Why companies are eager to achieve huge music catalog markets

Why companies are eager to achieve huge music catalog markets

New York

Music superstars are tapping into a red-hot market.

Justin Bieber on Tuesday joined a growing list of iconic singers who have struck huge deals to sell their music catalogs — or, in some cases, their masters — for hundreds of millions of dollars.

Song management company Hipgnosis said it had acquired the rights to Bieber’s entire music catalog in an acquisition that is “among the biggest deals ever made for an artist under the age of 70”. Although the terms were not disclosed, Billboard reported that the price was $200 million.

The news comes amid a wider trend – one that has been growing since Merck Mercuriadis founded Hipgnosis in 2018 and began buying rights to legendary tracks. “What I wanted to do for the entire community of singers was to really establish music as a luxury class and create a market,” Mercuiadis said Tuesday, adding the value of hit songs to gold or with oil. “I wanted to demonstrate to the financial community that these great creations have very predictable, reliable income and are therefore investable.”

Mercuiadis certainly helped lead that way. In recent years, generation after generation of stars have booked nine-figure deals to hand over the rights to their catalogs. Bruce Springsteen sold his masters and publishing rights for a reported $500 million. Bob Dylan sold his catalog for a reported $300 million. And, young artists also got in on the action, with singers such as John Legend and Iggy Azalea hitting us.

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So why have these deals been going on for the past few years? For several reasons.

The streaming era has made music more valuable than ever. In the early years, top 40 stations had a firm grip on music sales, sending fans to stores to buy physical CDs of their favorite artists. Now, services like Spotify and Apple Music have revitalized the music industry. And it’s a business that’s still on the rise.

“The streaming market, especially if you think globally, is growing steadily,” said Serona Elton, a former record executive who now teaches as a music industry professor at the University of Miami Frost School of Music. “It’s expanded into new markets as the costs of cell phones and Wi-Fi and cell services come down.”

At the same time, the pandemic has starved artists of touring income, forcing them to look at other money-making opportunities to expand their income stream. And the poor economic conditions created by the pandemic have helped business people realize that music is a “recession-proof asset,” Elton said, explaining, “Even if someone loses their job, they’re still listening to music.”

Mercuiadis wholeheartedly agreed, saying, “Our emotional barometer as humans is married to music. If we’re living our best lives, we’re doing it to the soundtrack of music. And, likewise, if we are challenged, whether by pandemic or inflation… we take comfort and escape with these songs. Songs are always a part of our lives.”

Finally, there’s the later TikTok factor. Short-form video apps contributed to music discovery by sending older tracks viral, driving streams and triggering spikes in downloads. In other words, there is a surge in new demand for songs from the past.

All these factors are heating up the market. The Wall Street Journal reported that investors and music management companies were “buying catalogs for up to 30 times their average annual royalties”.

Elton pointed out that there is some risk in selling these artists to relatively new companies, such as Hipgnosis. Unlike legacy companies, these new firms do not have a long track record in music management. “We have people who are not involved in the buying and selling, but are watching, wondering how this will play out over time?” Elton asked.

But Mercuriadis insisted that not only is he “managing these songs with great responsibility,” but that his boutique-styled firm is a better steward than the legacy record labels. Labels often have a different set of goals, he said, including creating new hits, which can distract them from the singular mission of managing older music. And, according to Mercuiadis, they manage huge libraries — not a narrower library of very close hits.

“We’re totally focused,” he said, “on managing the creative songs of the moment.”

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