Here’s what’s happening to the digital world of music
If you haven’t heard about the recent news in the music industry, let me update you real quick.
Many famous artists have started selling their songs to record labels, investment firms, and to anyone willing to pay the big bucks. They’re selling both their future income on their music and the right to decide where it will be featured from now on.
They’ll remain credited as authors of these musical pieces, but all else is gone.
These artists have finally put a price tag on their most valuable possessions:
- Bob Dylan sold his entire catalog for $300–400 million to Universal Music.
- Neil Young traded 50% of his 1,180 songs to Hipgnosis Songs Fund for approximately $150 million.
- Shakira closed a deal for her 145 songs for approximately 15 years of royalties paid upfront (the actual number wasn’t disclosed).
It has become a trend, and many artists are hopping on this train and looking for potential buyers that will own their music in perpetuity.
But have they sold their souls to the devil or is there something else going on?
The rights of a song
First of all, let’s clear out the basics.
In simple terms, there are usually two right owners of a song: the songwriter and the recording owner.
Sometimes it can be the same person but usually, they’re separate entities.
The whole picture looks like the following, but we’ll treat it in the simplest terms.
The songwriter has the intellectual property of the music and he or she receives royalties whenever the song is played in a public venue, physical (e.g. mall speaker) or digital (e.g.TV shows, streaming).
On the other hand, the owner of the official recording receives his share for the music reproduction. Each time the song is played, there’s money coming in. At least, when you’re able to follow the song’s trail.
These rights should be split in half, in theory, but usually, the one investing the big bucks to record the song is the one setting the terms. Currently, songwriters get between 12 and 15% as royalty for their music, but you might raise it to around 22% if you’re a famous artist.
That’s the sad truth.
So when a mainstream artist sells his entire catalog, like we’re seeing these days, they’re actually selling a small percentage of the overall rights for those songs.
Well, plus the right to decide where the songs will be played from now on.
Why are they selling their music?
First and foremost, it’s about the money.
The purchase price is high and it’s hard to say no to this opportunity.
There has been a general hype to get hold of music catalogs from famous artists, which raises the bar for anyone willing to buy it. So many consolidated artists might be tempted to sell now, when the buzz is still very much alive.
There are other reasons that have encouraged artists to consider this type of offer seriously:
- Lack of live performances: The pandemic has halted all live events and historically tours have been a large percentage of their revenue. More than 80% of what they make in a year comes from touring. Look at this article by Billboard specifying the four major income sources from the 50 highest-paid musicians. Not even one of these artists makes more money through another source of income. Touring is sacred.
- Not enough money through streaming services: To get even a decent amount of money out of this revenue source, you need not just thousands but hundreds of thousands of streams per month. To get you a better idea of the situation, this is how money is distributed through these platforms:
“(…) of a £9.99 Spotify subscription, £4.58 goes to labels, around £2 to Spotify and just 46p to artists — with the remainder going to rights holders and in taxes.”
No wonder artists like David Crosby say that the streaming platforms are stealing the artist’s money.
- Time to cash it out (streaming platforms): those that do get a good revenue from streaming, also have a problem. They get a steady income, but it will take time to amount to a larger sum, and some of these musicians are old. David Crosby is 79 years old, Bob Dylan is 79, Neil Young is 75, etc. Not all of them are that old, but if you’re handed the equivalent of what you’ll expect to get in 15 or 20 years from now, don’t you want it now?
Last year turned our lives upside down and it changed our perspective on life and work. The music industry has been one of the most hit by the pandemic, and it has lead musicians to take more extreme measures like this one.
What’s in it for the buyer for these old songs?
Just to be clear, buying the rights to artists’ songs isn’t something new.
Rember that Micheal Jackson purchased the entire catalog of The Beatles in 1985 for $47.5 million. Yes, it was seen as something strange at the time but it’s not an uncommon practice.
However, this has become much more prominent these days. Hipgnosis Song Fund, the ones buying Shakira’s and Young’s catalog, has already spent $1.7 billion in acquisitions.
That’s a lot of money!
When labels, funds, and other entities purchase a music catalog this is what they get:
- The royalty percentage artists have for their songs (usually between 12 and 15%) across all platforms and instances where the music is used publicly.
- The right to use the song in whatever way they see fit.
- Sync deals: The chance to strike a big deal with any audiovisual content in need of music. Imagine a less famous song of Neil Young airing in a mainstream TV show. You get money for airing it plus all the new hype for that artist in terms of streams, and possible ads wanting to use that song. There’s a hidden treasure ready to be opened.
- A steady revenue from streaming platforms for that artist.
- The merchandise associated with the artist’s name: t-shirts, bags, hats, and anything you can put the musician’s name on it.
- Hologram performances. This might still be premature, but it can soon become a reality. Imagine going to a concert and seeing Jimi Hendrix on stage thanks to technological advancements in light and sound projections. One day, you could have a faithful representation of a celebrity by combining C.G.I., a body double, deep fake, and some other technological trick to make it look as if that artist were on stage. This might need a whole new article to address this phenomenon.
And no doubt that the song managers will find other ways to exploit their products. They can get quite creative when it comes to money-making.
The pandemic has left the music industry on its own with no help from Governments across the world, but famous artists are getting huge deals for their music.
Is this a sign that music has value again?
At least famous musicians are generating a nice cash flow for their music catalogs.
There are many reasons to do so and the pandemic has increased the rate at which artists are getting rid of their most prized possessions.
If someone is willing to invest eight or nine figures in this business deal, he or she knows it might generate nine figures (or more) for it. Now it’s up to these visionaries to prove it.
What do you think of this trend?
Do you think more artists should do this?
Or do you think there’s a serious need to change the whole industry since artists should not be forced to sell what makes them unique?
One thing is for sure, there’s a lot of money in this industry and a few are getting it.
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