Dollars And Sense

As someone who has bought, built and sold music publishing catalogs, along the way working with pension funds, VC firms and PE firms, I believe I understand what all the buzz is about and why multiples have risen so much. It’s really just the coming true of what my former partner, Michael Dawley, and I foresaw back in 2013.

Here are a number of reasons why capital wants a home in music copyrights:

1) Predictability of classics. Evergreens, as we in the industry call them, provide an almost to the dollar baseline, with the potential for a huge upside in any given year. Those upsides tend to come in the form of big ad uses, or new cover versions. I’ve seen this first-hand when I administered Van Halen and we landed an Acura Super Bowl ad – basically, the crown jewel of synch licensing. The predictability is something the lowerreturn investors appreciate i.e. the pension funds. It’s fairly simple to model a realistic discounted cash flow and if there is a variance, it’s generally a positive one.

2) Multiple versions. Unlike their master recording cousins, copyrights benefit from the fact that there can be an unlimited number of versions recorded. Thus, the earning potential is exponential. A great example is “Yesterday” (McCartney / Lennon) that has been covered over 2200 times!

3) Many lines of revenue. Many people don’t realize the amount of ways copyrights are monetized. The three core areas are sync (use in motion picture – Ad, TV, Film, etc) mechanical (sales – physical or digital), and performance (radio, clubs, etc). But there are also alternative uses, which are paid. For example, lyric reprint rights. I oversaw the song “Gloria” in the US when the St. Louis Blues won the Stanley Cup and “Gloria” was their unofficial team song. Well, after they won, Budweiser came knocking wanting to print “Gloria, Gloria” on specialty cans. This is done on a price per can basis, so you can imagine the revenue.

4) Favorable legislation. As a former Trustee of the Recording Academy and member of the Advocacy Committee, I had the privilege of lobbying Congress and helping see through the passing of the Music Modernization Act, which effectively speeds up payment from on demand streaming services (now monthly), creates a one stop clearance center instead of multiple vendors (the MLC), and shifts the cost of collection from the publishers (used to pay about 10% to the middlemen vendors) to the digital companies, who actually by law fund the MLC. It also allows the panel of judges that sets the streaming rates, to look to the outside world and evaluate the rate structure, whereas before, this was not permitted.

5) Copyrights got a raise. During the last copyright rate board review, songwriters received a 44% raise over a 5 year period.

6) Streaming, Streaming, Streaming. The growth figures are through the roof. You need only experience the ease of services like Spotify to realize eventually, everyone will be streaming music. The penetration still has a way to go, giving plenty of potential upside.The other very important, and often unreported aspect of streaming is that it provides for a mechanical royalty for each stream. In the past, if you bought a CD and I had one song on it, I got 9.1 cents for each CD sold. I now am paid EVERY TIME you stream that song. Yes, the rate is a fraction of a penny per stream, but with the rate raise and growth of streaming, the future is bright. Add to this that streaming is opening up territories for monetization that have been historically known for piracy, and we have a paradigm shift in earnings for sure. 

7) Uncorrelated asset. I know, very financial term, but it is true. Music copyright royalties do not necessarily move in lockstep with the broader market. Investors like to hold instruments like this.

8) Music is “sexy.” Yes, investors are humans too. They like the idea of being associated with cool music. Don’t let them tell you that they don’t. I’ve taken plenty of investors to live shows and watched them take selfies to send to friends and want to meet the talent. That’s a good thing and might be the cherry on the investment cake. 

Building by buying is certainly a strategy that works for a certain return profile and there are plenty of folks in the market doing just that. But, for those who want the shot at the enormous return, it’s always the copyright that has yet to be created that can provide the most value. This is largely due to the nature of active writer deals, known as co-publishing deals. This is where the publisher provides an advance against the writer’s share royalties in exchange for a 50% ownership in the copyrights created in term. So, assuming you sign a successful writer, you get back your investment AND have ownership in some hits. This is why I titled this piece using the word “sense.” It takes that sense to identify talent early. This not easy to do and not everyone has the stomach to invest in this area. I personally feel a combo of the catalogs and contemporary new signings makes the most sense and provides a blended return higher than if one just invested in catalogs, and provides a level of stability greater than those who may only work in new writer signings. This was the strategy we deployed at my last three publishing homes and in all cases, we had very successful exits. Money that wants in needs guides who know the ins and outs of the business, so people like myself can be confident that as new financial players come into our space, we’ll be able to provide a very valuable service. 

About Richard Stumpf: Richard Stumpf is a highly regarded entertainment and new media executive with senior level experience creating and implementing successful growth strategies across numerous sectors of the business. He has experience in digital technologies, music publishing, recorded music, live concert production and various forms of content licensing and distribution. In addition to leading already established companies, he was also the founder of the very successful independent publishing company, Atlas Music. He now runs Hawkeye Music Group, which specializes in supporting artists and companies across the music and new media industries.

Stumpf’s reputation as a forward-thinking, progressive executive who consistently embraces new technologies and looks for the solutions between sectors has afforded him excellent relationships with fellow senior executives across the various stakeholders of the industry. He was the first independent publisher to strike direct deals with YouTube, Spotify, Apple and Pandora. Stumpf helped pioneer digital distribution as the inaugural music executive for MCY.com, one of the original companies engaging in online song distribution as well as concert streaming.

Throughout his career he has worked with notable artists such as Quincy Jones, Van Halen, John Legend, and Mark Ronson, as well as profile brands including The NFL, NASCAR, EA, and WWE.

Richard has volunteered for the Boards of National Music Publishers Association, Association of Independent Music Publishers, and The Recording Academy, for which he is a voting member. He also chaired the Publishing Committee for American Association of Independent Music. His lobbying efforts, directly impacted the passing of the MMA, which creates efficiency and transparency in the digital streaming space. He is also the founder and producer of StumpFest, an annual live music event benefiting St. Jude Children’s Research Hospital.