Let me start this column the same way I ended the last one. Private equity isn't destroying the music business. But it's worth wondering. intention Will so much outside investment change the way the music industry operates?
Obviously, we're going to be seeing more documentaries, Broadway shows, and box sets to make money and promote the catalogue. But will this result in a major change in the allocation of royalties and the balance of power in the industry? And is there even a slight possibility that something called a subprime publishing meltdown will occur?
But as Cyndi Lauper sang, money changes everything — and that was before she recently sold her rights. So I spoke with six serious people, including music publishers and private equity-backed catalog rights buyers, as well as lawyers and consultants who have been working on these deals since the music business began to receive a flood of investment in the late 2010s. We spoke with relevant people about the following: How these new players are changing the business. Every new investment field has its share of successes and failures, and a new report from Schott Tower Capital says Hypnosis Songs Fund inflated its returns and overpaid for its catalog, while Hypnosis You say you dispute this – but what does all this mean for music in the long term? ?
One of the few points of agreement is that this has been great for creators so far, especially songwriters. These deals involve creators who are already making money, but can sell catalogs, replacing a steady stream of income with a one-time cash injection. According to one buyer, “artists have more liquidity opportunities.” . This can be helpful if you need cash, want to diversify your assets, or need to think about estate planning. Also, with the advent of external buyers, traditional music companies have been forced to buy, especially related rights, for either strategic reasons (“we can bundle the rights”) or defensive reasons (“we can monetize this”). Now buys more publishing assets if you already own them. “No interference”). This competition means higher prices, which is good for creators.
This also means potential investors will bid on a broader catalog with more recent songs in more genres, and that's already happening. So what happens when the world's largest investment firm owns so many catalogs? They strive to increase the value of their assets using the various tools at their disposal. Of course, they don't do this out of good intentions. They will do it for self-interest. But any move that increases the value of the song catalog they own also increases the value of the song catalog they don't own, which can be very good for songwriters.
As one catalog buyer told me, “Investors are now in the shoes of the songwriters and will use their political influence to level the playing field for songwriters.'' An executive at another company that buys catalogs is skeptical of some private equity-backed ventures because “their incentives aren't aligned with the creators' incentives.” But that doesn't seem to be the case here. Although political power is involved in some aspects of copyright regulation, the influence of private equity could potentially counteract the influence of large technology companies, which commonly lobby against copyright infringement. There is. The two executives even suggested that private equity could serve as an engine for reform to increase transparency in collective management organizations. The argument goes, “We're putting up with all this, but Wall Street won't put up with it!”
Now, part of the catalog buying business is based on the idea that a new buyer can do more to promote a song than the current owner, especially for film and theater projects. But eventually, at least some of that benefit may be lost. Executives can figure out what works, and some of them will inevitably take that knowledge to other companies. Additionally, once peak lock dock is reached, catalog owners (traditional publishers and private equity players alike) may begin to see diminishing returns.
What about the downsides? The reason private equity has such a bad reputation is because it typically buys assets with significant leverage and holds them for a period of time, so the companies it invests in Layoffs often occur. Deal structures vary, but sources familiar with many deals say buyers typically don't borrow more than half the purchase price of a copyright asset, which seems reasonable.
Of course, some buyers will eventually become sellers. Perhaps it's because their funds are maxed out, or they're under pressure. In some cases, operators will be able to attract other investments. Additionally, one publishing executive points out, “Secondary sales only expand the field that is currently being used.'' A market for making assets public necessarily means that not everyone will succeed, but other buyers must also be provided. Some degree of consolidation may be inevitable, but it may not be such a bad thing. Some writers may worry about how the new owners of their songs will treat them, but if you think about it realistically, it may sound cold, but it's also true. Yes, creators should consider it before selling it.
Is there a possibility of a broader market failure like the subprime copyright crisis?Music copyright generates steady cash, much like mortgages once did, but individual investments are It could go up or down, but it's hard to imagine fiscal stress leading to a frenzy of selling that would cause prices to fall overall. This is not a large liquid market like housing, it is also less leveraged, and there is much more due diligence on the assets being purchased. (One lawyer said the market is pushing creators and publishers to improve their contract and document retention practices.)
Although it may seem counterintuitive, the market for music rights may actually be more robust than the market for housing. So far, on-demand streaming has proven pandemic-proof and appears recession-proof. Therefore, the only danger would be the collapse of the copyright system. And it's hard to imagine how that could happen, especially now that the music business is surviving illegal file sharing. External investment in music rights, like everything else in the industry, will change, but it looks like there will be steady and long-term change. For most of those changes, creators have good reason to be optimistic.
