Steve Jordan, a drummer, began working as a studio musician
while he was still in high school in the 1970s. By age 19, he was performing
with the “
Saturday Night Live” band and touring with the Blues Brothers.
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But he said he had quickly realized that if he wanted to be
financially successful, he’d have to do more than make music. He’d have to have
control over that music.
“I knew early on that I couldn’t have all my eggs in one basket
and be a successful musician,” said Jordan, now 64. “You have all these
musicians out there who are not paid what they should be. If they’re just hired
to play on a song, they don’t get royalties. They’re not the composers, and
they don’t get royalties even though what they played are the hallmarks of the
song.”
He struck a copublishing agreement in 1989 with Warner Chappell
Music, a music publishing company.
“That enabled me to get a better royalty stream,” he said.
So when the pandemic shut down live performance and most
in-person collaboration among musicians, Jordan had an asset — his publishing
rights and other
royalty payments — that he could borrow against, allowing him
to continue to invest in his own music production company.
Royalty payments have long been an issue in the music world.
Record labels usually took the lion’s share. The move to streaming, which
broadened audiences but sharply curtailed revenues, cut further into many
musicians’ earnings.
The pandemic shook things up further. Without live performances,
artists were forced to rethink how they were managing their finances. That led
some of them to come up with new strategies to take control of their royalties.
And investors have also moved in, seeing royalties as a new kind of asset. They
have been buying out the rights of artists who’d rather leave the world of
streaming royalties to someone else.
“We have clients who have been looking at their royalties in
different ways,” said Mona Manahi, managing director and head of the chief
financial officer services practice at Geller Advisors. “We have artists who
are looking to purchase back their masters to retain rights that have been
previously owned by the record labels and publishers. We also have some clients
looking to sell their music rights.”
On the investor side, there are large funds, like Hipgnosis,
that are pooling capital to buy entire music catalogs. And companies like Lyric
Financial are advancing artists cash for a few years’ worth of their royalties,
but allowing the artists to retain ownership.
“The industry has changed in the last 24 months because of one
company, Hipgnosis,” said Mathew Knowles, a music executive and father of the
music stars Beyoncé and Solange Knowles. “That’s the company that changed the
whole industry on selling your royalty rights.”
Hipgnosis had money available to invest before the pandemic,
giving it flexibility to buy rights to songs from musicians who suddenly
weren’t making any money from performances.
“For artists, touring is their No. 1 income,” Knowles said. “No
one knew an end to performing was coming, and they certainly didn’t know it was
going to be 18 months to two years before it returned. Even A-list artists and
some of the big acts that have enormous overhead are struggling.”
The amount paid for royalties depends, of course, on the artist.
But it’s also related to the type of royalties. Selling the master recordings
could fetch 10 to 14 times the annual royalty stream, but publishing rights can
be closer to 18 to 22 times, Knowles said. An advance that will be paid back is
usually two times the royalties.
Yet, he said, the genre of music also matters, with rock artists
fetching more than hip-hop and R&B artists, because of the size of the
audience for their music.
Figuring out what to do if you’re an artist — or someone who is
trying to value the royalties of an artist — can be complicated. Streaming has
fundamentally altered the economics of music royalties.
Eli Ball, chief executive of Lyric Financial and a music
producer in the 1990s, said that when artists used to sell records they would
receive $1 to $1.50 per record. Streams pay a tiny fraction of that. Or to put
it another way, an album that sold 1 million copies paid an artist $1 million
to $1.5 million in royalties, but 1 million streams of songs from that album
pay the artist about $3,500.
Publishing royalties — which are paid to the people who own the
copyright for the composition of the music itself — can be more valuable since
they are paid directly to the owner of the copyright. But whatever the stream
of income, Ball said, there is a significant lag between when a royalty payment
is set off and when it is paid. His company exists to bridge that gap for
musicians.
“It’s simply a sale of the future royalties they’re collecting
and not a sale of their catalog,” he said, noting that there could be over a
year lag between when a royalty was generated abroad and a check is received.
For musicians trying to manage their finances, such middlemen
have been helpful during the downturn. Jordan said he used Lyric’s factoring
because “when you’re good for X amount of money and you know the money is
coming in but you need X amount of money now to secure a mortgage or continue a
startup or sign a person to your label, this was something to keep the ball
moving down the field.”
He added: “It’s been a real godsend. It’s allowed artists to
retain the rights to their work. You’ve got options.”
Of course, some artists want to sell their rights and receive an
immediate lump-sum payment. That is where outside investors come in. The
multiples that entire catalogs are being purchased for are high by any measure
of an investment’s future value. That’s good for the artist. But it’s uncertain
what it may mean for the investor.
Ball, who competes with the funds that are buying entire
catalogs, does not dismiss their strategy.
“Their goal is to grow their portfolio as large and as fast as
they can, and when they get above a certain level, that value of all those
catalogs is much greater than the sum of the parts,” he said.
But he said he had more confidence in the funds run by people
with music industry experience than those run by private equity managers.
“They’re really smart people, but they don’t understand the
nuances,” he said.
Knowles said he considered it good to give the older artist the
option of getting a lump-sum payment and be done with trying to manage
different royalty streams. He also said he was confident that the music
business would continue to perform in a way that justified the amounts being
paid.
“The growth in streaming has increased,” Knowles said. “It’s
changed the dynamics of the music industry. It’s also reduced our overhead.
We’re in a very good place in music.”
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