waxing eloquently about stuff

The New Face of Catalog Buyers Share Thisi


It used to be that buyers of music publishing catalogs were mainly publishers themselves. Today, instead of traditional publishers, the underlying funding for catalogs is likely to be private equity groups such a hedge funds, pension funds, or in our case – a syndicate of private investors pooling their money.

Investors who are flush with cash these days don’t have many options for SAFE places to put that cash to work. I know we’d all love to have that problem!! But think about it, with the economy and banking in shambles, and almost no return on investment available through traditional instruments (like CDs or T-Bills), there is real difficulty finding investments that are safe, and will pay some nominal rate of return.

So private equity is turning to royalty-based assets like music-catalogs.

While the music business is certainly volatile and uncertain, royalty-based assets are fairly certain to recoup themselves over time. Even if an investor misses their projections by a few years, at some point the future royalties will probably recover most of the investment. So the investment is somewhat protected over the long haul, and if purchased correctly, may also return a compelling return on investment (ROI).

(Also, there are some healthy tax advantages that have been created for buyers and sellers, thanks to lobbying efforts of organizations like the Nashville Songwriters Association and NMPA).

These private-equity funds are creating a healthy market for catalogs and despite some naysayers (typically big traditional publishers who think these aren’t “real music people”), I would argue the situation is very good for songwriters, catalog owners, and the music industry in general:

1) These funds are infusing hundreds of millions of new dollars into our economy. That translates into new dollars reinvested into our friends, and keeping catalog values supported. In the case of songwriters, it’s allowing many the opportunity to “live to fight another day” or it’s allowing them to invest into new independent strategies.

2) These funds are bringing sober practices and new efficiency in collections. These new investors don’t drink too much of the music biz “Kool Aid” and are often more disciplined in their approach. Most of the music business is notoriously outdated in terms of efficiency and transparency – especially when it comes to collecting money. But as these new players demand more efficiency and information, there will be a value-add to our catalogs. But it will squeeze many big players who benefit from the inefficiencies.

3) Often times (e.g. Hearts Bluff Music) these are small groups of investors that are true music lovers and they are more in touch with their catalogs than the large publicly traded conglomerates. A few years ago I got a call from one of my investors saying, “my family and I are at Disneyland and we just heard a song we own. Are we getting paid for that?? I assured him we probably were!

Tune in for my next blog, “Multiples and Hillbilly Math.” In it, I’ll discuss what’s outdated about the term “multiples.”