Attendees of the Music Finance Forum, held Sept. 13 by Winston Baker in Los Angeles, would be forgiven if they thought they were teleported from the Skirball Cultural Center to a coffee shop. Rarely has the word “frothy” been uttered so many times in just a handful of music conference panels.
In this context, frothy refers to an excited, high-priced market for music-rights catalogs. The word is commonly heard in the finance world, where it’s applied to equity markets, the sizes of funds raised by private equity firms, real estate markets — pretty much anything where assets or debts are bought and sold.
At the Skirball, frothy was a sign of optimism in music. Publishing assets are currently a hot investment due to streaming growth expected to last well into the next decade. Investor capital is also flowing into publishing because of new technologies, such as smart speakers and market-specific digital services that create royalties where none previously existed. “It’s definitely the hottest market I’ve seen in my 12 or 13 years in publishing and I don’t think it’s going to slow down any time soon,” said Andrew Gould, senior vp Downtown Music Publishing.
There have been many big publishing deals in the last year alone. Shamrock Capital acquired Stargate Publishing, home to songs recorded by Katy Perry, Rihanna and Beyoncé. Anthem (formerly ole) purchased Parallel Music Publishing’s catalog of 6,500 songs that includes hits by The Band Perry, Miranda Lambert and Kelsea Ballerini. Spirit Music Group’s Latin arm, Spirit Music Latino, acquired Prodemus Colombia’s 12,500-song catalog. And on the recorded-master side, Downtown Music Publishing bought Strictly Confidential’s 10,000-song catalog.
David Dunn, Managing Partner at Shot Tower Capital, pointed to a friendly regulatory environment created by the Music Modernization Act and favorable rulings in ASCAP and BMI rate courts. He also cited the European Union’s Article 13 directive that makes content-sharing services like YouTube have to acquire licenses for musical content or show best-faith efforts to remove and take down unlicensed works. But the impacts of public policy impacts aren’t measured as easily as revenue. “The dominant driver is streaming growth and a business model that’s working,” Dunn said.
Publishing catalogs are valued according to the net amount of revenue received by the rights owner — the net publisher’s share, or NPS. Investors like publishing because a catalog has somewhat predictable cash flows based on the quality of the music and prior year royalties. In addition to reliability, publishing assets are popular for the industry’s global growth and potential.
Historically, a common multiple was around 10 to 12 times NPS. Today, multiples reached from 16 times NPS to “nosebleed sections,” quipped Martin Bandier, the former CEO of both Sony/ATV Publishing and EMI Music Publishing. Dunn believes 20 times NPS can be reasonable for some catalogs. “There’s high growth, low interest rates and a lot of people are looking to deploy capital,” he said.
Putting a value on a publishing catalog is part art and part science. Data analysis is key: investors have experts pore over royalty information and assess where a song sits in its lifecycle. But human intuition also plays a part. “The first thing I ever did when evaluating a catalog is to get a tape of the songs and I would listen to them and think about the prospects — the things that weren’t part of NPS,” said Bandier. Similarly, Shamrock Capital’s Jason Sklar considers a song’s relevance in the past, present and future to understand a song’s potential NPS. “When you talk about multiples, you’ve already started from a flawed price.”
There are times when a buyer simply trusts the value of the music. Steve Salm, chief business development officer at Concord, told a story from his days at Bicycle Music Group, which Salm co-founded and later merged with Concord. In 2011, Bicycle bought the catalog of songwriter and producer Glen Ballard at the highest multiple Salm had ever paid to that point. Ballard has songwriting and production credits on hit songs from Alanis Morissette, whose 1995 album Jagged Little Pill has sold over 33 million units to date. Salm said he believes patience and understanding are key when buying a catalog. It could take 10 or 20 years, he said. Nine years ago, Salm didn’t know Jagged Little Pill would become a Broadway play with positive critical reviews: “I didn’t have that in my financial model.”