Fans of Bruce Springsteen who were treated to a special set in New York last month were unaware of the defining moment for their offstage career.
Just a day after joining Steve Earle and The Dukes for a charity performance, The Boss unveiled a $ 500million (£ 369million) music rights sale that cemented his place in the rock pantheon.
By transferring his main recordings and publishing rights to Sony Music, the singer behind landmark albums such as Born to Run and The River sealed the biggest ever sale of an artist’s work.
For those in the music industry, the deal came as no surprise. It was simply the last in a multitude of agreements for artist and producer royalties which helped the value of music mergers and acquisitions reach record highs in 2021.
Almost $ 13 billion (£ 10 billion) was spent last year, up from $ 5 billion in 2020 according to data from MIDiA Research, with the boom set to continue as private equity and funds pensions accumulate.
Huge transactions are an example of supply and demand working in perfect harmony. Greedy Music Investment Fund transform the tubes of yesteryear into a new asset class have roamed the market as they seek to capitalize on the consistent returns provided by music streaming.
Meanwhile, the pandemic-induced ban on live music, the prospect of an increase in the U.S. capital gains tax on sales of song rights over $ 1 million, and the The meager income that some artists make from streaming compared to traditional records has prompted many to cash in.
Hipgnosis, the fund listed in London, spearheading by former Elton manager John Merck Mercuriadis, obtained the musical rights to Shakira, Red Hot Chili Peppers and Bon Jovi.
Bob Dylan sold his catalog to Universal Music, while BMG, the record company owned by Bertelsmann, bought Tina Turner’s back catalog in October. This coup was quickly followed by a $ 150 million royalty deal for the song by heavy metal band Motley Crew.
the estate of David Bowie, valued at over $ 200 million, could be next to watch as Warner Music looks through Thin White Duke’s catalog of compositions.
MIDiA analyst Kriss Thakrar says a new round of investment is now brewing to target the successes of the past few days.
“There’s an investor talk that streaming creates this resurgence of revenue for classic hits, which is why many of the bigger deals are with older rock artists, as a lot of the demand is competing for. the same offer, ”he adds.
“However, there are many more modern catalogs that have a lot of unrealized potential in the pop, hip hop and R&B space.”
Private equity also hopes to take a share of the long-term, stable returns provided by songbooks in. an era of low interest rates.
Music to the ears of investors
But the huge sums of money at hand in the industry have only made it so far. While buyout barons across the world are believed to have over $ 1 trillion (£ 740 billion) in dry powder, they lack the industry contacts necessary to put that money in. to profit.
Video: Bruce Springsteen Enjoys Music Discography (Cover Video)
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The web of connections woven by Mercuriadis while the boss of Sanctuary Records gave him a head start. Not only does he know which artists are willing to give up their rights, but they trust him to protect their heritage.
These obstacles have prompted private equity to partner with record companies and music investment funds instead of going to war with them.
BMG, the label behind Nirvana and Kylie Minogue, partnered with KKR in March. Both sides benefited: BMG got more financial firepower, while the buyout giant was more exposed to rights deals.
And they are not alone. Mercuriadis partnered with Blackstone to invest $ 1 billion in music rights which will see the fund co-invest with Hipgnosis.
With pension funds also set to start entering the market, more co-investment partnerships are expected in 2022 as the asset class matures.
Mercuriadis explains why music investment funds have gained the upper hand so far: “What separates us from almost all of our competitors is our access and our relationships with the world’s greatest songwriters.
“As a result, approximately 70% of our transactions are private off-market transactions for which we do not compete. “
The marriage of such expertise with vast walls of capital will intensify competition, causing valuations to soar. This decision should accelerate the evolution of the music investment market, causing the emergence of more financial products related to music.
Speculation is already mounting that musical bonds could make a significant comeback almost 24 years after Bowie securitized the rights to his royalties.
The return of Bowie bonds?
These financial products – known as Bowie Bonds – were linked to the American rights of the singer of Let’s Dance, and offered a fixed annual return of 7.9% over 10 years.
With Kings of Leon also selling their latest album When You See Yourself as a Non-Fungible Token (NFT), the cash-out opportunities multiply.
Mark Mulligan, Managing Director of MIDiA, believes all the ingredients are in place for another royalty investment boom this year.
“We have a constrained supply market and increased demand for all of these funds that have raised funds that they are going to deploy,” he said.
“This means that prices will go up, that there will be increased competition and that what happened in 2021 will continue until 2022. You will likely see increased sophistication in the segmentation of the market, with many products. derivatives and financials.
“We’ll see the same happen to music as an asset class, as we’ve seen happen to other asset classes. More large funds – like pension funds – will also look to add music to their wallets. “
Conditions like this suggest Springsteen won’t have to wait long before his deal is scrapped by another huge investment.
After all, the singer is just one of many aging rockers who contemplate their legacy as the streaming revolution gathers pace.
Many will be reassured to know that their hits will remain popular long after their passage.
And it is for this reason alone that the money for music rights is unlikely to dwindle anytime soon.