Why companies are keen to land massive music catalog deals

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Music superstars cash in on a red hot market.

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

Song management company Hipgnosis said it acquired the rights to Bieber’s entire music catalog in an acquisition that “ranks among the biggest deals ever made for an artist under 70.” While terms weren’t disclosed, Billboard reported that the asking 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 bought rights to iconic tracks. “What I wanted to do on behalf of the entire songwriting community is really establish music as an asset class and create a market,” Mercuriadis said Tuesday, equating the value of hits with gold or oil. “I wanted to show the financial world that these great time-tested songs have very predictable, reliable revenues and are therefore investable.”

Mercuriadis has certainly played a pioneering role in this. In recent years, generation stars have signed nine-figure deals to hand over the rights to their catalogues. Bruce Springsteen sold his mastering and publishing rights for an alleged $500 million. Bob Dylan reportedly sold his catalog for $300 million. Younger artists also took part in the campaign, with singers such as John Legend and Iggy Azalea closing deals.

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So why are these deals taking place in recent years? For a few reasons.

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

“The streaming market, especially when you think globally, has been growing steadily,” said Serona Elton, a former recording manager who is now a music industry professor at the University of Miami’s Frost School of Music. “It’s expanded into new markets as the cost of cell phones and Wi-Fi and cellular service come down.”

At the same time, the pandemic dried up artists’ touring earnings, forcing them to look for other money-making opportunities to expand their revenue stream. And the poor economic conditions created by the pandemic helped businesspeople realize that music is a “recession-proof asset,” Elton said, explaining, “Even if someone loses their job, they’re still listening to music.”

Mercuriadis wholeheartedly agreed, saying, “Our emotional barometer as humans is married to music. When we live our best life, we do it to a soundtrack of music. And likewise, when we’re challenged, whether it’s by a pandemic or inflation… we comfort ourselves and escape with these songs. Songs are always part of our lives.”

Finally, there’s the newer TikTok factor. Short-form video apps have accelerated music discovery by viralizing older tracks, driving streams and driving download spikes. This means that songs of the past are experiencing a surge in new popularity.

All these factors are fueling the market. The Wall Street Journal reported that investors and music management firms “have bought catalogs for 30 times their average annual royalties.”

Elton pointed out that there is some risk for these artists to sell to relatively new companies like Hipgnosis. Unlike old companies, these new companies don’t have a long track record in music management. “Those of us who aren’t involved in the buying and selling but are watching are wondering: how is this going to play out over time?” Elton asked.

But Mercuriadis argued that not only does he “manage these songs with great responsibility,” but that his boutique-style company is a better steward than the old record labels. Labels, he said, often have different goals, including creating new hits that could distract them from the unique mission of managing older music. And Mercuriadis found that they maintain huge libraries – not a smaller library of highly concentrated hits.

“We’re totally focused on that,” he said, “on managing the tried and true songs of the past.”

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