“So, if somebody was going to do a cover version of Justin Bieber’s Sorry, Bieber would get some royalties as one of the songwriters, but the record label and him as an artist wouldn’t get any royalties because it’s not his recording anymore,” Mulligan said.
Mulligan said booming music right purchases in the last five years had focused on songwriters’ rights, but recording rights were increasingly sought.
David Vodicka, founder of Australian music law firm Media Arts Lawyers, said modern pop tracks often had multiple songwriters, meaning pop stars like Bieber often shared publishing royalties with many others.
“There’s any number of different permutations … but at its simplest, what you tend to be selling is the right to earn the income stream from a set of rights,” Vodicka said.
Bieber’s deal means his share of the ongoing royalty income from publishing copyrights, master recordings and neighbouring rights to all songs he released before 2022 now goes to Hipgnosis, which is listed on the London Stock Exchange. In return, Bieber gets a big lump sum upfront.
Why are musicians increasingly taking the big payday?
Both Mulligan and Vodicka said streaming had transformed music’s financial picture. For established artists, Mulligan said selling their music rights allowed them to cash in on their success and provide security as listening habits and revenue streams continued to evolve.
“There’s one constant in the music business over the last 20 years, and that’s been change,” he said.
Vodicka said multi-million dollar catalogue deals – which have also been signed by Sting and Fleetwood Mac’s Stevie Nicks recently – made it easier for older artists to plan their estates by dividing a big pile of cash, rather than splitting up already complicated music rights. Limited touring revenue during the pandemic also spurred some to sell.
Favourable tax treatment has also encouraged US artists to take a large upfront capital gain, which is taxed at a maximum of 20 per cent while ongoing royalty income is taxed at up to 37 per cent. US President Joe Biden had planned to raise capital gains tax on those who made more than $1 million, prompting urgency from well-off acts to secure their big payday before the changes were made. However, Biden was unable to make the changes, Vodicka said, and is now faced with a divided Congress and legislative gridlock.
Why are people buying song catalogues?
After the financial crisis of the late 2000s, low interest rates meant investors had money to throw around, but government bonds weren’t providing high returns. Seeking alternatives, they soon found firms such as Hipgnosis.
Well-connected music industry executive Merck Mercuriadis – who previously managed artists such as Elton John and Beyonce – created Hipgnosis in 2018 and pitched music in a new way, calling the constant drip-feed of established song royalties a reliable investment “better than gold and oil”.
“Major labels – Universal, Warner and Sony – have always bought and sold rights. But when there’s only three of them, there’s not a lot of competition,” Vodicka said. “So Hipgnosis, I think, put the cat among the pigeons.”
Hipgnosis began to widely publicise previously little-known music rights deals and is now backed by multi-billion dollar investment fund Blackstone. Other new music rights buyers outside the traditional music giants include Kohlberg Kravis Roberts & Co, Shamrock and Domain Capital.
Although royalties provide solid cash flow for investors, Mulligan says the main returns are found via increasing catalogue values as more buyers discover the market and want a piece of the limited established acts with guaranteed long-term popularity.
“You will expect royalties and cash flows to improve over time, but the reason you’re buying is because the market is buoyant,” he said. “The cost of catalogues are going up because the overall streaming market is going up because of the dislocation between supply and demand.”
Who could be next?
Mulligan points out recent catalogue sellers – such as Dylan and Springsteen – tend to be older, white, English-speaking males as investors considered them “nice, safe and predictable”, but many artists had untapped potential.
“[Recent catalogue sellers] tend to be of an Anglo repertoire, predominantly American, so you’re basically buying into the safest, most secure part of the market you can,” Mulligan says. “For the last four, five years, the most popular music on the planet has been hip-hop.
“But, hip-hop accounts for a very small share of the total acquisitions that have been done … basically, it doesn’t look risk-free as someone like Bob Dylan.”
What does this mean for music lovers?
It could mean little – Justin Bieber’s tiny royalty for your stream of his Justice album may now simply go to Hipgnosis and its shareholders, rather than Bieber himself.
However, artists are also giving up differing levels of control over their music. Taylor Swift notably rerecorded some of her earliest work because she wasn’t happy with her recording rights deal with her label – although this is different to newer deals struck with investment firms.
Nevertheless, Vodicka says A-grade musicians will still have millions on offer.
“I think a bit of the heat has gone out of it as interest rates go up,” he said. “There are still sales going on, but I think that the big multiple numbers are really going to be reserved for the exceptional catalogues.”