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Special Report: The Evolution of Music Licensing

By Gary Symons, TLL Editor in Chief

The Bob Dylan music deal with Universal Music has shown that for musicians and music companies, the times truly are a’changin’.

But, in truth, that change was coming long before Universal stroked a check for a reported $300 million to $400 million, in return for Dylan’s entire music catalog of roughly 600 songs. Also in December Fleetwood Mac singer Stevie Nicks sold 80 per cent of the rights to her catalog of songs she wrote to music publisher Primary Wave for a reported $100 million. In August, Imagine Dragons sold their catalog for more than $100 million to Concord Music Publishing.

What should have gained a lot more press, however, were the other deals happening in 2019 and building momentum through 2020. For example, the Hipgnosis Songs Fund, a British firm that buys music catalogs and then pays their investors through royalties, spent an astonishing $670 million between March 2020 and September 2020 acquiring more than 44,000 songs by a wide range of artists, including Rick James, Barry Manilow, Blondie, Chrissi Hynde of The Pretenders, among many others.

In short, there’s a gold rush on these musical acquisitions, and many of the music industry’s top stars—like Dolly Parton and David Crosby—are publicly mulling over the idea of selling their life’s work in a package deal.

Crosby, who became famous as a member of the folk-rock group The Byrds and then played with Crosby, Stills & Nash (and Crosby, Stills, Nash & Young), put his thoughts out there in recent Twitter remarks that provide some understanding of why artists are suddenly selling.

“Streaming stole my record money,” Crosby said, adding he is essentially being forced to sell because he can no longer tour due to the COVID-19 pandemic, and makes little money when his songs are played on streaming services like Spotify. “I think he (Bob Dylan) is just facing reality,” Crosby wrote. “We no longer get paid for records. We cannot play live, so we sell the one asset we own, ourselves. What did you expect us to do? We have families.”

Ironically, this week, one-time Crosby compatriot Neil Young sold a 50 per cent interest in his catalog to Hipgnosis Song Fund for an estimated $150 million, the second largest such deal in history. (See story HERE)

Singer/Guitarist David Crosby performs at the California Saga 2 Charity Concert at the Theatre at the Ace Hotel on July 03, 2019 in Los Angeles California (Photo by Glenn Francis/Pacific Pro Digital Photography)

Like Crosby, Parton also raised eyebrows when she said days after the Dylan deal that she too was thinking of selling her immense body of work, but in her case, the 74-year-old country music star said it had more to do with estate planning than a need for cash. Many artists have died before sorting out their estates, leaving their families without a viable business plan for the intellectual property.

However, most musicians don’t have Parton’s bank account, and the decline in revenue due to streaming is a familiar complaint from musicians, many of whom became wealthy from the sale of records, tapes, and finally CDs, but who have made little from streaming companies like Spotify or Apple Music. In early December, one of rock’s greatest guitarists, Jimmy Page from Led Zeppelin, testified by letter to the UK’s Digital, Culture, Media and Sport Committee’s inquiry into streaming services.

Page later said he felt compelled to write the letter in the face of the radically reduced income suffered by all musicians since the advent of streaming.

“I fully appreciate the dilemma surrounding streaming royalties that should be rightfully paid to all musicians and writers who made the music,” said Page. “The sooner the streaming companies can make fair payments to all musicians whose music is played on or viewed via the internet, and to pay fair royalties to those who give us great pleasure from those who are exploiting it, the better.”

But there’s a lot more to the issue of musicians selling their rights than just streaming payments. That may indeed be the primary problem underpinning the trend, but doesn’t explain the sudden acceleration beginning in late 2016 and peaking this year. Lower payments are an incentive for the seller, but there are also new incentives for the buyers, such as the sudden rise in synchronization licensing, not to mention changes to taxation policies that are pushing musicians to act quickly.

The Early History of Music Catalog Acquisition

Perhaps the best place to start is at the beginning, which in many ways involves Paul McCartney of the Beatles, arguably the most famous and influential band in modern music history. In 1969 the Beatles lost control of their music publishing company Northern Songs, and he and fellow songwriter John Lennon lost the revenue from dozens of songs they authored.

McCartney learned quickly, and began buying up song catalogs himself, including the rights to the work of Buddy Holly in 1976. But McCartney also got burned when he explained the business to his then-friend Michael Jackson. Jackson later torched the relationship when in 1985 he bought out the rights to more than 4,000 songs from ATV Music … which included all those works from the Beatles in their Northern Songs catalog!

McCartney was not pleased, and it took him another 32 years before he finally reacquired the Northern Songs collection in 2017.

In the meantime, however, the financial fundamentals of the industry had completely changed when music went digital and payments to artists shrank to a fraction of what they made on records and CDs. Deprived of their royalty stream, artists who spent lavishly in their heyday were forced to go back out on tour to make a living, including the Eagles, Fleetwood Mac, Guns’n’Roses, and of course, our highly annoyed friend David Crosby.

But one artist, David Bowie, saw the wave coming and smartly ran for high ground. In 1997 Bowie teamed up with investment firm Fahnestok & Co. to turn his music into an investment offering they called Bowie Bonds. Bowie was paid $55 million, and in turn gave up all royalties for the next 10 years. He used the cash partly to buy back some of his music that was owned by his old manager.

The deal worked out well for Bowie, but not so much for the investors. By the time the bonds matured in 2007 the revenue model for the music industry had fallen apart and the bonds were rated one step above junk bond status. The music then came back under Bowie’s sole ownership, who continued to own and profit from the catalog until his recent death.

A few other artists followed Bowie’s path, but that trend didn’t last long due to the declining revenue for music from the streaming industry.

How Streaming Broke the Musician’s Revenue Model

Many people—and particularly musicians themselves—blame the streaming companies themselves for the dilemma they currently face, but the reality is not so simple. While it’s true that streaming is generating a tremendous amount of revenue, not all of that goes just to the streaming company and the artist. In fact, the biggest winner from the advent of streaming is really the record labels who get the first cut off the top.

According to music journalist Alan Cross, Sony had to boost its annual music revenue forecast by $500 million in 2020 because people were streaming music more often during the pandemic. Universal, the largest of the Big Three music companies, is earning around $20 million a day from streaming with low costs. When you look at the revenue from Sony, Universal and Warner together, Cross says the majors are “raking in more than $1 million per hour.”

The huge problem for musicians is that little of that profit is going to the artist, who gain a measly sum for each play of their music. The largest of the streamers is Spotify, and it has attracted a lot of attention for what musicians consider the miserly sums being paid out.

The rate for each ‘listen’ on Spotify is 0.4 cents, so it takes 250 plays of that song for the artist to earn one dollar. As Allan Cross points out, a musician would have to achieve 650,000 plays a month to earn the equivalent of $15 an hour, so they might be better off getting a job at a Circle K.

Bob Dylan

Other platforms like Apple, Napster and Tidal pay somewhat more than Spotify, and others like Amazon, Pandora and YouTube pay somewhat less, but the essential fact for musicians is that the combined total revenue is a fraction of what they earned in the days of records or CDs.

That, unfortunately for the artists, is only the beginning of the problem, because the arrangement doesn’t just involve the streamers and the artists. In fact, it is the music labels that take a great deal of money off the top, and streaming companies like Spotify have a hard time becoming profitable due to these costs.

The downside for the streamers is that they simply don’t have a business if the labels don’t agree to license their music, and so streamers are automatically at a disadvantage when they negotiate costs.

In truth, the companies making the most from streaming are still the labels, who don’t even have to produce, distribute, or market records anymore! The artists, on the other hand, face a uncertain future in terms of earning money from streaming, so most have relied on live concerts or licensing music for advertising in order to boost their income.

According to Mark Mulligan, an analyst at Midia Research, the labels collect two-thirds of the royalties from streaming, while the artist gets less than a third, on average.

And this year, as Crosby pointed out, virtually all of the concert tours in the world have been cancelled, leaving many musicians with little revenue.

This confluence of events is one of the major reason artists have put on a fire sale on their music catalogs, but it’s not the only one.

The Tax Man Cometh, and the Musician Selleth

Another driver for musicians to sell now rather than later are the expected changes to US tax laws expected under the incoming Biden administration. Under the Trump administration, the one-time capital gains tax that someone would have to pay after selling an asset was pegged at 20 per cent of the sale price.

The Biden campaign has proposed increasing taxes for this kind of asset sale, suggesting that sales of assets over $1 million could result in a capital gains tax more in line with personal income tax. That could result in a capital gains tax of more than 37 per cent, as opposed to 20 per cent today.

While a smart tax lawyer or accountant might be able to lower that amount, this proposed change has caused some musicians to get off the fence and do a deal that they may have turned down before. After all, 17 per cent of $100 million is in itself an awfully big number.

Stevie Nicks, singer-songwriter for Fleetwood Mac.

The Musical Gold Rush

The other side of the coin involves the buyers. It’s clear why artists want to sell … but why are so many companies willing to part with massive sums to acquire these music catalogs? Prior to 2016 investment in music catalogs never cracked the half-billion-dollar mark, but in 2016 the sales of these musical treasure chests began to take off.

In that year sales of music catalogs reached roughly $900 million compared to only $200 million in 2015. The number surpassed $1.2 billion in 2017, reached $2.5 billion in 2018, and soared past the $4 billion mark in 2019.

The big players in this market were initially made up of ‘musical royalty funds’ like Hipgnosis, Primary Wave, Royalty Exchange, BMG Music Rights, Kobalt, Eldridge Industries and Round Hill. More recently traditional labels like Universal have entered the game, as they were the ones who purchased the Bob Dylan catalog.

Mark Mulligan, an analyst at MIDiA Research, says this influx of investor capital has turned musical IP into an incredibly valuable commodity.

“The music publishing deal market is at its peak,” says Mark Mulligan, an analyst at MIDiA Research. “There has never been a better time, there may never be a better time, for a hit artist from the 70s, 80s and 90s to sell their rights. These deals are being done at 17, 18, 19, 20 times value.”

Again, the question is why these catalogs are gaining in value and demand at the same time the artist’s revenues are in decline. There’s more than one answer, but the most encompassing solution appears to be a new trend in the sector. Rather than just acting as music publishers, these firms are acquiring wider rights to the art and in some cases the artists.

For example, when Primary Wave acquired the Four Seasons catalog and invested in the Whitney Houston Estate, the purchase went beyond just the music itself. Primary Wave called the Four Season’s deal in October, 2020 “a multi-million-dollar, ten-year strategic partnership,” and said the deal would cover licensing, film and TV production, name and likeness rights, and synchronization.

The Rise of the Synch License

That latter type of license, synchronization, is key to the increase in the value of music catalogs, due to changes happening simultaneously in the social media space. A lot of that is due to the rise of TikTok as one of the world’s largest social media and entertainment platforms.

So, what is synchronization and why is it so important? Essentially, it is the broadest and most powerful type of license, and refers to music that is going to be paired with some sort of visual media, like a TV commercial or a movie. Music catalogs have always held value for those types of uses, but TikTok has unquestionably raised the stakes. The very nature of TikTok is that it pairs existing music with videos produced by millions of people, and those videos are getting billions of views. As we discuss further below, TikTok is also commercializing these videos for advertising and marketing purposes, creating a synergy that is massively boosting the value of music catalogs.

At the same time, companies acquiring these rights are expanding their roles, becoming full-on labels in their own right, not just acting as publishers. At stake is an all-new type of industry based not just on streaming, but also on a broader view of the licensing industry that includes selling through social media networks like TikTok, or incorporating music catalogs into video games.

The other driver is a surprising change in the music industry itself, unearthed by Tim Ingham, publisher of Music Business Worldwide and a columnist for Rolling Stone, in his analysis of BMG’s financial results in August this year.

The good news for BMG was that its streaming income for the first half of 2020 was up by 26 per cent over the previous year … but the revenue from catalog music was up by 49 per cent, a much higher growth rate than for new music.

The same thing was happening at Universal, where catalog music contributed 57 per cent of their digital revenues in 2019, up from 54 per cent the year before.

Older People Like Older Music

The reason is simple demographics. Older people tend to gravitate toward new trends more slowly than young people, but when they do, they bring bulging wallets with them. In this case, older people are now buying heavily into the streaming world with the result that roughly 60 per cent of new subscribers in the US and the UK are over 45 years old. These listeners are not tuning in to hear the latest from Dua Lipa; they want to hear the Killers, Fleetwood Mac, or Imagine Dragons. It’s worth noting that all three of those bands have sold their catalogs for roughly $100 million each.

In the past these same listeners tuned in to the radio or bought an album, but the record business is close to death—a home for vinyl aficionados and lovers of retro gadgets, but not a serious industry sector. Nowadays it’s all streaming, and a large percentage of the Billboard’s Top 100 just isn’t speaking to a vast audience within the streaming world, represented by those aged 35 and up.

As a result, buying up these music catalogs is allowing the VC-backed music royalty companies to essentially create their own monopolies for music that’s older, but still popular with a large fan base.

The results are being seen every day on Spotify’s Top 40 data tables, which show that the total plays or streams of their Top 40 tracks are now smaller in number than they were in 2018, even though the total number of tracks played through Spotify is much larger. It’s the older catalog music that’s picking up the slack, and that’s making the catalogs more valuable than new music.

That’s great news for music companies that hold those rights, because it means they can generate more revenue without the high cost of what is known as Artist & Repetoire development (AR).

Ingham notes, for example, that Universal Music Group earned $8 billion in revenue in 2019, but spent $4.6 billion in AR costs, and their annual operating income was only $1.31 billion.

Companies buying up catalogs know the music they’re buying is already popular, and there is little or no AR cost involved. The songs might not hit the Top 40 on Spotify, but they are solid, reliable generators of royalty income, at a lower operational cost.

Imagine Dragons sold their catalog in 2020 for a reported $100 million.

The Impact of Low Interest Rates

At the same time that catalog music is making a comeback, the music royalty companies are making a hard calculation that music royalties will bring returns that are consistently higher than the inflation rate, bond rates, and the cost of credit.

It’s not as exciting to talk about as a trend in the music industry, but the fact is, music royalties can be seen as stable income that generates a return generally higher than one sees in the current bond market.

The data one gets from Spotify or Apple Music also allows one to predict with some certainty the returns a company will get from different artists. At the same time, because interest rates are so low, investors are looking for income streams that have yields higher than bonds, but are not correlated to the stock market.

That makes music catalogs an interesting commodity, as each catalog generates royalties that these types of investment companies can quantify and literally sell as long-term investments.

At the same time, advances in technology have made it easier to manage, track and collect royalties, so the cost of running a music publishing business is much lower.

For all these reasons, investment houses are competing hard to corner the market on the hottest music catalogs out there, and the demand has caused the price of music catalogs to soar.

Doing More with Music

But if you look closely at these upstart, VC-backed music royalty companies, it’s clear they have more on their minds than just sitting back and collecting royalties. As discussed above, companies like Primary Wave are acquiring a wider set of rights, particularly synchronization rights, and that allows them to earn money from a variety of sources, such as usage of songs in movies, video games, advertising, and on social media.

It’s that latter revenue source, by the way, that has many companies excited about the future of these music catalogs. In fact, when Steve Cooper, the CEO of Warner Music Group, was addressing analysts on Nov. 23, he revealed that it is social media, not streaming, that is the fastest growing source of revenue.

“With an expanding number of partnerships including Facebook, TikTok, and Snap, among others, social media is already a meaningful nine-figure revenue stream for us, and is growing at a faster rate than subscription streaming,” Cooper said. Warner Music says the revenue from social media-related sales is growing at double digit percentages annually, and this has accelerated recently through the colossal success of TikTok.

The young but rapidly growing social media giant essentially allows its users to easily create short videos, backed up with music gained through licensing deals. That alone is generating new revenue from a wide variety of music catalogs, but the exposure from TikTok is also driving more sales and streams of older music.

As previously reported in The Licensing Letter, one example came up when Idaho man Nathan Apodaca (better known as ‘Doggface’) filmed himself on a skateboard, drinking cranberry juice out of a jug, and then suddenly bursting into a joyous lip sync version of Fleetwood Mac’s hit Dreams.

The video exploded across the Internet, garnering millions of views, and turning Doggface into a much sought after commodity in the social influencer space. It also boosted the sales of the Fleetwood Mac album and of Ocean Spray Cranberry Juice, not to mention inspiring a legion of imitators. Dreams saw a 374% jump in sales and an 89% jump in streams, and even made it back onto the Billboard top charts at #21 after a 43 year absence. Dreams hit the Top Ten on Spotify and #1 on Apple Music.

Soon after, Sony Music Entertainment, the label for Fleetwood Mac, entered into TikTok’s first long-term music licensing agreement, with Sony acknowledging that the social media network is becoming a major source of new revenue and marketing oomph.

“Short form video clips have developed into an exciting new part of the music ecosystem that contribute to the overall growth of music and the way fans experience it,” said Dennis Kooker, President, Global Digital Business and U.S. Sales, at Sony Music Entertainment. “TikTok is a leader in this space and we are pleased to be partnering with them to drive music discovery, expand opportunities for creativity, and support artist careers.”

That deal gives TikTok blanket, synchronization access to Sony’s immense music catalog, but the trend has not escaped the notice of artists or of the companies buying their intellectual property. Just two months after Dreams bounced back onto the Billboard charts in October, Fleetwood Mac songwriter Stevie Nicks sold an 80 per cent interest of her entire song catalog to Primary Wave for approximately $100 million, and now her career has been given a new start.

Primary Wave says it will partner with Nicks on marketing, branding and digital strategies for the songs in the catalog, which includes dozens of hits like Rhiannon and Edge of Seventeen.

Whether the catalog trend is a long-term winner for the music royalty companies is hard to say, as the model is partly dependent on low interest and bond rates, but in the near term, the battle to stake ground in this musical gold rush is only expected to intensify in 2021. The big labels have woken up to the fact the music royalty companies are horning in on their action, and most analysts in the business expect both the MRCs and the bigger labels will be putting out feelers to some of the biggest acts in music, past and present. The era of music as a commodity has clearly just begun.

Major Players in the Music Royalties Business

Music Royalty Companies, or MRCs, have been quietly but aggressively acquiring the rights to much of the world’s most popular music … but who are these companies, and how much are they investing in our favorite songs?

This partial list names the biggest players in the market, and some of the properties they’ve acquired.

Concord Music Publishing hit the mainstream headlines recently when it signed a $100 million deal to buy all of Imagine Dragon’s song rights prior to 2020, but the company already represents more than 400,000 copyrighted works by the world’s most celebrated songwriters, composers and lyricists.

Concorde is more of a full-service music company and has been in business for many years, but enters this list due to the accelerated and more aggressive approach to buying out music catalogs.

Spanning nearly two centuries of song, through a vast array of genres and territories, Concord Music Publishing also supports a diverse group of contemporary creators producing important and popular new songs and musical works. Concord Music Publishing is home to the world’s leading classical music publisher, Boosey & Hawkes, and operates, as an exclusive joint venture, top pop music publisher, Pulse Music Group.

Concorde also renewed a distribution deal with Universal Group in December, and bought out rival Pulse Music earlier this year, which held rights to music from Drake and Megan Thee Stallion, among others.

A small sampling of Concord’s rights deals includes Phil Collins, George Harrison of the Beatles, Irving Berlin, Billy Holiday, Creedence Clearwater Revival, REM, and the music of theatrical and film projects like Wizard of Oz, the Sound of Music and A Chorus Line, through the company’s Concord Theatricals division.

Hipgnosis Songs Fund is a British music rights investment and song management company founded byMerck Mercuriadis and co-founded by Nile Rodgers in 2018. The company says it is “focused on songs and associated musical intellectual property rights. It was founded on the premise that hit songs are long-term predictable assets unaffected by economic cycles that will increase in value as the worldwide music streaming market grows.” In addition to acquiring songs and songwriter catalogs, the company manages the playlist, cover, interpolation, and synchronization revenues of its IP.

Hipgnosis Songs Fund has raised £1.052 billion (1.415 billion USD) to fund acquisitions since it was established in 2018. At the close of its first full year as a publicly traded company, its catalog totaled more than 5,000 songs; of those, approximately 2,000 had been #1 hits somewhere in the world, and 4,000 had reached the Top 10. Five songs co-owned by Hipgnosis Songs Fund appeared in the Top 10 on the Billboard Hot 100 of the decade chart. In July 2020, it was reported that the Hipgnosis music rights portfolio, consisting of approximately 13,300 songs, had been independently valued at more than £760 million. Its market cap surpassed £1 billion in August 2020

Kobalt Music Group is an independent rights management and publishing company. Founded in 2000 by CEO Willard Ahdritz, Kobalt acts primarily as an administrative publishing company, not owning any copyrights. The company has developed an online portal to provide royalty income and activity to artists and allow them to manage their rights and royalties directly.

Wired reported in 2015 that Kobalt was “the top independent music publisher in the UK and the second overall to Sony/ATV in the US,” with around 600,000 songs and 8,000 artists in its catalog,[2] including Massive Attack, Trent Reznor, Gwen Stefani, Prince, Paul McCartney, and Kelly Clarkson, to name a few.

Kobalt owned 17.3% of the top 100 radio songs in the US in 2015, ranking it third after Universal.

Round Hill Music is a private equity firm exclusively dedicated to investments in revenue generating music copyright assets. Round Hill is very much an investment firm, led by an experienced investment team with an established reputation.

Founded in 2010, Round Hill has become an industry leader in taking an institutional investment approach to investing in royalty streams generated by music copyrights, and like most such companies, it has operated by closing on multiple ‘funds’.

Round Hill Music Royalty Fund 1 closed on $209 million in July, 2014.

Round Hill Music Royalty Fund 2 closed on $263 million in December, 2017.

Round Hill Music Royalty Fund 3 closed on $291 million in November, 2020.

The Investment Team includes music and investment industry professionals with experience at Atlantic Records, Bear Stearns & Co., BMI, EMI Music Publishing, Gruss Capital Management, Gruss & Co., R2M, S1 Songs, National Music Publishers Association, Sony/ATV, Goldman Sachs, Blackstone, and Warner Chappell.

Prior to forming RHM, the Investment Team collectively completed over 50 individual catalog transactions totaling over $750 million in asset value. Along with the $650 million investments deployed at Round Hill across 78 catalogs, this management team has been responsible for over $1.4 billion of music copyright transactions across 128 catalog deals.

Primary Wave is a music publishing and talent management company, founded in January 2006 by music executive Lawrence Mestel. Since its origin as a music publishing company, Primary Wave has expanded into talent management, film & TV production, digital marketing, and branding.

Primary Wave is now one of the largest indie music publishers in the United States with copyright ownership of more than 15,000 songs, including artists like Smokey Robinson, Tom Cochrane, Glenn Gould, Bob Marley, Alice Cooper, Kenny Loggins, and Count Basie, among others. The company’s biggest deal, however, was the December purchase of Fleetwood Mac singer-songwriter Stevie Nicks’ IP for a reported $100 million.

Eldridge Industries LLC is a holding company headquartered in Greenwich, Conn., with offices in New York, London, and Beverly Hills. Unlike the other companies on this list, Eldridge is not solely or even primarily a Music Rights Company, but is rather a diversified investment firm with its fingers in a lot of pies.

The firm invests across diversified industries with a focus on credit, technology, consumer experiences, real estate, insurance, sports and media.

Eldridge is an investment firm formed in 2015 by CEO and Chairman Todd Boehly, after he purchased several media properties from Guggenheim Partners. The company maintains an astonishing number of holdings of large, well-known companies, but made its way onto this list after it seemingly came out of nowhere, dropping $100 million to purchase the rights to the first five albums produced by American rock band The Killers.

The company has a lot of investment clout, but it’s unknown whether The Killers deal was a foreshadowing of Eldridge making a much larger move into the music royalty space.




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