Why are artists selling off their music catalog
Over 5 billion USD was spent on acquiring music rights in 2021.
Music icons including David Bowie (250 million USD deal), The Killers, Stevie Nicks, Bob Dylan (400 million USD deal), Shakira, and John Legend are selling off their music catalogs for extraordinary amounts of money. “Born in the U.S.A.” star Bruce Sprinsteen holds the record so far with the sale of his catalog for an unbelievable 550million USD to Sony Music in December 2021. In the world of streaming, collecting royalties can be a steady income for artists, so why sell off their music rights when the proverbial cow still has milk left?
When Joe Biden came into power, he made a promise to raise taxes on the ultra rich, and that includes music superstars who are currently paying 20% for their royalties. If the US Congress passes this tax bill, artists will be looking at a 37% tax bracket.
Companies like Hipgnosis Songs Fund and Primary Wave are buying up music rights as a way to collect stable, reliable income from royalties, licensing, brand deals, and streaming income. In other words, these companies view music catalogs as an asset class which are less likely to be affected during economic crises. Not even the COVID can stop fans from listening to their favourite songs.
Artists are seizing this opportunity by selling their catalogs now so they collect one big lump sum cash upfront while still paying a much lower tax percentage.
Put yourself in the artist’s shoes. With millions of songs coming to the market every day, streaming revenues for artists are slowing down. Even though the market appears to be getting better, it’s also getting more fragmented.
During COVID, the lack of live performance opportunities also hinders revenue streams for artists. Streaming income may sound like a good deal, but you need to have millions and millions of streams before making any meaningful profits. This is also true for even very big stars. Without live performances, most artists need to look somewhere else to make money. Not only that, but the top 5% of artists on iTunes actually make over 80% of the revenue – just to put things in perspective.
According to Hipgnosis’s annual report, the company is offering artists and songwriters an average multiple of 14.7 times their historic annual income. So, if a company is willing to pay you 14.7 USD for every dollar you make, why not take the deal? In fact, the more influential and bigger the star, the bigger the multiple. Bob Dylan got paid a multiple in excess of 25 times for his songs. That is truly an awesome way to cash out when the food is still hot and tasty. As time goes by, an artist’s song’s value may diminish as competition arises from all fronts.
Some older artists do not want their heirs to handle their work. Some of them like Bob Dylan – who has six children – may simply want his kids to be well taken care of after they are gone.
Source: United States Copyrights Office
How much do artists and songwriters receive in real terms? -For that answer, be sure to check out my next article.