Selling Your Music Catalog In 2021: A Frenzy or a Clever Move?
Ever since Bob Dylan sold the rights to his entire songwriting catalog, several other artists have done the same. Letting go of the work you created isn’t an easy decision, but it seems that the time is ripe, and there are three main reasons why selling your music catalog is the new trend.
Thanks to streaming and social media (looking at you, TikTok), music valuation is off the charts. That means that, by proxy, music catalogs are garnering a pretty penny. According to the Entertainment Retailers Association, last year, streaming accounted for 77% of the £1.4bn UK music market.
As of September 2020, Spotify reported a growth of 320 million monthly active users and saw paying subscribers hit 144 million. Since data generated from streams and downloads give a song higher valuation, it’s no wonder how certain hits (and music catalogs) acquired substantial value in the recent months.
This is especially true for older hits that have already withstood the test of time.
“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.”
But streaming can be a double-edged sword: yes, the more a song is played, the more valuation it receives, but that doesn’t mean artists themselves earn what they should from royalties. A recent analysis of actual artist royalty statements estimated that Spotify pays between $0.003 and $0.005 per stream.
Sometimes, artists are forced to sell their rights not because their songs are highly valued, but because they have no choice, especially in the current economic climate.
“To put it simply: Money is flowing into acquiring music
rights as a form of investment diversification. This is the
same reason why you should consider making a sale and
why it is a good idea to use the proceeds from a sale to
diversify your investments.” – Daniel Weisman
COVID AND TOURING
Even when streaming killed the video star, at least there was still the chance for live gigs.
According to the World Economic Forum, the global music industry is worth over $50 billion, with two major income streams: live music (making up over 50% of total revenues and derived mainly from sales of tickets to live performances) and recorded music.
For most artists, touring is their financial bread and butter, and the past year hit like an anvil. Similarly, the opportunity to sell merch or upsell other concert experiences is almost non-existent.
Without live touring income, starts like David Crosby say they have no choice but to “forcibly” retire by selling their music catalog.
A LOW-INTEREST-RATE ENVIRONMENT
“Royalties are income, but the sale of a self-penned music catalog is capital gains, and capital gains tax is much lower than income tax generally.”
American songwriters will be aware of two important financial factors concerning music catalogs in particular: one, musicians (and only musicians) are privy to a special tax rate on self-created works and two, that capital tax is currently at 20%. With that in mind, President Joe Biden wants to lift that rate to 39.6% for people who earn more than $1 million a year.
If an artist was already considering selling a music catalog within the next five years, a potential tax increase could be a catalyst for closing a deal now.
Notwithstanding, global Interest rates have dropped even lower due to the pandemic, which means that the buying power of one dollar today is likely to be like that of one dollar
IN GOOD HANDS
Following suit, Dolly Parton hinted that she, too, is considering selling her music catalog. “It’s very possible that, for business reasons, estate planning, and family things, I might sell the catalog I have now. I’ve often thought about it, and I’m sure that I could get a lot of money for it.”
At the core of it all, artists have a personal connection to their songs.
But when icons die without leaving their wills in good hands, their music and other assets end up in a messy lawsuit and often, into the hands of somebody who either doesn’t know about the businesses or who only cares about the money.
While it may be true that publishing prices may never be this high again, many of the most famous artists currently selling are in their 70’s. They’ve had enough time for their songs to accrue a lot of royalties. “It’s probably not a good strategy for younger artists to go for the big payday when it comes to their publishing, for an older artist, it can definitely make sense.”
But if you are convinced it’s what you want to do, there’s a straightforward rule to follow best said by Daniel Weisman from AllianceBernstein: “A small amount of planning now can potentially save you millions over your lifetime.”