Report: Are Music Catalogs Overpriced?

Song catalogs from the Baby Boomer era and after are fetching enormous sums from publishers, private equity firms and others looking to capitalize on the music business’ recovery, reports The L-A Times.

Bruce Springsteen in December reached a deal with Sony Music Entertainment to sell his master recordings and songs for $500 million. Warner Chappell Music early this month bought David Bowie’s songwriting catalog for $250 million. A variety of rights and assets from artists including ZZ Top, Tina Turner and Paul Simon all sold last year.

Trade publication Music Business Worldwide estimated that more than $5 billion changed hands through music rights acquisitions last year, including publishing assets and recordings, with more to come in 2022. Buyers are said to be circling Phil Collins.

Music assets are selling for unusually high valuations. During the last 25 years, songwriting catalogs generally sold for about eight to 12 times the “net publisher’s share,” or the amount of revenue the songs generated minus the royalties paid out to the performers and songwriters. Today, valuations are hitting 25 to 30 times the publisher’s share, according to industry experts and executives.

That has led some insiders to suggest that investors are overpaying.

The sector is attracting some of the biggest players in finance. Sherrese Clarke Soares, an entertainment investing veteran, in October launched Newark, N.J.-based HarbourView Equity Partners to buy music rights with $1 billion in backing from Apollo Global Management. This month, “All of Me” singer John Legend sold his songs to private equity giant KKR and music firm BMG for an undisclosed sum.

Songwriting catalogs are stable assets that generate consistent revenues from radio play, disc sales, streaming and placement in movies, TV shows and commercials. They’re safe bets for institutional investors like pension funds to put their money, especially when interest rates are low and bonds don’t yield worthwhile returns.

But why are investors willing to spend so much on music rights? The surging growth of the recorded music business, thanks to streaming services like Spotify and Apple Music, has made music catalogs hot properties once again. Total U.S. album consumption increased 11% last year, according to an annual industry report by MRC and Billboard.

Plus, older music is becoming a bigger part of Americans’ streaming diet. Catalog music accounted for 70% of album consumption in 2021, up from 65% in 2020. Consumption of current tunes declined 4% in 2021, while catalog listening jumped 19%. The report credited an uptick in nostalgia for old favorites during the COVID-19 pandemic, amplified by the proliferation of music on TikTok and on home fitness platforms like Peloton.