Navigating the Market for Music Catalog Sales

The last few years have witnessed a major inflow of attention, and capital, toward sales of music catalogs. Recent observers note the eye-popping purchase prices paid for David Bowie ($250 million), Bob Dylan ($300 million), Bruce Springsteen ($550 million) and Queen ($1.27 billion) catalogs. Long-time observers remember Michael Jackson famously purchasing The Beatles’ publishing catalog for $47 million in 1985, which was later sold on to Sony Music Publishing in 2016 for $750 million. 

We routinely advise buyers and sellers of music catalogs at Brightpoint. We’ve prepared this post to help answer a few common questions we get about these transactions, including what a catalog is and why there’s been so much deal activity in recent years.

What are catalogs and who holds the rights?

In the U.S., every song contains two copyrights: one for the master sound recording, and another for the musical composition containing the song’s underlying notes and lyrics. A “catalog” refers to the bundle of rights held by the relevant recording artist who records songs or songwriter who writes songs.

A recording artist typically enters into an exclusive recording services agreement that assigns 100% of the copyright for each master sound recording they record to a record label. The label pays the artist a royalty share of the net profits generated from that master sound recording’s physical sales (e.g., vinyl, cassettes, CDs) or digital consumption (e.g., on digital streaming providers (DSPs) like Spotify).

Writers often work collaboratively, in which case they own a portion of the copyright for their compositions. They typically sign an exclusive publishing agreement with a publisher to help collect the income they’re owed as an owner of the composition (e.g., for the sale or consumption of phonorecords). In exchange, the Publisher gets the exclusive right to collect all of a writer’s publishing income and often keeps 10% to 50% of this income as its fee before sending the remainder to the writer.

Why did we see so many catalog sales in the early 2020s?

Before music went digital, labels made their money by manufacturing physical phonorecords, distributing them to retailers, and then waiting for product to move off of shelves. Their recording agreements with artists had byzantine provisions around how royalties were calculated, which were often accounted for loosely at best. For instance, a label might declare 15% of physical phonorecords to be “free goods” to be given away and decline to pay an artist a royalty share on them. Suffice it to say, these one-sided terms for artists often made their royalties unattractive to potential buyers.

With the emergence of digital consumption of phonorecords on DSPs, the paradigm shifted dramatically. Accounting became more transparent, and “free goods” allowances and similar provisions became harder to justify. Recording artists’ royalties and songwriters’ shares of writing income became far more attractive assets to acquire or finance. 

Private equity funds and other buyers came to realize the value of so-called “evergreen” catalogs filled with standards that have been playing on the radio for decades. After an initial spike in revenue after the songs are released, these catalogs slowly decline and then stabilize over time, making the income streams they produce very predictable. Some funds have even come to use the terms “catalog dividend” and “publishing dividend.”

Another draw related to songwriters’ catalogs was found in the legislative regime underpinning streaming consumption. The Copyright Royalty Board or “CRB” is  a little-known administrative court formed under the U.S. Copyright Act, which has the power to set the royalties that DSPs pay to publishers. The CRB usually pushes those rates up over time, creating growth potential for the “dividends” these catalogs pay.

Historically cheap debt capital available for leveraged acquisitions (especially starting in 2020) combined with these forces to spur a frenzy of catalog purchases starting in 2020. Private equity funds and other buyers, including record labels and music publishers, were willing to pay multiples as high as 15x a catalogs’ trailing twelve-month income to recording artists and songwriters. 

Dealmaking in the current market

Although the deal frenzy has cooled since its peak, with many high-profile catalogs already having been sold and interest rates much higher than in 2020, at Brightpoint, we remain active in supporting our clients on sales that are clearing the market. The virtues of transparent income streams and accounting from digital consumption continue to make catalogs attractive assets to buy and sell for dealmakers willing to tackle the unique financial and intellectual property issues presented in the space.