Justin Bieber Just Sold His Entire Music Catalog And Why Companies Are Eager To Strike These Deals

What it really means is that "The Man" can monetize the catalog without having to pay the artist anymore. The industry has always believed that it is more important that the artist, and they are entitled to more money than the artist. Now all revenue goes directly to the company; no royalty accounting, public spats, transparency and so on.

 

Good for him, but I wouldn't pay a box of saltines for that catalog lol.

 

Bieber is a younger artist with many years ahead of him. The owner of his current catalog will indirectly benefit from his continued output as he continues to be in the public spotlight. New fans will come in, older fans will keep buying. He may not have the high growth rate he had a few years ago, but his demand curve can be modeled and used to predict future cashflow. He has not crested.

Dylan, Springsteen and others of their legacy have an aging fanbase that will start to die off in a few years. Some new fans will come in but not enough to replace those falling off. The artists were smart to cash in while the majority of their value remained. Bieber is a long way from that point.

$200mm will probably turn out to have been a positive investment.

 

I see your point. You have to be thinking in terms of money and not musical legacy. At first, I would say there’s no comparison between Bieber and guys like Dylan and Springsteen. If you’re talking about output, there isn’t. If you’re talking about quality? Its subjective, I still say no way.

In terms of what will sell to young kids? Bieber wins.

 

Congratulations Justin.

 

I’m not sure how/if he has improved, but last I heard he was recovering from some health problems with his facial muscles. So from knowing that, who knows what his future as an artist looks like. Probably a very smart move for him. That’s more money than he could ever spend and if he does eventually decide to record new music, that won’t fall under this umbrella. I know it’s cool to hate on him and I’m not at all a fan personally, it just seems like a smart move for him.

 

Good for Biebs!!!

Thats the way to do it!!! cash out while still young so he could enjoy the money.

that money would buy a lot of tickets to see the Maple Leafs

 

I could be wrong but like in that case they'll bundle up a mixture of different assets of assumed value and trade those. With all these headline names it just feels like a grift. I do not believe they're buying these to exploit the income directly themselves.

 

Right. As I understand the '00 financial crisis, and I'm sure my picture of it is a little incomplete, what institutions did did was bundle a gazillion mortgages -- not just subprime ones -- into derivatives like collateralized debt obligations and collateralized loan obligations. Then the big institutional investors, like ibanks and hedge funds, not only invested in those but sold each other credit default swaps on them, theoretically to help hedge risk -- so they all wound up in commitments to cover each others default losses. Then they leveraged up 5 to 1, 6, to 1, 7 to 1 to invest in these interrelated derivatives.

While it worked it was just churning out money, not so much from trading but from the CDO and CLO ongoing interest payments from them, and at the time it seemed risk free -- the theory of the securitizations in the first place was that bundling all these loans into these securities lowered the risk if any one failed, and anyway everyone was covered by these credit default swaps.

The reason it became a banking crisis is because when the underlying assets -- the mortgages -- defaulted on a huge scale, because of the intertwined guarantees through the credit default swaps, and the amount the institutes had borrowed to invest in these products, there was nowhere near enough money on hand in the system to cover all the obligations they had to one another.

The reason it was a problem for mortgage borrowers, is that the hunger for more and more CDO and CLOs with higher and higher rates of interest, created a market incentive for lenders to make more an more high interest mortgage loans. The loan originators had no risk because they were selling it into a securitization immediately, so lending standards for evaluating the creditworthiness of borrows and appraising the asset, the house, became beyond lax. People who really couldn't afford were able to get loans to by houses they shouldn't have because they couldn't really afford it, and builders rushed to build more of these properties.

This is a much simpler and music different situation -- operating companies in the music business, or outside investment groups -- are buying intellectual property and it's associated rights. It's much more like a real property transaction, like buying a bunch of apartment buildings, or plots of land. It's similar in that the value of the assets is tied to the stream of revenue they produce, just like the value of the securitized debt was tied to the interest rates the securities paid. But for an operating company buying the rights -- like Sony buying Dylan's interests -- its an operating company buying assets it uses as part of its core business.

For a fund like Hipgnosis, it's riskier. They're buying the rights and making the ongoing income from them and, presumably managing them in a way that they hold will increase the ongoing monthly revenue they produce. But they also probably are looking to sell the assets or the whole portfolio of assets at a gain some day, which means they have to make the assets more valuable than they were when they bought them, which in this case, means making them more popular and finding ways for them to throw off more revenue, which obviously they don't have the expertise or apparatus to do, so it'll involve licensing the assets to others who do or contracting out.

But we're talking about a very small, rare group of assets here, and a very small number of buyers and sellers in the market for them (actually, that's another rise for the non operating company investor here -- a thin market for the assets).

Valuations may be inflated (or maybe not). But there aren't derivative securities and interlocking bank guarantees with banking institutions leveraged up to invest in them, and you can't just keep making more product to throw into the pool like you could easily build more houses and make more loans.

I mean, sure, some artist can write more songs and new artists can come along, and they can become enormously popular, but that's a rare thing that takes years. It's not like just building more houses, making more loans to buyers and making more loan-backed securities out of them.

I don't see how it's a "grift" for an artist to sell his her or their property, or how an investor buying the property is swindling anyone. I mean, if anyone is it's the companies overpaying and the artists taking advantage of that, if it's a grift of any sort -- which it's not -- it's one being perpetrated by the artists. And I don't see how it's like the mortgage securitization of the '00s -- I don't see how the assets involved are similar, I don't see how the market is similar, I don't see how the impact beyond the investors themselves is similar.

 

I don't know how they're going to do it, but it feels like they're paying too much just for the headline names creating a perception of value which might not turn out to be there. You might be right that this is more straightforward than that and it's just clever. I've sat back and seen some of the things being offered as investments (in particular when I hear the words "new type of asset class") in the last few years and thought, that's obviously a con, and I think I've been proved right. Something feels dead wrong about this to me.

 

But in these case, it's really not a new type of asset class. The assets are intellectual property of a sort that's not new. The idea that there might by a market for they buying and selling of them might be somewhat different -- actually the securitization of future revenue from these sorts of rights, the so-called "Bowie Bonds" of the 1990s were much more of a "new asset class" kind of approach. It's really just buying property in the hopes of making money from it now and selling at a gain in the future. I think that quote about "new asset class" is just hype -- they're buying all this intellectual property and they need a market to sell it into someday if they want a return on their investment beyond ongoing income, and they're trying to talk a trading market into existence. I'm not sure that's ever going to happen. The age of cheap money is over and the market of potentially buyers of these assets is always going to be pretty thin.

I don't know what you mean by "wrong" -- morally wrong? I mean, for the artist who make and owns the property, it's a great opportunity to make money selling it at a time when future revenues are coming in in dribs and drabs (and especially for an older artists who may not be around much longer and can set his family up for generations without having to worry about them fighting over control and exploitation of the material in the future). Making something that you created into something valuable and then selling it doesn't seem to be morally hazardous to me. Neither does buying that kind of intellectual property form someone else.

 

By wrong I mean the people currently buying the rights up with the idea of selling them on will make money, the people investing in them going forward will not and perhaps that the people currently buying them up are perfectly well aware of that.

If we still had the same business model pre-streaming maybe I could buy this value but it's well known artists incomes have collapsed. It's not even worth it for a legacy band like The Who to record new material (and this is the generation we're talking about). Are we expecting that music will be a goldmine when bought for use in adverts, film and other media going forward? Are we expecting that streaming as we know it will end and a new era will dawn where artists are paid far more for people to listen to their music?

(Maybe there will be change:

)

And this is also old music, already owned by the vast majority of people who are likely to want to buy it. Something just doesn't add up to me. I'm certainly not looking for an argument on this, what you say is interesting.

 

It's all about what you pay for the rights and what the future income stream of those right will be. It's doesn't matter so much what the rights might have been worth 50 years ago. By some estimates, Bieber has done something like $129 million in Spotify revenue alone -- and that doesn't include revenue from other streaming services, sales, radio and other royalties, other sync licenses, etc. The rights purchased are probably throwing off millions and probably tens of millions of dollars annually. The idea that streaming doesn't generate substantial revenue for rights holders isn't true, but you need to do big numbers -- like Bieber does -- to make big money.

But you're right, of course, the bet of investors is that the catalog will continue to generate that much revenue, or more -- and that they can make it generate more, and, an even bigger risk -- that there will be a future market of buyers for those rights. I don't think there's a worry that future buyers will be ripped off -- they'll do their due diligence on the assets and decide if it's worth it and at what price. We're talking about sophisticated professional investors or music industry operating companies as future potential buyers, so the determination of whether or not they want to buy these catalogs in the future will be made on a sophisticated, knowledgable assessment of the value at that time. It's not like they're going to be conned or duped or ripped off. I don't have any worry that future buyers, if there are any, are going to be rubes who Hipgnosis is going to rip off. It may be, though, that there isn't much of a market for some of these assets in the future, or that their value will be lower tomorrow than it is today, that's Hipgnosis' risk. It also is likely, as I said, that there will be very few potential buyers in the future. It's never going to be a super liquid market. Then again, maybe the company doesn't care about selling the assets -- the company is already public, so there's already been that liquidity event, and maybe a future exit is a sale of the company as a whole.

You can look at the Hipgnosis Song Fund -- publicly traded in the UK -- annual report and financials. As of the middle of '22, they were doing $169 million in annual revenue and their catalog had a net asset value of $1.6 billion, and, per the company, total net asset value return since inception of 59% . The weighted average acquisition multiple is almost 16X and an average fair value multiple of more than 20X, so that's pretty high. Growth has been mostly through acquisition of more assets, so it will be interesting to see if they can grow revenue per song or per catalog they control.

If anyone is interested in the strategy and business and financials, the annual report (fiscal year ended in 2Q22) is worth a read -- HSFL-AR22-web.pdf (hipgnosissongs.com) Especially interesting in trying to game out future value of old material, is the case study of new revenue from a 10 year old Bruno Mars song (thanks in this case mostly to Tik Tok).

 

Meanwhile his writing pool still gets peanuts.

 

He is selling his percentage of songwriting credit. The songwriters he worked with will still get there pay for there percentage unless they sell as well.

 

Probably not true. Jason Boyd, aka Poo Bear, who has a ton of credits with Bieber as songwriter and producer, not only had his rights to 2014 songs acquired by Hipgnosis but he also serves on the company's advisory board. Benny Bianco too, who co-wrote and produced a lot of Bieber hits, sold to Hipgnosis.

 

Her early catalog was sold by her record label, I believe. She retaliated by re-recording her albums included in the sale.

Buying an artist’s catalog is a long-view proposition. Money can be recouped over decades.

 

That was master recording rights, which she never owned anyway. She wanted to buy them but the company sold them elsewhere. But that wasn't her publishing and songwriting rights. But her frequent collaborator Jack Antonoff sold 99% of his share in 188 songs, including songs he wrote with Swift for 1989, Reputation and Lover, to Hipgnosis in 2019

 

I haven’t checked this specific case, but it entirely possible he owns all the rights to those songs. Taylor Swift many times shares credit with for instance Jack Antonoff, but it is her songs and he can’t do anything with them.

 

Do you have any details on this? As I understand it he never owned any of the rights to her songs. Did he sell off his royalty share?

 

That's not true. He has songwriting rights and owners of whatever share he negotiated to the songs he wrote with her, and he -- or those to whom he assigned those rights, including in this case Hipgnosis -- are entitled to songwriting royalties from them. In the US, anyone could record a version of the songs without anyone's permission as long as they pay the statutorily mandated royalties. And the masters of the original recordings are owned by Shamrock Holdings, which can do whatever it wants with them, unless there was some kind of agreement going back with Big Machine giving the performer, Swift, control over her performance rights in the master, which I gather from her willingness to record her own versions of those albums is not the case.

 

The real danger here will be if there is increased plagiarism cases brought by these investment funds.

 

I don't know the specifics of his deal with Hipgnosis other than he sold 99% of his interest in 188 songs to the company in December 2019, per the Hipgnosis financials. I don't know what his arrangement is with Swift on his share of those songs, so I don't know what percentage of the songwriting royalties he, or now mostly Hipgnosis, gets from that. But Hipgnosis owns 99% of Antonoff's share of 7 songs from Lover, 6 songs from Reputation and 3 songs from 1989. The rights to a recording is of course a completely different set of rights than the rights to a composition.

 

Of course. But now she owns the recordings as well. And all the visuals.

It would be interesting to study their contract and how their agreements have looked throughout the years, since he was basically unknown when they started to work together And now he is a star producer.

(He is of course a great musician but as I have said before Taylor needs to start to play again on her own records. Just compare that lame acoustic version/remix of Anti-Hero he did, sucking all the air out of the tune, with her recent solo performance )

 

Sure anything is possible. What I suggested is 1 scenario.. It’s all about what is in the contract. Sorry for not being clear.