Vodicka said multimillion-dollar catalog deals — also recently signed by Stevie Nicks of Sting and Fleetwood Mac — made it easier for older artists to plan their estate by dividing up a big pile of money, rather than dividing up already complicated music rights. Limited tour earnings during the pandemic also spurred some to sell.

The favorable tax treatment has also encouraged US artists to make a large upfront capital gain, taxed at a maximum of 20 percent, while current royalties are taxed at up to 37 percent. US President Joe Biden had planned to increase capital gains taxes on those making more than $1 million, prompting the urgency of wealthy acts to secure their big payday before the changes were made. However, Biden was unable to make the changes, Vodicka said, and now faces a divided Congress and a legislative deadlock.

Why do people buy song catalogs?

After the financial crisis of the late 2000s, low interest rates meant investors had money to dump, but government bonds didn’t deliver high yields. Looking for alternatives, they soon found companies like Hipgnosis.

Well-connected music industry exec Merck Mercuriadis — who previously managed the likes of Elton John and Beyonce — founded Hipgnosis in 2018 and reimagined music, embracing the constant drip of established song royalties as a reliable “better than gold and oil”.

“Big labels – Universal, Warner and Sony – have always bought and sold rights. But if it’s only three, there’s not much competition,” said Vodicka. “So I think Hipgnosis put the cat among the doves.”

Hipgnosis began by popularizing previously little-known music rights deals and is now backed by multi-billion dollar investment fund Blackstone. Other new music rights buyers outside of the traditional music giants include Kohlberg Kravis Roberts & Co, Shamrock and Domain Capital.

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Though the royalties provide investors with solid cash flow, Mulligan says the main returns will come from rising catalog values ​​as more buyers discover the market and want a slice of the limited established acts with guaranteed long-term popularity.

“You’ll expect royalties and cash flows to improve over time, but the reason you bought it is because the market is buoyant,” he said. “The cost of catalogs is increasing because the overall streaming market is increasing due to the shift between supply and demand.”

Who could be next?

Mulligan points out that the youngest catalog sellers — like Dylan and Springsteen — tend to be older, white, English-speaking males because investors saw them as “nice, safe, and predictable,” but many artists had untapped potential.

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“[Recent catalogue sellers] tend to have an Anglo-American repertoire, so basically buy into the safest part of the market you can,” says Mulligan. “For the last four or five years, hip-hop has been the most popular music in the world.

“But hip-hop is a very small part of overall acquisitions… it doesn’t look as risk-free as someone like Bob Dylan, actually.”

What does this mean for music lovers?

It could mean little – Justin Bieber’s tiny royalty for your stream of him justice Album can now simply go to Hipgnosis and its shareholders instead of Bieber himself.

However, artists are also relinquishing varying levels of control over their music. Taylor Swift notably re-recorded some of her earliest work because she wasn’t happy with her record rights deal with her label — although that’s unlike more recent deals with investment firms.

Even so, Vodicka says A-grade musicians will still have millions on offer.

“I think it’s lost a bit of the heat as interest rates go up,” he said. “Auctions are still going on, but I think that the large multiple lots are really reserved for the exceptional catalogues.”