The pandemic has changed the way musicians and investors perceive royalties
Drummer Steve Jordan began working as a studio musician while in high school in the 1970s. At 19, he performed with the band “Saturday Night Live” and toured with the Blues Brothers.
But he said he quickly realized that if he wanted to be financially successful, he would have to do more than just make music. He should have control over this music.
âI knew early on that I couldn’t put all my eggs in one basket and be a successful musician,â said Mr. Jordan, now 64. âYou have all these musicians who are not getting paid the way they should be. If they’re just hired to perform on a song, they don’t get royalties. They’re not the songwriters and they don’t get royalties even though what they performed is the hallmark of the song.
He entered into a co-publishing agreement in 1989 with Warner Chappell Music, a music publishing company. âIt allowed me to get a better stream of royalties,â he said.
So when the pandemic ended live performances and most in-person collaborations between musicians, Mr. Jordan had an asset – his publishing rights and other royalty payments – that he could borrow from, allowing him to continue investing in his own music production company. .
Payment of royalties has long been a problem in the music business. Record companies generally take the lion’s share. The move to streaming, which expanded audiences but drastically reduced income, further reduced income for many musicians.
The pandemic has shaken things up again. Without live performances, artists were forced to rethink the way they handled their finances. This has 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 bought out the rights to artists who would rather leave the world of streaming royalties to someone else.
âWe have clients who have looked at their royalties in different ways,â said Mona Manahi, Managing Director and Chief Financial Officer Services Practice at Geller Advisors. âWe have artists looking to buy out their masters to keep the rights that previously belonged to record companies and publishers. We also have clients looking to sell their music rights.
On the investor side, there are large funds, such as Hipgnose, who pool capital to buy entire music catalogs. And companies like Financial Lyrical advance money to artists for a few years of their royalties, but allow artists to retain ownership.
âThe industry has changed over the past 24 months because of one company, Hipgnosis,â said Mathew Knowles, music executive and father of music stars BeyoncÃ© and Solange Knowles. âThis is the company that changed the whole industry by selling your royalty rights. “
Hipgnosis had money to invest before the pandemic, which gave him the ability to buy rights to songs from musicians who suddenly weren’t making money from performances.
âFor artists, touring is their # 1 income,â Knowles said. âNo one knew the end of the performance was coming, and they certainly didn’t know it would take 18 months to two years before she came back. Even the top performers and some of the big bands that have huge overheads are struggling. “
The amount paid for royalties depends, of course, on the artist. But it is also related to the type of royalties. Selling master recordings could bring in 10 to 14 times the annual royalty stream, but release rights can be closer to 18 to 22 times, Mr. Knowles said. An advance that will be reimbursed generally corresponds to twice the royalties.
Yet, he said, the genre of music matters too, with rock artists going beyond hip-hop and R&B artists, due to the size of the audience for their music.
Figuring out what to do if you’re an artist – or someone trying to assess an artist’s royalties – can be complicated. Streaming has fundamentally changed the economics of music royalties.
Eli Ball, general manager of Lyric Financial and music producer in the 1990s, said when artists sold records they received $ 1 to $ 1.50 per record. Streams pay a tiny fraction of that. Or to put it another way, an album that sold a million copies paid an artist $ 1-1.5 million in royalties, but a million song streams from that album earn the artist. about $ 3,500.
Publishing royalties – which are paid to the people who hold the copyright for the composition of the music itself – may have more value since they are paid directly to the copyright owner. But regardless of the revenue stream, Mr Ball said, there is a significant lag between when a royalty payment is cleared and when it is paid. His company exists to bridge this gap for musicians.
âThis is just a sale of the future royalties they receive and not a sale of their catalog,â he said, noting that there could be more than a year of lag between when a royalty is generated abroad and receipt of a check.
For musicians trying to manage their finances, these intermediaries have come in handy during the crisis. Mr Jordan said he uses Lyric factoring because “when you’re good at X amount of money and you know the money is coming in but you need some money X now to get a mortgage or sue a startup or sign someone to your label, that was something to keep the ball moving on the pitch.
He added: âIt has been a real godsend. This allows artists to retain the rights to their work. You have options.
It has not always been the case. Ron Miller, a successful songwriter of Stevie Wonder (he co-wrote “For Once in My Life”) and other Motown musicians in the 1960s and 1970s, died in 2007 with little control over its royalties and its messy finances. His daughter Lisa Dawn Miller, former vice-president of Morgan Stanley and now an interpreter, has been seeking since her death to recover the royalties he has dropped.
It took him eight years in court to recoup the royalties for the performances of the songs he wrote – over 600.
âThe people he handed over the rights to got rich,â she said. âMaybe he got $ 2,000 for selling 10% of his royalty in perpetuity for a catalog that generates tens of millions of dollars. I want people to know who my father was.
Of course, some artists want to sell their rights and receive an immediate lump sum payment. This is where outside investors come in. The multiples for which entire catalogs are purchased are high regardless of the measure of the future value of an investment. It’s good for the artist. But it is not known what this can mean for the investor.
Mr. Ball, who rivals funds that buy entire catalogs, does not reject their strategy.
âTheir goal is to grow their portfolio as big and as fast as possible, and when they get past a certain level, the value of all of these catalogs is far greater than the sum of the parts,â he said.
But he said he had more confidence in funds managed by people with experience in the music industry than in those managed by private equity managers. âThey are really smart people, but they don’t understand the nuances,â he said.
Mr Knowles said he felt it was good to give the older artist the option to get a lump sum payment and do away with managing the various royalty streams. He also said he is confident the music business will continue to perform in a way that justifies the monies paid.
âThe growth of streaming has increased,â Mr. Knowles said. âIt changed the dynamics of the music industry. It also reduced our overheads. We are in a very good place in music.