The answer, my friend, is in the value of copyright

Author: Bindu De Knock

As this bizarre year draws to a close, the final songwriter’s catalog acquisitions are finalized. Recent transactions included the catalogues of Bob Dylan, Stevie Nicks, David Crosby, Keith Shocklee. Dylan sold his catalogue for $300 million and Stevie Nicks sold 80% of her catalogue for $100 million. Why are songwriters selling their body of work to publishers or investment vehicles?

Source Photo: BOB DYLAN, NOT LAST NIGHT BUT in 2015 (Photo: Jeffrey R. Staab/CBS/Getty Images)

What is a publishing catalogue

Before we can answer that question, let’s take a step back. Successful songwriters often own hundreds or thousands of songs accumulated over the years. For example, Dylan’s catalogue contains over more than 600 songs amassed over a 6 decades. A song catalogue is an asset of the songwriter’s entertainment business resulting from a lifelong investment in their art. The true value of a song catalogue is the copyright attached and the nature of copyright as a tradable property asset. Copyright is the temporary monopoly a write receives in return for making the investment of time and talent in creating the song. That copyright is split in two parts: a writer’s share and a publisher’s share. The songwriter can either choose to exploit that song him/herself or through a contract with a publisher, who will exploit the song on behalf of the songwriter. In return, the publisher acquires the publisher’s share and the writer receives a royalty of the revenue generated by the exploitation. To summarize, the party that obtains all the copyright shares in a successful catalogue, has made a valuable acquisition.

Selling what and to whom?

Looking back on this year, the Dylan-transaction is not a novelty but rather a continuation of a trend. In the last years, publishers and investments funds have gone for a bit of a shopping spree acquiring publishing catalogues of successful songwriters. The recent acquisitions are remarkable for their cultural impact as well as their financial value.

Historical earnings of a song catalogue are the obvious drivers of such purchases. Buyers are looking for libraries that have proven their capability to generate income and are able to continue to do so. If it all seems to abstract, let me ask you this: why do people buy vintage cars, vintage watches, art made hundreds of years ago, vintage wines or whisky….It’s because of their value and the calculation that the return will be higher than the purchase price. That is what we call an investment. For investment vehicles, song catalogues are a new asset class and the shareholders’ best interests will ultimately prevail.

The new catalogue owner will try to maximize revenue with all forms of exploitation of the songs in a catalogue. They’ll arrange for the songs to be used in advertisements, in covers, samples, recordings etc…This further exploitation also contributes to our cultural heritage. When the original songwriter has no control over their catalogue, the publisher or investment vehicle has no limitation as to how the song is used. Can you imagine a Bob Dylan song being used in an advert for cat treats? Well yes, Dylan wrote several songs about pets.

When a songwriters decides to sell the full copyright they relinquish any and all control of their songs and allow the buyer full ownership and control. Why would anyone do that?

Possible considerations for selling a song catalogue

The deals are confidential, so one can only guess at the true motives behind catalogue sales. There are number of factors that come into consideration:

Liquidity: Streaming payouts to songwriters are low and in combination with global pandemic which has wiped out touring, some songwriters may need the cash for their livelihood, mortgages, retirement fund or other investments. The Wall Street Journal reports that songwriter catalogues are reaching sales prices of 10 to 20 times their annual royalties, nowadays which is a substantial increase over earlier years. Songwriters who aren’t also performing/recording artists have less significant income streams.

Tax strategy: by selling a song catalogue, a songwriter can benefit from a more beneficial tax regime. There are tax benefits to a one-time lump sum over an continuous income stream of royalties. In the US, this is 20% tax rate on the sale vs (up to) 37% tax rate each year on royalty income. Also, Biden’s tax reform plans are less favourable for taxes on asset sales.

Estate planning: Copyrights are a valuable asset, however they are often not included in estate planning. Upon the (untimely) death of a songwriter, this results often in lawsuits with kids or newly acquired distant nephews and nieces. Another scenario is that a third party gains control of the catalogue and discards the songwriters vision for the songs.

Copyrights are high maintenance: To put it in layman’s terms, owning copyrights is like having a house full of pets…a few examples:

• You need to attend to it: Have the songs been properly registered and administered;
• They eat a lot: Who could to something with my songs?
• Have regular checkups: Are my quarterly/half yearly royalty statements correct
• They get sick: Songs can be the subject of legal battles

Songwriter Diane Warren’s song catalogue is undoubtedly coveted by many but she stated she would never sell her catalogue. She does adores cats so she probably doesn’t mind looking after her copyrights either ….

Lower their taxable or commissionable income in the following years: With less assets and income, income taxes or service providers’ commission’s over music income will drastically decrease;

Conclusion

With Dylan selling his catalogue, he used his copyright for its exact purpose: creating a valuable asset which allows the author to trade in the marketplace. For the buyers, owning a catalogue from a legacy artist, cements their position in the market and in doing so, create their own legacy. It is called the music industry after all.

Sources

• https://www.wsj.com/articles/bob-dylan-sells-entire-songwriting-catalog-11607342403?mod=searchresults_pos2&page=1
• https://www.musicbusinessworldwide.com/david-crosby-selling-his-song-catalog-its-my-only-option-streaming-stole-my-record-money/
• https://www.musicbusinessworldwide.com/universal-buys-bob-dylan-publishing-rights-acquiring-catalog-worth-hundreds-of-millions-of-dollars/
• https://www.rollingstone.com/pro/features/universal-music-bob-dylan-catalog-survival-1100390/
• https://www.wsj.com/articles/bob-dylans-catalog-sale-highlights-a-tax-advantage-for-songwriters-11607682604?mod=hp_lead_pos10