I started Wixen Music Publishing in 1978, long before music publishing became a “sexy” business to investors and bankers, and have dedicated my entire professional life to protecting songwriters, careers and legacies. Over more than 40 years I’ve never had anyone say to me, “I sure am glad I sold my publishing when I did. It was the best thing I ever did.”
But I couldn’t begin to estimate the number of times that folks like Tom Petty, Paul McCartney, Steve Lukather, Tom Johnston, Roger McGuinn, George Harrison and Donald Fagen have told me that selling their songwriting catalogs was one of the biggest mistakes they ever made.
So, why the sudden push to sell publishing rights now?
In my opinion, the trend is being primarily driven by folks who realize that catalogs are tremendous assets, and also by writers’ representatives who have seen the money they make plummet over the past few years (especially if COVID-19 or an artists’ age interrupted touring plans) and hope to make some nice fees for “helping” them sell their songs. A lot of the encouragement to sell (and make money off of the sale) begins with the assertion to songwriters that “folks are offering insane amounts for catalogs” and “you should sell ASAP because Biden might raise the capital gains tax.”
Let’s have a closer look. In fact, even a 25-times net earnings multiple on a catalog sale might not be insane. The passage of the Music Modernization Act (MMA) is going to significantly change a lot of things, including how performing rights organizations like ASCAP and BMI function, which presently operate under government consent decrees. As part of that, the two big PROs now have the rates that they can charge broadcasters who publicly perform music, each determined by a single judge. Because of the MMA, the judges making these rate determinations in the future will be rotated for a better-balanced point of view, and many industry insiders believe that the rates that BMI and ASCAP receive and pay will rise because of this.
Royalties for on-demand streaming are also likely to rise. The Copyright Royalty Board (CRB), which sets such rates, determined that rates paid by streaming services were way too low and awarded a 44% increase to publishers to be phased in over five years. This ruling is now on appeal by various DSPs, but it seems pretty likely to me and many of the companies investing in music rights (and who hope artists and songwriters aren’t aware of this) that rates paid for streaming rights will be going up substantially. And the next cycle of CRB rate hearings has already started even though the prior ruling is still under appeal. It is likely that there will be huge amounts of retroactive royalties to be paid out once the appeals from the prior CRB hearings are exhausted, and the current CRB hearings are decided. That could mean if a songwriter sells now, the buyer of their copyrights might be getting a windfall of income that was actually earned prior to the sale.
Between the CRB rate hearings and changes that will be enacted because of the MMA and the newly created Mechanical Licensing Collective (MLC) that was set up thereunder, I see music catalogs being worth double what they are now in four to seven years. If that prediction of catalogs doubling in value happens, current rights holders can look at the 25 times net earnings multiple as being closer to 12 1/2 in reality.
But let’s say you do want to sell anyway.
Even with capital gains at the current 20% rate, let’s say that representatives and any other folks “helping” sell songs are somehow constrained to only taking a 10% fee of the sale price. That would leave a writer 70% of what their catalog was worth when all was said and done. If they’re planning on blowing through it all in the next few years, have at it. If they’re planning on living on this money for a while or leaving it to their heirs to live on for an extended period of time — will they or their heirs be able to live within their means, or will they blow a lump sum? Also, one has to think about how they would be investing their 70% net proceeds. Can they find a safe investment for the 70% net that will return the same amount that 100% of their publishing catalog throws off each year — and which also might be worth twice what it’s worth now in five years?
If they’re really that strapped for immediate cash, then they should go make a five-year advance-based publishing deal. At least that kind of mistake expires and they won’t regret something for the rest of their life.
Here’s something else to think about: Let’s take a look at the usual suspects that are trying to buy songs. Are they actually in the publishing business? Do they really care about writers, their careers, and legacies, or are they really beholden to their shareholders? Do they have a real back office that does administration and royalties or are they just handing off to the lowest-cost company that really is in the business? The lowest-cost company actually handling these songs might be charging a 5% administrative commission and come up with a sloppily-collected “small pie” whereas a higher-cost back office that spends a lot more time making sure the collection is done right and does a very thorough job for a 10% commission on a much “larger pie” might, in fact, yield a lot more royalty income when things are examined through a dollars-and-cents collected lens instead of a percentage rate-paid one.
If a composer kept their writer share or some of their publishing rights, they certainly don’t want administration that will cause their income to go down due to lower collections by a third-party back office working for some financial vehicle. Moreover, if that happens, that will also affect the value of what the remainder of the song rights might be worth. If a writer gives matching rights or first right of refusal to a buyer on any sale of additional songs or rights they kept, or if the buyer promises additional bonus fees if a catalog performs well and meets certain income targets post-sale, is that an actual benefit or is it truly an incentive for the buyer to give low-budget license quotes and collect poorly for the next few years?
Here are some more questions for songwriters contemplating catalog sales to consider:
Do the songs have any personal or sentimental value and would you not care if, say, “You’ve Lost That Loving Feeling” was used in a condom commercial? What is the track record of the folks running these funds? Have they made money in their past companies or have they left a stream of disappointed investors and furious creators in their wakes? Have they ever done anything for the long-haul, or have they just flipped assets when the going got tough?
If that happens, are you going to find your songs owned by a company that also invests in nuclear reactors or private prisons someday? Are these companies based in foreign countries or in off-shore tax havens where it might be hard for investors to take legal action if necessary? What fees do these companies get for spending their investors’ money, and what special perks (like the right to buy discounted catalogs) do they get if the company can’t remain a going concern? Have your representatives investigated any of these things, or have they just pressured you because selling is time-sensitive and they’ve tempted you with a big pot of gold?
Do you want to be like one of the stars from the late 1950s or early 1960s who got a Cadillac instead of royalties or like Little Richard who got $50 from Art Rupe for “Tutti Frutti?” You only get one chance to think before you jump. Now is the time.