Sound Business: Why the option to sell their back catalog is striking a chord for many musicians

By Stephen O'Kane

For successful musicians, selling the rights to their work can be an effective way of raising capital – which is why a generation of younger artists are actively considering it, says AlTi Director Stephen O’Kane.

Many successful musicians have the opportunity to generate large amounts of capital, thanks to the valuable assets they produce and strong investor appetite for obtaining rights ownership. Indeed, in just one week in 2021, some of the world’s largest private-equity groups poured more than $3 billion into buying music rights¹.

Although musicians selling their back catalogs is nothing new, one of the biggest changes we’re seeing in recent years is that artists are giving increased consideration to this at relatively early stages of their career – whereas, once, it was generally the preserve of those in their later years who were looking towards retirement or legacy planning. Selling rights sooner can help an artist to take advantage of the greater degree of independence this can bring, while also affording them the opportunity to follow a passion, by investing in a new business venture, for example, or diverting funds towards impact investing or philanthropy.

We work with many such musicians who are potentially sitting on large sums that could be released to help them realize their own financial goals, whatever they may be. And it’s likely we will see more high-profile artists consider selling the rights to their back catalogs and recordings in the coming years. But there are many factors they should take into account as part of their wider wealth-management strategy, both in terms of their own circumstances and market conditions in general.

The Market Context

There has been a huge appetite for music royalties in the past few years, with increasing numbers of private-equity and venture-capital firms – including Blackstone, KKR and Apollo – moving into this space.

Bullish investors see catalogs as an attractive alternative investment opportunity. Music royalties can potentially offer stable returns, as singers and songwriters are paid every time a song is played or streamed. Buyers and investors can also reap the rewards of performance royalties, licensing brand deals, merchandise, cover versions, and so on.

However, the music industry is dynamic and fast-moving. Just as the popularity of an artist can quickly rise and fall, so too can wider investor sentiment. Higher interest rates and the increased cost of capital have caused some investment funds to pull back on buying back catalogs in recent months² as the cost of debt has risen. However, there are many who still believe in the potential long-term value of music rights in this maturing market – helped by the fact that startups such as RYLTY are finding ways³ to help investors evaluate the true value of royalties.

For artists themselves, the opportunity to create a significant capital event can be highly attractive. Bruce Springsteen sold the master recordings and publishing rights for all his work for a reported $500 million⁴ in late 2021 – a record amount for any artist at the time. More recently, Sony have just agreed to buy half of Michael Jackson’s recorded music and songwriting rights in a deal that would value the deceased singer’s total collection at a minimum of $1.2 billion⁵; and the band Queen is said to be close to a sale of its entire catalog for a record-shattering sum of $1.2 billion to an as-yet undisclosed buyer⁶.

But such deals aren’t merely the preserve of those who may be approaching retirement. Justin Bieber sold his music rights to Hipgnosis Songs Capital in early 2023⁷ for a reported $200 million, while Katy Perry sold her back catalog for a reported $225 million later in the year⁸.

There have also been high levels of activity within the burgeoning rights-ownership industry. Music group Concord recently announced the acquisition of Round Hill Music Royalty Fund, gaining ownership of more than 150,000 songs by artists including The Beatles⁹. Meanwhile, Kobalt has partnered with investment funds managed by Morgan Stanley Tactical Value, to invest more than $700 million¹⁰ to acquire music copyrights over the next few years.

Selling Considerations

With investors circling, many artists – whatever stage they’ve reached in their career – should therefore consider whether to take advantage of the opportunity to raise capital.

A key trend is that musicians, who are already part of a dynamic and creative industry, are becoming increasingly entrepreneurial and open to looking beyond their immediate world for investment and revenue opportunities, as we’ve seen with others in the entertainment sector.

The likes of Katy Perry, Beyoncé and Ed Sheeran have lucrative commercial partnerships, such as associations with a drinks brand, or a clothing or cosmetics line. Meanwhile, Jay-Z owns multiple businesses, while Rihanna is behind make-up line Fenty Beauty. Raising capital can help them diversify their wealth and income streams in this way.

When we work with musicians, we stress the importance of taking a 360-degree view of all the advantages and disadvantages of selling the rights to their catalog.

A decision to sell may often be driven by personal reasons. Touring is how many musicians make most of their income, as streaming relies on extremely high volumes to generate significant sums. As we know, the most high-profile artists, such as Taylor Swift and Beyoncé, can earn hundreds of millions of dollars per tour¹¹.

However, spending months on the road and performing regularly can take its toll, in particular placing a strain on relationships and mental and physical health. For many, inevitably, there will be a point where their priority is to reduce the amount of time they spend on the road.  Everyone’s motivators can differ however they might include the desire to fund lifestyle choices or succession planning.

For artists in such positions, selling the rights to their music is always going to be an attractive option – but not always the right one for them. It’s important, therefore, for them to seek the right guidance from trusted advisers who can take a holistic view of their situation and the current market conditions.

One key question we always ask is: Is this the right time to sell? We believe it’s always vital to look ahead to consider any deals that could affect an artist’s present and future income, such as if a song is to feature in an upcoming movie. There may also be other albums in the pipeline, meaning the artist could sell their catalog for an enhanced sum if they waited a few years.

On the other hand, no one knows how long this current boom in music-rights purchases will last. Large sums have been offered over the past four years, but the market is now maturing. And, like any market, it has experienced downs as well as ups – particularly over the past year – and there is no guarantee how it might look in the future.

There also need to be serious personal considerations before selling rights to music. Musicians are potentially giving up creative control of their work, and this may cause difficulties for them further down the line. An example is Taylor Swift, who has been embroiled in a well-publicized dispute¹² over the rights to the songs on her first six albums. Swift owns the publishing rights but does not own the master recordings. Over recent years, she has been re-recording and re-releasing these albums to supersede the old masters and regain full control of her work.  

Other artists have also been stung by their songs appearing in places that may not align with their values. For example, a track could be used in a political campaign they do not approve of, yet the artist may not have the power to stop this if they no longer own the rights.

Another consideration is how many stakeholders would be involved in the sale of the catalog. It’s usually easier to negotiate a successful deal if a single person holds all the rights – for example, a sole singer/songwriter rather than a band who co-write their music, or an artist who performs work written by professional songwriters.

Furthermore, music rights are multilayered, covering recordings, publishing, mechanical royalties (when songs are produced as physical products such as vinyl or CDs), and so on. For example, Rod Stewart has recently forged a deal with Iconic Artists, for nearly $100 million, that comprises interests in his publishing catalog and recorded music, as well as some name and likeness rights¹³.

A legacy artist might, for example, be out of contract with their label or publisher, and finally in a position where they now own all those rights (Springsteen being a case in point here); but a highly successful young artist may still be under contract, so close attention will need to be paid to what they are able to sell. 

In nearly all cases, whatever the considerations and the decision to be made, it is likely to be complicated. It’s therefore essential to work through everything carefully with every key member of an artist’s team.

Where Next?

The music-investment market is continuing to make its mark as an alternative asset class. Looking ahead to the rest of 2024 and beyond, appetite is likely to remain for successful musicians’ work. While some funds are pulling back, there is still an active market of buyers making moves in this space and looking for new opportunities.

For a musician, there is no straight answer on whether – or when – to sell the rights to their work. At AlTi, we sit down with the artist and their business managers, agents, and family to really understand what they want to achieve. There are a lot of nuances, and there isn’t a one-size-fits-all answer. It’s about working out the right time for the market, but also the right fit for a musician’s circumstances.

That’s why we believe that the support of a trusted adviser has a valuable role to play in the broader conversation by providing expertise around maximizing opportunities, investing, and wealth creation.