Industry News | 2

Hot Pandemic Market: Music Royalties By:Anne Steele July 1, 2020

Music Royalties Unable to tour, artists tap their catalogs for income as music rights increasingly are seen as ‘a sound alternative asset’

When Sonia Leigh’s tour dates were months are four times higher than they to five years, rising revenue from music- canceled this spring, erasing much of her have ever been. streaming services like Spotify Technol- expected income, the Nashville singer- ogy SA and Apple Inc.’s Apple Music has songwriter looked to leverage one of her Older catalog hits are commanding led to an increase in the value of music- most valuable commodities: her songs. higher prices than they were pre-Cov- rights ownership. Shares of Warner Music id-19, because they are generally per- Group Corp. made their debut in the Ms. Leigh is among many musicians who, ceived as the safest bet, thanks to a long public market last month and now value unable to tour this year because of the record, and have seen a particular rise in the third-largest label and publisher at coronavirus outbreak, are tapping their streaming during the recent pandemic. more than $15 billion. Vivendi SA sold a catalogs for income. The pandemic has Newer hits are holding steady, Mr. Young 10% stake in Universal Music Group to heated up the market for music royal- added. Sound recording royalties to REO Chinese internet giant Tencent Holdings ties, which was already surging thanks Speedwagon’s album “Hi Infidelity,” which Ltd. for €3 billion ($3.37 billion) late last to the explosion in streaming. “When my includes the 1980 pop-rock hit “Keep On year, valuing the world’s largest music U.K. tour schedule was canceled back Loving You,” recently auctioned off for company at more than $33 billion. Song- in March, it was like a gut punch, as I’m $179,500. Publishing royalties to Rihan- writer catalogs, meanwhile, have been sure it was to all of us who rely on tour- na’s song “Don’t Stop the Music” closed commanding multiples of 10 to 18 times ing for the majority of our income,” said at $203,000. annual royalties, compared with eight to Ms. Leigh, 41 years old. “At that point, 13 times before, according to people in- you look at your royalties to determine For many executives involved in such volved in the deals. what the alternatives could be to access deals, the trend supports a selling point enough money to get through this time.” they have been pushing for years. “One “The world has finally recognized music of the key parts to our thesis is these songs rights as a sound alternative asset,” said Ms. Leigh, who in addition to her own re- are uncorrelated to what’s happening in Larry Mestel, chief executive of music cording career has written songs record- the market,” said Merck Mercuriadis, chief publisher Primary Wave, which he said ed by Zac Brown Band and others, found executive officer of music-investment has $500 million of deals in the pipe- a lifeline with Sound Royalties, a specialty company Hipgnosis Songs Fund Ltd. line—half originating before Covid-19, music-finance firm that offers musicians half as a result of financial hardship stem- cash advances based on projected fu- The company’s shares, listed on the Lon- ming from the pandemic. ture royalty income. Investors see music don Stock Exchange two years ago, are royalties as a relatively safe, stable asset trading at a record, up 7% since the be- “The market was very strong before Covid amid current market volatility. ginning of the year. Hipgnosis, which buys for deals,” Mr. Mestel said. “It got even the rights to hit songs, including some re- stronger because artists have a limited Executives who oversee transactions for corded by Lady Gaga and Bruno Mars, way of making money.” Unlike firms seek- borrowing against, buying and selling said it expects income growth from a ing to buy assets outright, Sound Royal- music rights and royalty streams say their rise in music streaming to outweigh de- ties—the company with which Ms. Leigh phones have never been busier; they are pressed earnings from songs played in made her recent deal—encourages art- closing a record number of deals. Low in- businesses like gyms, restaurants and ists to hold on to their copyrights, which terest rates combined with an asset that other public places that are currently can have lucrative long-term value. produces yields largely untethered from closed. the broader economy are making music Artists can borrow between $5,000 and an attractive investment. “When you look at ‘Don’t Stop Believin’ $10 million or more. Deals typically range or ‘Livin’ on a Prayer’—consumption of from six months to five years and involve “We’ve seen the demand rise to meet these songs has gone through the roof a fee based on length, whether the artist the increase in willing sellers,” said Gary during the pandemic,” said Mr. Mercuri- is borrowing against a song or catalog, Young, co-founder of Royalty Exchange, adis, pointing to feel-good hits the com- and the age and historical performance a marketplace for buying and selling mu- pany owns part of. of the songs. “No matter how much an sic royalties. artist earns, losing any portion of expect- The company said in investor documents ed income takes its toll,” Sound Royal- “We weren’t sure if that was going to hap- that it is in active discussions on a pipeline ties CEO Alex Heiche said. “You tend to pen.” He said new investor sign-ups— with an acquisition value of more than expect and build a life around a certain mainly individuals—over the past two £1 billion ($1.2 billion).Over the last three amount of income.”