I just read that Sony bought the rights to Pink Floyd’s catalog for something like $400 million. They also bought Bruce Springsteen’s catalog for around $500 million. That’s close to $1 billion for just two artists. There’s a whole bunch of other artists who are also getting bought out which brings the grand total to billions of dollars.
How are these companies getting the money to pay these crazy sums?
What is their plan to make that money back? Commercials and film placement?
Seems like you’d have to wait a veeeery long time to recoup these investments.
In: Economics
Generating a critical mass of IP gives you negotiating leverage with streamers. Bands like pink Floyd will have millions a streams a month in perpetuity. With everything digital, there’s nothing to maintain. Spend a bit of coin now and you have sustainable cash flow forever.
You do realize royalties get paid to rights owners anytime a song they own is played whether TV, film, radio, streaming, in retail stores etc. When it comes to Springsteen it makes a lot more sense re making that money back quicker than you think.
Acquiring the publishing rights isn’t just film and TV licensing. They’re collecting revenue every time those songs are played on the radio, in a retail store, at a bar, streamed on a music service, used on YouTube, reprinted as sheet music, played through a birthday card, etc.
Long term, Sony can afford to recoup that investment over the span of several decades, just like a bank can wait 30 years for you to repay your mortgage. An artist in their 70s or 80s might be more focused on the short term.
If nobody is buying physical albums, you’re getting too old to tour, and your living heirs don’t possess the ability nor desire to administrate your music catalog, then selling it to the highest bidder can be seen as an attractive option.
Publishers like Sony and Universal already know what a catalog is generally worth as an investment, because they’re already getting paid a percentage of the royalties to service it on behalf of the artist, i.e. deal with TikTok, YouTube, Apple, Spotify, foreign markets, promotion, collect royalties, protect copyrights, issue DMCA takedowns, provide legal services, etc.
Sony is a massively large company with a $120 billion market cap (the total value of all of its shares). Large companies can often sit on a lot of cash, which comes from revenue of its operations, and which it hasn’t decided how to spend or use. Sony sits on about $16 billion cash these days. Even if they are not sitting on a large amount of cash, large companies can borrow money from banks when they need a large amount for a deal.
Other companies buying music assets are basically like private equity funds. Their money comes from a bunch of different investors who pool their money together to have the company invest in things they are interested in. Those investors are all types, and often right under your nose. For example, Concord Group’s largest investor is the Michigan Retirement System, which is basically all the money being held and managed for pensions of state employees of Michigan (public school teachers, state troopers, judges, etc.).
You have to spend money to make money
Hundreds of millions is a lot of money but for a company like Sony, who made close to a hundred billion dollars last year, it’s not that much
Ita an investment and will give them income from royalties, which will make them more money than they spent.
Springsteen’s catalog has been estimated to generate $15m per year for Sony. That is a lot less than $500m. However, it’s a perpetuity, so you have to think about the value of a $15-20m annual revenue stream that continues out kind of forever. A giant company with a long history and long-term perspective can easily realize a profit on this – just not right away. They will also work to market his music and ensure the revenue stream grows as much as possible. Bruce gets the 500m upfront but they make money off him basically forever. Time value of money.
Imagine if they let some company use Born in the USA or Wish You Were Here for an ad. That alone brings in millions. They can make money from this music in way more ways than streaming
These purchases are long term investments. These companies are playing an infinite game, while any individual (ie springsteen or pink floyds members) is necessarily playing a finite game. The purchases are a win-win in that way: the artists get well compensated for their catalog so they can take care of their families and the companies will sell their music long after the artists pass.
Despite what they want you to believe, companies aren’t human. Musicians are. So someone who isn’t the rolling stones or Aerosmith knows they’re gonna die eventually so it’s better to get the lump sum up front, instead of that slow trickle over years. Companies however, if managed properly, can last hundreds of years, so they’re much better suited to leverage that property in all the ways it sees fit to generate revenue in the form of licensing and royalties. Esp if they have a department for doing so, and they have a plethora of catalogs to “sell” to customers.
Latest Answers