How Bernstein Leverages Data to Help Songwriters With ‘Buy or Sell’ Decision
Record amounts of money flowing into music publishing has an increasing number of songwriters asking the same question: to sell or not to sell?
Record amounts of money flowing into music publishing has an increasing number of songwriters asking the same question: to sell or not to sell? It’s worth spending time to find the right answer. For most songwriters, a catalog sale will be the most impactful business decision of their careers. With the streaming market booming and songwriters’ royalties on the upswing, holding onto publishing rights might be a good idea. But a new generation of buyers, as well as the old guard, are collectively dangling billions of dollars for acquisitions. An offer might be too good to turn down.
A sell-or-hold decision is more complicated than considering only the value of one’s life work. A long list of variables should factor into a decision: the music market’s growth rate, expected interest rates, currency rate fluctuations globally, tax rates, state of residence and a host of others. Two years ago, wealth management firm Bernstein noticed its clients were weighing whether to buy or sell their publishing rights. So they customized a forecasting tool called the Wealth Forecasting System specifically for the publishing space.
Bernstein’s tool calculates multiple scenarios with different underlying assumptions, explains Stacie Jacobsen, vp and director of Bernstein’s Wealth Strategies Group. “We look at 10,000 plausible trials,” she says, then compare what happens if rights continue to generate revenue taxed as personal income or are sold, with money taxed as a capital gain and then invested.
“One of the big questions we tend to get is, ‘Will I ever have to worry about money for the rest of my life if I do this sale?'” says Dan Weisman, vp and financial advisor at Berstein Private Wealth Management, as well as a former artist manager who represented Wale and Big Sean, among others. “We can stress test the proceeds and say if you can spend $500,000 every year and never go broke or spend $500,000 a year and go broke in 10 years.”
In the last three to four years, low interest rates have led investors to flock to alternative assets for a greater return from relatively safe investments. Offshore royalty funds set up by Hipgnosis and Round Hill have raised hundreds of millions of dollars with a promise to investors they have a pipeline of catalogs that are ready to be purchased. Year to date, Hipgnosis raised £75 million, bringing its total funding to £1.1 billion, and Round Hill Music raised $573 million in November 2020. On Tuesday, BMG announced it is partnering with private equity firm KKR — for the second time since 2009 — to acquire publishing music rights; their previous partnership resulted in acquisitions of Bug Music, Cherry Lane Music Publishing and Evergreen Copyrights, among others. This “small cohort of buyers that have done a lot of promotion” to music publishing and “brought more sellers to the market,” says Weisman.
Because Bernstein’s Wealth Forecasting System is based solely on data, one of its best qualities is its objectivity. That can help songwriter who get conflicting advice from people in their team. “A lot of people helping artists make these decisions are taking a commission,” notes Adam Sansiveri, managing director and head of the Nashville Private Client Group at AllianceBernstein. Many business managers use Bernstein to provide their clients with this unbiased counsel “so they can give advice that’s in the best interest of their clients,” adds Weisman.
Selling isn’t necessarily a good option even when buyers are offering huge wads of cash, however. Randall Wixen, founder of Wixen Music Publishing, wrote in a March 11 Billboard op-ed that songwriters should think hard before selling, mainly because he believes rights and valuations will double in the next four to seven years. Streaming adoption is growing globally, legislation and government inquiries will help songwriters grab a larger share of streaming revenues, he said.
From Bernstein’s point of view, however, a partial catalog sale might make sense. “Historically, royalty rates have not caught up with inflation,” says Weisman. “Even with CRB ruling” that increased songwriters’ streaming royalty rate by 44%, “it won’t keep up with inflation.” Otherwise, if an artist loses listening share to other artists, “it’s like inflation within your copyright. That’s a big “aha” moment for a lot of artists we’ve had the conversation with.”