Why are hedge funds urging musicians to sell their catalogs now? Think about it.

The following MBW op/ed comes from Randall Wixen (pictured), founder and CEO of Wixen Music Publishing. Family-run Wixen provides publishing and royalty management services to more than 2,000 clients, consists of outstanding musicians (and/or their properties) such as Tom Petty, Missy Elliott, The Doors and The Black Keys.

I bet you’ve never had a musician tell you that selling her songs was the best thing she’s ever done. It was always a mistake to do so – and now no different.

Even writers who only sold their songs 5 ​​or 10 years ago realize that they can do the same today and make at least twice what they were then.

The media is reporting that the multiples offered for categories today are at historic highs. That’s certainly true, but by no means do these historic highs accurately reflect the true value of these song catalogs.

Just because you pay $10,000 more than stickers for a Kia Rio at your local dealer doesn’t mean it’s a fair price for that vehicle. And, unfortunately, there could be some people who benefit if they can find a way to lure you into selling your music catalog.

The largest music catalog selling prices that are widely reported today are often given as anonymous estimates. Who exactly made these estimates – and why?

I’ve been aware of a few of these actual margin trading deals, and I must say that all the prices I’ve seen are far less than the undistributed estimates that make up the difference. Topics are rampant on financial sites.

So why and how did all these investment vehicles get into the buy list?

Well, companies like JP Morgan, BlackRock, and Oaktree Capital are smart investors and they think music categories are undervalued. For them, a 20x payout for a great music portfolio represents a safe 5% return on investment.

In addition, there is a possibility that these investors will discover a huge amount of income previously earned, as the current holders of these portfolios are being held for various reasons. This will constitute a great benefit – one that will be missed by the seller – that can significantly increase that 5% profit.

And the potential opportunities for buyers – not sellers – don’t stop there:

  • We did discovered $424 million in previously unpaid publishing money that streaming services can’t deliver to the right publishers. This amount will now be paid through the “claim portal” operated by the MLC (Collective Licensing Authority). The owners of the categories will receive this amount; Those who have sold will not.
  • The Music Modernization Act of 2018 will change the way the two main US performing rights organizations – AS SOON AS POSSIBLE and BMI – operate under consent decrees for antitrust purposes. ASCAP and BMI will now have the rates they receive from broadcasters determined by a rotating panel of judges. It is expected that each of their payments will increase significantly in a less constrained free market environment.
  • At the beginning of 2018, the Copyright Board rate setting hearing (CRB Phonorecords 3, covering rates from 2018 to 2022) awarded publishers a 44% increase in money streaming copyright. Companies like Spotify appealed that increase, and the increase is still adjusted from an appeal four years later. If some or all of the 44% awards are upheld on appeal, there will be a massive retroactive payout to publishers for the unpaid differential increase during the appeal. pending.
  • Furthermore (and ironically), the court setting the next CRB rate (CRB Phonorecords 4, covering rates from 2023 to 2027) is already underway although the CRB’s previous ruling is still pending. appeal. This court can also lead to other improved royalty rates paid to publishers and musicians.

Catalog buyers are aggregating their portfolio purchases and counting the minutes until the aforementioned success becomes a reality.

They may object to the contrary, but the people who run these funds don’t really care about your legacy. Almost all of them are handing their purchased catalogs over to third-party administrators who handle millions of songs and who may not know who you are or what your songs are worth.

By now, most owners of key categories have heard the same line from five or ten of the same potential buyers: “Let us take a look at your earnings, let you know what we’ll pay you for. nothing, you lose nothing just find out what the market will bear. ”

Sometimes your own advisors (attorneys, managers, business managers, etc.) start to pressure you into making a sale, because they might as well have a big payday.

Say, in the end, you get an offer of 20 or even 25 times your average annual income for the past three years. It seemed like a lot—until the fine print in Letters of Intent appeared.

First, you may have to spend $100,000 on a professional who can sort three or five years’ worth of income into spreadsheets that show things like domestic and foreign income, income earned by type, and so on. pictures, your top 10 songs, your income trends, biggest revenue streams, etc.

After you’ve had your business manager prepare this document, your buyer will then want to remove non-recurring/extraordinary income to eliminate the “average annual income” they are currently working on. pay 20 times more. As an example, they might insist on forking a hefty ad sync fee because, in their eyes, it’s an unrepeatable stroke of luck (even though you’re always syncing on the same post). sing).

They’ll also remove your share of important social media or streaming service piracy mediation because it’s a one-time event and why they pay 20 times more for that one-time event while that event will never happen again?

At the end of this process, the offer on the table can be as little as 80% of the size of the “20-25 times multiples” number you heard when you first went down the rabbit hole.

And of course, after any additional fees incurred by your business manager, personal manager or attorney, you’ll still have to deal with capital gains taxes.

If you decide to structure the sale of your portfolio as a loan, you can pass the tax burden on to your family. And here’s what nobody in the category game seems to want to discuss: there has been a proposal from the current administration to raise the US capital gains tax. at that time for property sales after April 1, 2021. The potential increase would move capital gains from the current peak tax rate of 23% or so to 43% or so.

Basically, you may not know what your catalog sales tax bill will be until your catalog sale is complete.

So, after your buyer’s average annual income drops, after you’ve paid your advisors, and after you’ve paid your taxes, you’re selling a property that may have only cash value. 60% of its market value.

That is a big transaction cost. And with some of the factors I’ve listed above, holding that portfolio can give you or your heirs something for twice as much – and twice as value – in the long run. from 5 to 7 years.

Finally, let’s look at the current economic situation. We seem to be entering a period of rapid inflation. From my years at UCLA (Bachelor of Economics 1981), I remember that inflation benefits net economic debtors (you pay back the loans in dollars of lower value) but kill people with money in the bank (your principle is lower value and the interest you get on bonds) and savings grow more slowly than the cost of goods and services).

Bloomberg report Inflation 7.5% for the United States in January 2022. An amount of cash will be affected by inflation; The value of your property portfolio will appreciate match inflationary.

In addition, the Fed has signaled that it will interest rate increase.

Do you know what that means? All financial players who are currently buying portfolio with almost 0% loan amount will no longer get their desired returns. They may even need to flip those properties.

Here’s what I say to musicians considering selling:

  • Get some helpful advice from fee-based financial advisors and estate planners who aren’t willing to make any money from your sale.
  • Look at your portfolio’s earnings over the past decade and what the trends are for you. Is it really better for you or your family to get some spendable cash now, or is it a better financial plan for you to milk and raise cows?
  • Talk to people about alternative investments you could make with your net proceeds if you were to sell and how they would compare to the increase in value and annual income you’ve made. past (and possibly future) enjoyment from your music ownership.

Will you be able to tour again and bring in a substantial amount of money to pay your bills? If that’s uncertain, should you liquidate one of your biggest assets? What kind of value risk and return ratios might you face in the future?

You just have to ask yourself: why are all the strategic investment banks and hedge funds trying to convince you that you will get the deal of your life if you sell? right away?Worldwide music business

https://www.musicbusinessworldwide.com/why-are-hedge-funds-urging-songwriters-to-sell-their-catalogs-right-now-think-about-it/ Why are hedge funds urging musicians to sell their catalogs now? Think about it.

Fry Electronics Team

Fry Electronics.com is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@fry-electronics.com. The content will be deleted within 24 hours.

Related Articles

Back to top button