The Pandemic Changed How Musicians and Investors See Royalties

Steve Jordan, a drummer, began working as a studio musician while still at school in the 1970s. At the age of 19, he performed with the Saturday Night Live band and toured with the Blues Brothers.

But he quickly realized that he had to do more than make music if he wanted to be financially successful. He had to be in control of this music.

“It was clear to me early on that I couldn’t have all my eggs in one basket and be a successful musician,” said Mr. Jordan, now 64. “There are all these musicians out there who aren’t paid as they should be . If they’re only hired to play a song, they don’t get royalties. They’re not the composers, and they don’t get any royalties, even though what they played is the hallmark of the song. “

In 1989 he signed a co-publishing agreement with Warner Chappell Music, a music publisher. “That enabled me to get a better license stream,” he said.

So when the pandemic ended live performances and most personal collaborations between musicians, Mr Jordan had an advantage – his publishing rights and other royalty payments – against which he could borrow so he could continue to invest in his own music production company.

License fees have long been an issue in the music world. Record labels usually took up the lion’s share. The move to streaming, which increased audiences but greatly reduced revenues, further reduced revenues for many musicians.

The pandemic has continued to stir things up. Without performing live, artists were forced to rethink their finances. This led some of them to develop new strategies to take control of their royalties. And investors have also moved in, viewing royalties as a new type of asset. They bought the rights of artists who would rather leave the world of streaming royalties to someone else.

“We have customers who view their royalties in different ways,” said Mona Manahi, managing director and head of chief financial officer services at Geller Advisors. “We have artists who want to buy back their masters in order to keep the rights that previously belonged to record labels and publishers. We also have some customers who want to sell their music rights. “

On the investor side, there are large funds like Hipgnosis that pool capital to buy entire music catalogs. And companies like Lyric Financial pay artists money for their royalties for a number of years, but allow artists to keep ownership.

“The industry has changed with one company, Hipgnosis, in the last 24 months,” said Mathew Knowles, a music manager and father of music stars Beyoncé and Solange Knowles. “This is the company that changed the entire industry when you sold your license rights.”

Hipgnosis had money to invest prior to the pandemic, which gave him the flexibility to buy rights to songs from musicians who suddenly weren’t making money performing.

“For artists, touring is their # 1 income,” said Mr. Knowles. “Nobody knew the gigs were going to end, and they certainly didn’t know it would be 18 months to two years before it came back. Even A-list artists and some of the big acts that have huge overheads are struggling. “

The amount of the royalties naturally depends on the artist. But it is also related to the type of license fees. Selling the master recordings could fetch 10-14 times annual royalties, but publishing rights can be closer to 18-22 times, Mr. Knowles said. An advance that is repaid is usually double the license fee.

But the music genre is also important, as rock musicians achieve more for their music than hip-hop and R&B artists due to the size of the audience.

Figuring out what to do when you’re an artist – or someone trying to appreciate an artist’s royalties – can be tricky. Streaming has fundamentally changed the economy of music licensing.

Eli Ball, Lyric Financial CEO and record producer in the 1990s, said artists who sold records would receive $ 1 to $ 1.50 per record. Streams pay a tiny fraction of that. In other words, an album that sold a million copies paid an artist a million to $ 1.5 million in royalties, but a million streams of songs from that album paid the artist about $ 3,500.

Publishing fees – which are paid to the people who own the copyright for the composition of the music themselves – can be more valuable as they are paid directly to the copyright owner. But regardless of the amount of revenue, Mr. Ball said, there is a significant delay between when a royalty is cleared and when it is paid. His company exists to fill this gap for musicians.

“It’s just a sale of the future royalties they collect, not a sale of their catalog,” he said, noting that it could take over a year between generating a royalty abroad and receiving a check.

For musicians trying to manage their finances, such middlemen came in handy during the downturn. Mr Jordan said he used Lyric factoring because “when you’re good for X money and you know the money is coming in, but now you need X money to get a mortgage or to continue a startup or one Person signing for your label, this was something to move the ball across the field. “

He added, “It was a real godsend. Artists are allowed to keep the rights to their work. You have options. “

That was not always so. Ron Miller, a hit songwriter for Stevie Wonder (co-wrote For Once in My Life) and other Motown musicians in the 1960s and 1970s, died in 2007 without disrupting his royalties and finances. His daughter Lisa Dawn Miller, a former vice president of Morgan Stanley and now an actress, has been trying to reclaim the royalties he was dismissed since his death.

It took her eight years in court to get back the royalties on performing the songs he wrote – over 600.

“People he gave the rights to get rich,” she said. “Maybe he got $ 2,000 for selling 10 percent of his royalties on a permanent basis on a catalog that made 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 instant lump sum payment. This is where external investors come into play. The multiples for which entire catalogs are bought are high when measured against the future value of an investment. That’s good for the artist. But it is uncertain what it could mean for investors.

Mr. Ball, who competes with the funds that buy entire catalogs, is not dismissing their strategy.

“Their goal is to grow their portfolio as big and as quickly as possible, and when they go beyond a certain level, the value of all of those catalogs is much greater than the sum of their parts,” he said.

But he said he has more confidence in the funds managed by people with experience in the music industry than in those of private equity managers. “They are really smart people, but they don’t understand the nuances,” he said.

Knowles said he thought it would be a good idea to give the senior artist the option to get a lump sum payment and finish managing different license streams. He is also confident that the music business will continue to develop in such a way that the amounts paid are justified.

“The growth in streaming has increased,” said Mr. Knowles. “It changed the dynamics of the music industry. It also reduced our overhead. We are very well positioned in music. “

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