Why companies are so eager to make huge deals in the music catalog

New York

Music stars are taking advantage of a very hot market.

Justin Bieber on Tuesday joined a growing list of famous singers who have struck mega deals selling 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 “ranks among the largest deals ever made for an artist under 70”. While terms were not disclosed, Billboard reported that the price was a whopping $200 million.

The news comes amid a broader trend — one that’s been on the rise since Merck Mercuriadis founded Hipgnosis in 2018 and began buying the rights to legendary tracks. “What I wanted to do on behalf of the entire songwriter community was create music as an asset class and create a market,” Merkouradis said on Tuesday, equating the value of hit songs to gold or oil. “I wanted to show the financial community that these great, proven hits have very predictable and reliable income, and are therefore very investable.”

Mercuriadis has certainly helped lead the way in doing just that. In the past few years, generational stars have struck nine-figure deals to hand over the rights to their catalogs. Bruce Springsteen sold his masters and publishing rights for $500 million. Bob Dylan sold his catalog for $300 million. Younger artists got in on the action too, with singers like John Legend and Iggy Azalea striking deals.

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So why did these deals take place in the past few years? For several reasons.

The age of streaming has made music more valuable than ever. In the early aughts, Top 40 stations exercised a strong control over music sales, sending fans to stores to buy physical CDs of their favorite artists. Now, services like Spotify and Apple Music have revolutionized the music industry. It is still a work in progress.

“The streaming market, especially if you think globally, is growing exponentially,” said Sirona Elton, a former record executive who is now teaching as a professor of music industry at the University of Miami Frost College of Music. “It has expanded into new markets as the costs of cell phones, Wi-Fi and cellular services fall.”

At the same time, the pandemic deprived artists of their revenue stream, forcing them to look for other money-making opportunities to expand their revenue stream. The poor economic conditions brought on by the pandemic helped businessmen realize that music is a “recession-proof asset,” Elton said, explaining, “Even if someone loses their job, they still listen to music.”

Merquiades wholeheartedly agreed, saying, “Our emotional measure as human beings is married to music. If we’re living our best lives, we do so with a soundtrack. Likewise, if we’re being challenged, whether by a pandemic or inflation…we feel good and run away with these songs.” Songs are always a part of our life.”

Finally, there is the newer TikTok factor. Short video apps have speeded up music discovery because they send out old tracks very quickly, which leads to more downloads. Which means that songs from the past are seeing a surge in new popularity.

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

Elton noted that there is some risk for these artists selling to relatively new companies, such as Hipgnosis. Unlike the old companies, these new companies don’t have a long track record of managing music. “Those of us who are not involved in buying and selling, but are watching, wonder: How will this happen over time?” Elton asked.

But Mercuriades argued that not only does he “manage these songs very responsibly,” but his boutique-style company is a better host than the old record companies. He said labels often have a disparate set of goals, including creating new songs, which can distract them from the unique task of managing older music. Mercuriadis noted that they run huge libraries — not a narrower library of highly focused hits.

“We’re completely focused on managing proven songs from the past,” he said.

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