If success has many parents, it can also have many beneficiaries. As the proliferation of streaming services has led the music industry to a remarkable resurgence after 15 dismal years of downturn — the U.S. recorded-music business has enjoyed three consecutive years of double-digit growth; Universal Music Group was recently valued at $33.6 billion, more than four and a half times its valuation of $7.2 billion in 2013.
It’s for that reason financial behemoths like Morgan Stanley and private equity firms like Shamrock Capital see investing in music much like they view traditional commodities like metals and oil. How so? It’s a safe bet.
Ownership of masters, portions of publishing or even just performance rights payouts have attracted what some characterize as astronomical multiples, to the tune of 12 to 15 times what those rights earned annually. Nowhere is that more evident than in the music-publishing business, where individual songwriter catalogs or bundles of copyrights have seen some blockbuster deals in recent years: Songs Music Publishing, home to The Weeknd, Diplo and Lorde, was sold to Kobalt for $150 million in 2017; Imagem to Concord for nearly $600 million that same year; the remainder of Michael Jackson’s assets to Sony/ATV in 2016 for $750 million. Dwarfing all of those deals was the gradual acquisition of EMI Music Publishing by Sony/ATV, the world’s largest music publisher, which between 2012 and 2018 brought consistent ROI for majority investor Mubadala, a UAE entity with no music business experience. Mubadala sold its portion of EMI to Sony last year for $2.3 billion, based on an enterprise value of $4.75 billion; it had paid $1.9 billion for 60% of the publisher six years earlier.
While buying and selling shares of hit songs is hardly a new phenomenon, the practice has picked up steam with the likes of Merck Mercuriadis, former manager of Elton John, Guns N’ Roses and Beyoncé, who co-founded Hipgnosis Songs Fund. Hipgnosis debuted on the London Stock Exchange in July 2018 and has been on an aggressive song-buying spree ever since, acquiring full or partial stakes in the catalogs of many top songwriters, including the Chainsmokers, Eurythmics’ Dave Stewart and Justin Bieber collaborator Poo Bear.
“I’m dealing with proven music,” Mercuriades recently told Hits. “If Donald Trump wakes up one morning and does something crazy, gold and oil are going to be affected, but music is not.”
Similarly, even the percentage “points” that producers receive for their work on hit songs are seeing hefty multiples — annual earnings of $2 million can fetch $25 million on a market fueled by speculation on the part of big financial firms. Says one insider: “This is classic music biz shit — the shiny new toy. These institutions are offering unprecedented multiples — how can we say no?”
Indeed, producer Jeff Bhasker, whose credits include such Grammy-anointed songs as Mark Ronson and Bruno Mars’ “Uptown Funk” and Fun’s “We Are Young,” among dozens more hits for the likes of Kanye West, Ed Sheeran and Alicia Keys, recently scored a deal with Morgan Stanley for his catalog at a multiple of 11 times its annual earnings, or $65 million, according to sources. Bhasker’s manager Neil Jacobson, whose roster also includes Emile Hainey, won’t confirm the amount or discuss specifics, but does tell Variety that “Jeff has done a deal for his catalog.”
Jacobson, who simultaneously is president of the relaunched Universal imprint Geffen Records, has been a sort of trailblazer in the producer-points market, seeing a sound investment “for a financial institution because it allows you to tag along with a label who is already incentivized to bring value to those rights.” He views himself more as an art broker than a bond salesman, and notes that explaining the complicated structure of music publishing — including how master rights differ from other forms of music rights (like publishing), how rates are structured and recoupables work, and so on — is no easy task. “Half of what I do is be a college professor on the music industry, because it’s something very few people really understand,” Jacobson says.
One person who clearly gets it is Mercuriadis. Hipgnosis raised some $260 million for its initial IPO, spent it all on acquisitions and raised another $185 million earlier this year. Its holdings now include more than 6,000 songs worth more than $1.3 billion, it recently told investors. Mercuriadis — who also manages Nile Rodgers (the two are picture, from left, above), producer of classic albums for David Bowie and Madonna — declined to discuss producer deals for this story, citing Hipgnosis’ status as a public company. However, sources say he has a big deal on the horizon.
“Music rights are booming because everyone is predicting that the industry will grow exponentially,” says Nick Jarjour of Maverick, one of several managers who are hip to the trend and working as an adviser on Mercuriadis’ fund. Jarjour represents Starrah (real name Brittany Hazzard), who has production and songwriting credits on Camila Cabello’s “Havana” and Maroon 5’s “Girls Like You,” among others. He cautions that the exponential growth in the value of song rights, “really only applies to the .01% of working songwriters and producers, not even the 1%,. It’s the chance to gain the type of wealth that these creators rarely get access to.”
From Jacobson (pictured below) and his clients’ end, another big plus concerns a one-time capital gains tax as opposed to paying on earned income year after year, a substantial savings that offers “a great opportunity for a producer to be able to take some risk off the table.” Still, he cautions, “For my clients, if they do make the sale, the only way it makes sense is if they’re really careful with how they invest. This is a very high-level transaction and it requires a sophistication in the person doing it … because you are protected forever by having a copyright that will always throw off money.”
In other words, don’t spend those millions on luxury items with diminishing returns like cars. Adds Jacobson: “If you’re the kind of person that’s uncomfortable with investing or is concerned about your own ability to discipline yourself, then this is not for you.”
And while ultimately, a copyright might be a passive investment or part of a fund, there are still decisions to be made about usage requests and approvals. A source says these investors are currently “approving everything,” meaning that a producer selling his or her right has to be completely comfortable letting go.
“A creator has to walk in with eyes wide open and remove any emotional connection to the work,” offer Jacobson, who calls himself an unapologetic “capitalist.” “This is a stream of income and that’s it. If you don’t feel that way, do not sell your catalog. The only way to be able to live with this is to simply see it as the money.”
Certainly that seems to be the M.O. of Mercuriadis. Says Jacobson: “He’s extremely aggressive. He’s committed to what he’s doing: He has that knowledge, but is an independent company. He deploys capital in rooms that very few people can get into. In the industry, he now has a reputation as a guy who’s serious.”
And the phone is ringing. While Jacobson believes that there are in essence “only 20 buyers” for these catalogs, they are a persistent bunch. However, there may be legitimate concern for the long haul, if catalogs become an asset financial institutions feel they can simply flip. Is this a modern-day predatory act of stiffing a songwriter by undervaluing their work’s future worth? And what’s stopping publishers from scooping up producer shares and performance rights to consolidate and maximize their own investment in a song?
Jarjour returns to his .01% theory. “These deals only work for someone who has a guaranteed, sustainable catalog, which is to say a legacy with evergreen assets that generate millions of dollars year over year.”
Still, it’s good news for the business as a whole, Jacobson says. “A rising tide lifts all boats. It’s a great moment in the music industry for everyone.”