In the early days of the pandemic, deal-making paused. But "I think very quickly the market realized what everyone is seeing: It's fairly resilient in the face of tough economic conditions," says Downtown Music Holdings COO Andrew Bergman. Although the prices of most deals aren't public, sources say they're still rising.
Indeed, current conditions may have created a perfect storm, as songwriters who want another source of revenue — and own rights that have never been worth more — meet investors who view publishing as a stable investment at an uncertain time. "With the live business not being a viable way to make money right now, there are additional artists who weren't going to consider selling who are now considering it," says Primary Wave founder/CEO Larry Mestel.
Gary Young, a partner at Royalty Exchange, agrees. In April, performing songwriters believed tours would resume by late summer, he says. But once people began to worry their incomes could drop significantly, Royalty Exchange saw "a marked increase" in songwriters "looking for ways to bridge the gap."
They're finding more potential buyers than ever. Institutional investors have come to see publishing as an asset that offers not only stability, but the potential for significant gains at a time when low interest rates have reduced bond yields. Publishing rights are also considered a countercyclical investment, holding their value if prices for assets like equities and real estate fall. During the 2008 recession, says Anthem Entertainment CEO Helen Murphy, "you didn't see any fire sales in publishing."
Publishing rights have become a popular investment in recent years in part because they are "counter-cyclical," meaning their returns do not rise and fall with other assets. If the stock market has a down year, investors can expect publishing not to follow suit. Also, low interest rates reduce bond yields and force large investors such as pension funds to seek better returns elsewhere.
If potential buyers have any hesitation, it's over whether prices have risen too high. Publishing catalogs are valued by a multiple of annual net publisher's share; historically speaking, an established catalog has generally been worth about 10 to 12 times that number — or, in some cases, up to 14 times. Over the past few years, however, that number has climbed to multiples of between 15 and 20 for "AAA assets," says Mestel.
Scarcity still drives multiples, says lawyer Michael Sukin. "As are rare. Bs are not that hard to find" and command a 10 to 15 multiple. A right's lifetime also influences price. "[Hipgnosis Songs founder] Merck [Mercuriadis] is reluctant to buy anything that can be terminated within 30 or 35 years," Sukin adds. "So he can pay 20 times because he's offering [to investors] a long term and revenue growth."
Some believe the numbers are already too high: Asked during Warner Music's April 6 earnings call about potential publishing acquisitions, CEO Stephen Cooper replied that the market "looks to me somewhere between crazy and really, really crazy." But odds are current trends could continue for at least another three years, since the U.S. Federal Reserve announced last Wednesday it will keep interest rates near zero through 2023.
Time will tell. For now, says DLA Piper's Miles Cooley, a lawyer who represents both buyers and sellers of publishing catalogs, "there's a lot of money on the sidelines, and [investors] are looking for places to put it."
This article originally appeared in the Sept. 19, 2020 issue of Billboard.