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All of the music industry is wondering why these classic catalog artists (Dylan, Paul Simon, et al.) are selling for 18x-25x multiples. Well, there is no one answer. One is taxes. Another is streamlining the estate process for wills and inheritance. In some cases, it’s stagnant management of their catalogs in lieu of pushing younger, hotter, genres and artists. Yet another is the decreasing viability of live touring for these artists.
Catalogs generate income in two major ways. One is in the form of royalties from spins and streams, mechanicals, and public performances collected by the PROs (ASCAP, BMI, SESAC, GMR). The other is in sync. Basically, when a song is used in a commercial, movie, video game, etc. Well, if you follow streaming, you know those rates are horrible across the board, there is little transparency, and crucially, there is simply no incentive for the Spotifys of the world to serve you old music, so they don’t. These genres just aren’t as popular on interactive streaming. But over time, these royalties still add up, they are just a slow trickle.
How does an artist increase those royalties? Touring or a residency. If a legacy artist goes on tour, it results in more radio spins in each city they visit, more YouTube views, more sales (merch, VIP packages etc.), and more syncs. The artist and the music become freshly relevant. But, with COVID, these huge package tours are dead on the vine. And once things get going again, it’s unknown what the capacities and extra value tickets sales will be. Now, if you’re 75, do you want to wait 3-5 years to find out? Probably not.▼ Article continues below ▼
Let’s look at taxation. The new administration is definitely raising the capital gains tax. This is something that people like you and me aren’t really affected by. But, if you have assets to sell that are valued in the tens or hundreds of millions of dollars, it definitely matters. A capital gains tax is applied to the profits earned on the sale of an asset once they are actually sold. This has been locked in at 20% for years, but the increase may be as high as 43.4%. Say you’re Bob Dylan selling your catalog at a reported $250 million. The difference in tax right now vs. when the change comes in would be: $50m in taxes (netting $200m), or $108.5m in taxes (netting $141.5m). That’s a big deal.
The better question is why a company would buy the catalogs of older artists and I am here to tell you why.
I know, I know, it sucks to talk about. But Dylan and Paul Simon and Stevie Nicks and so on… are in their 70s and soon to be 80s. One thing Michael Jackson taught everyone is his music started making more for the estate in the 5 years following his death, than it did in the 10 years prior.
Bowie, Eagles (Glenn Frey), Prince, all entered the charts after their death when they had been nowhere near those numbers – in some cases, for decades. Now, this is mostly for the very top artists with name recognition and built-in fan bases for life.
All of their catalogs make a certain amount of money in royalties every year, and yes, that number may be decreasing on one side (sales) or another (publishing) depending on the environment. But there is built-in revenue and the surprise viral hit every now and then from social media (Cranberry juice, reaction videos, etc.).
But the truth is, when they die in the next 10-15 years, and some will be sooner than that, the catalog holders can expect to get a growth value that year alone of 54.1 percent following his or her death, according to Open Banking Report. In some cases, streams go up 2,700% – 7,000% in the same week. Same with royalties from increased radio play. Same with SoundExchange. Same with HFA licensing new covers or tribute albums.
And then there are the Master/Syncs for nostalgia.
That’s not all. In many of these cases, they bought the entire catalog. That means a ton of unreleased music (like Prince’s vault, but not nearly as much material) that can be packaged and sold/licensed later on. This drives nostalgia buying, and it increases the value for super fans who think they’ve heard everything or own every album.
It doesn’t stop there. Every single year on the anniversary of their deaths, especially in milestone years like “5 years since they’ve been gone” or the “the 10th anniversary of (artist’s) death,” the catalog gets massive bumps over and over. Keep in mind, this doesn’t happen when they are alive. Did you listen to Paul McCartney’s latest album on his birthday?
These are specialty deals, and they most likely have specialty marketing plans in place for these eventualities. Yes, you get your multiple for normal earnings, but you can also count on maybe 20-30 years of nostalgia buying. And if you do not believe that, just know that Kurt Cobain died 27 years ago. Read that again. TWENTY-SEVEN.
So, that’s why the buyers are swooping in.
Is it a risk? Sure. But a fairly good one, if money is your motivator. All the more reason to hold on to your catalog rights as long as you possibly can.
–Michael St. James is the founder and creative director of St. James Media, specializing in music licensing, publishing, production and artist development.
**main photo by Steve Snodgrass, used under a Creative Commons license.