In court documents, Daryl Hall has accused his former musical partner John Oates of the “ultimate betrayal” by breaching their business partnership.
Oates had planned to sell 50% of their joint venture, Whole Oats Enterprises, to Primary Wave. This company has been acquiring song catalogues in order to generate long-term profits from streaming royalties, advertising syncs, and other sources. Hall was surprised by Oates’s decision, as they were in the process of a “global divorce” related to the dissolution of Whole Oats. This venture controls their trademarks, likenesses, and royalties from recorded music. The potential sale, worth millions of dollars, is now uncertain.
The current state of Hipgnosis, a company that specializes in acquiring music rights, is facing numerous challenges. These include investor dissatisfaction, resignations of non-executive directors, concerns about the company’s management, cancellation of dividend payments, and lower financial projections from analysts. This paints a concerning image for the company, which has already spent over £1.5bn on music catalogs from high-profile artists such as Justin Bieber and Leonard Cohen.
Is the frenzy for acquiring music rights slowing down or coming to an end? The popular pop duo is currently embroiled in a legal dispute over the sale of their assets, while high interest rates make borrowing for music investments a risky venture. Meanwhile, the once-prominent music investment poster boy appears to be losing his success and status.
A partner at Reed Smith, Gregor Pryor, has participated in several major music rights transactions. He believes that a market crash is not likely to happen, but with the increase in interest rates, buyers are now conducting more thorough due diligence. According to Pryor, this is because they want to ensure that they can outperform the cost of borrowing.
Pryor predicts that there will be a decrease in investment activity in the upcoming years, but also believes that the market will remain stable due to ample room for growth.
Alexi Cory-Smith, the creator and chief executive officer of Bella Figura Music, a recently established company that acquires music rights, believes that the purchasing frenzy in the music publishing industry has become excessive. This is evident in the sale of Bruce Springsteen’s catalogue to Sony Music Entertainment for approximately $550 million in 2021, as well as deals worth hundreds of millions for artists like Neil Young and Bob Dylan.
However, Cory-Smith believes that the market is currently being driven by rational thinking. She explains that her company follows a strict diligence process when making deals, which has led to some deals falling through if they do not meet their criteria.
Neelesh Prabhu, one of the founders of Bella Figura, presents figures on this matter. According to him, in the past 15 months, they have evaluated deals worth approximately one billion dollars. Out of this amount, they have invested around $80 million. Prabhu claims that the increasing interest rates are not currently disrupting the market. He mentions that their investors remain optimistic about the music industry and view it as a profitable asset. Despite the rise in cost of capital, the returns they receive are exceeding the growth in interest rates.
It is vital to maintain positive relationships with co-writers when rights are divided, as demonstrated by Hall and Oates. According to Cory-Smith, who mentions the successful songwriter Guy Chambers, this is especially important in managing assets and handling requests. For example, if a song written by Chambers and performed by Williams is being considered for use in an advertisement, there may be discussions and approval required from all parties involved.
Cory-Smith explains that her company desires partial ownership of rights, but emphasizes the significance of the artist maintaining a financial stake as well. She highlights the importance of the artist’s approval and collaboration, rather than opposition, in the creative process.
Celebrities like Taylor Swift and Radiohead have been advocating for artists to retain ownership of their recorded and published works. This has become a significant concern, both ethically and financially, for artists who may not wish to sell any portion of their copyrights.
JKBX, also known as Jukebox, is a fresh company that presents an alternative option. It allows individuals, not just major investors, to invest in music royalties. Unlike Hipgnosis or Primary Wave, which focus on owning a significant portion of rights, JKBX permits the sale of shares in the income generated from those rights while still keeping the copyrights with the original rightsholder, whether it be a record label, publisher, or artist.
The CEO of the company, Scott Cohen, compares their ability to convert income streams into regulated securities to what musician David Bowie did in the late 1990s with Bowie Bonds. This allows for the release of capital while still retaining copyrights. (Cohen adds a disclaimer, as the company is in the process of filing an application with the US Securities and Exchange Commission, that he is not giving investment advice.)
According to Cohen, the music business has always been a competition for popularity. Those at the top earn a significant amount of money. As a result, successful songs will always draw in investors, whether they are institutions or individuals.
According to an unidentified specialist, Hipgnosis’ effective approach to generating attention does not reflect the overall market. While this may slightly discourage new businesses entering the market, it will not deter existing companies.
Cohen concurs with the statement: “[Analysts] discuss the company’s management and their debt and leverage,” he explains. “However, no one addresses any potential problems with the assets they have acquired.”
Pryor suggests that despite the potential challenges mentioned, there are still numerous opportunities for large-scale deals if the assets being offered are considered “evergreen” or highly successful on a global scale. He compares it to purchasing the location of a famous retail store, where the bidding process is likely to be competitive.
Source: theguardian.com
