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Explained: What is music acquisition, and why is it now so popular among the world’s financial giants?

After almost decades of much instability over issues of piracy and free access which reduced the demand for buying new music, the music industry is suddenly seeing billions of dollars being pumped into it now.

Written by Suanshu Khurana , Edited by Explained Desk | New Delhi |
Updated: June 21, 2021 11:21:42 am
David GuettaDavid Guetta’s entire music catalogue was acquired by Warner Music Group. (Reuters)

On Wednesday, 53-year-old French DJ and producer David Guetta’s entire music catalogue was acquired by American conglomerate Warner Music Group. The deal is a career-defining moment for Guetta, who is the eighth-most listened to artiste in the world on Spotify at this point.

While the exact terms of the deal, which also includes some of Guetta’s future projects, were not made public, many music business analysts are saying that it can be worth more than $100 million.

The music acquisition arena is suddenly the nerve centre for a lot of activity. After almost decades of much instability over issues of piracy and free access which reduced the demand for buying new music, the music industry is suddenly seeing billions of dollars being pumped into it now.

But what is music acquisition and why is it so popular now?

What is music catalogue acquisition?

Music catalogue acquisition refers to the process of enormous deals under which artistes sell their music and its copyrights — either a particular section or their music in its entirety — to a particular company.

Traditionally, the recording rights of music were signed to a label and the performers. The publishing rights usually went to another company and the songwriters.

In the new era of music acquisition, the two have been merged — everything is now bought by another company or a collaborative deal is struck with the recording or publishing company. This tends to include all the other assets, with the artiste’s brand value in tow.

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What are some of the notable music acquisitions that happened in recent times?

In 2020, Universal Group acquired Bob Dylan’s entire musical catalogue for close to $400 million. The catalogue, comprising over 600 songs from six decades, covered iconic pieces like ‘Blowin’ in the Wind’ and ‘Like a Rolling Stone’.

Months after Dylan, singer-songwriter David Crosby announced that he wanted to sell his catalogue too. His music was finally acquired in March 2021 by American entertainment executives Olivier Chastan and Irving Azoff’s Iconic Artist Group right after the company bought a majority stake in the Beach Boys’ intellectual property, including recording, publishing and the brand name.

Columbian pop star Shakira followed, selling her 145-song catalogue, including her Olympic anthem ‘Waka Waka’, and popular pieces like ‘Hips Don’t Lie’ and ‘Whenever, wherever’ to Hipgnosis Songs Fund, a UK-based publicly-traded investment firm that has also gone on to acquire music catalogues from the likes of Canadian singer-songwriter Neil Young, former Fleetwood Mac singer Lindsey Buckingham, English musician Steve Winwood and Grammy Award-winning producer Andrew Watt, among others. The company is valued at $2.21 billion.

While Young sold a 50 per cent stake in his music to Hipgnosis, the company paid popular band Red Hot Chili Peppers between $140 to $150 million for their music publishing rights.

Then there is Tempo Music Investments, another private equity firm, which in collaboration with Warner Music Group, has bought the rights to Jonas Brothers and Wiz Khalifa. Round Hill Music, a former hedge fund manager’s venture, now owns a catalogue of over 20,000 songs, including songs from Rolling Stones, Frank Sinatra, The Beatles, Billie Holiday, Ella Fitzgerald, Miles Davis, Aerosmith, Katy Perry, Bon Jovi and Celine Dion, among others.

However, a lot of the financial details of these deals remains undisclosed.

“The value of music catalogues will continue to increase, attracting ever more capital into the space,” music business analyst Lisa Yaung, who is Goldman Sachs’ London-based managing director (Media & Internet), writes in his company’s music industry report this year.

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Why is there a sudden interest from financial biggies in the recording industry?

The financial firms are suddenly interested in acquiring other possible assets besides what they already have. The pouring in of big money, excessively low interest rates and the scope of the intangibility of music as an asset, which will always be played by people in good and bad times, has attracted various companies including the Wall Street biggies.

For instance, global investment private equity giant Kohlberg Kravis Roberts (KKR) teamed up with BMG Rights Management and bought OneRepublic frontman Ryan Tedder’s 500-song catalogue with songs featuring Beyonce and Adele for $200 million in 2021.

In 2019, Morgan Stanley bought Indian-American Grammy-winning producer Jeff Bhasker’s music catalogue for an undisclosed deal that is likely to be worth around $65 million. The deal includes the famous song ‘Uptown Funk’ by Mark Ronson and Bruno Mars.

Streaming platforms and their increased revenue possibilities are one of the biggest reasons here. Streaming services such as Spotify and iTunes, among others, have created an atmosphere that encourages a lot of the firms, both big and small, to want to invest in music. They have understood that GenZ and the millennials are spending big on streaming platforms.

Despite the investment risks involved, what the companies see going forward is an opportunity to make money through licensing, gaming, merchandise and playing music on various platforms, apart from during films and shows.

Bob Dylan In 2020, Universal Group acquired Bob Dylan’s entire musical catalogue for close to 0 million. (AP)

For example, every time Bob Dylan’s ‘Farewell’ is played in Inside Llewyn Davis or David Bowie’s ‘The Man Who Sold the World’ is played on Gilmore Girls, there will be constant revenue in form of royalties from across various platforms for the companies which own the rights. Due royalty has to be paid whenever the music is streamed or embedded in any media.

Why is it lucrative for musicians?

With tours and concerts having stopped due to the pandemic, these deals have worked well, especially for older artistes like Crosby and Dylan, who may not be able to perform much in the days to come. Musicians can earn their money at one go rather than waiting for the royalty money to keep kicking in bit by bit.

But there have been voices to the contrary as well. Last December, David Crosby tweeted, “I can’t work… and streaming stole my record money… I have a family and a mortgage and I have to take care of them so it’s my only option… I’m sure the others feel the same.”

What is a ‘deep catalogue’ which some companies prefer while acquiring music?

Guetta has two hallowed golden gramophones to his credit and numerous prestigious awards, apart from an extensive body of work which has accumulated 50 million record sales and 14 billion streams.

A significant name in the electronic music and dance circuit, Guetta’s work is considered to be genre-defining by many. Moreover, it has the extremely recognisable piece — ‘Titanium’ (featuring Sia) — which is streamed by many people on a daily basis.

However, Guetta’s music catalogue, like for a few other artistes from the last decade, has been called a shallow catalogue, prone to ‘decay’, which means that this is modern pop with songs that came about only more than a decade ago and may not work after 10-20 years. This is why some companies prefer ‘deep catalogues’ that are relatively more iconic and have stood the test of time. Dylan’s catalogue falls in that category.

But at the end of the day, every company draws its own inferences as it decides to bet on artistes on the basis of its own requirements and future profit predictions.

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