catalog acquisitions
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Reservoir Media plans to sell an additional $100 million of securities, according to an S-3 filing with the Securities and Exchange Commission on Monday (April 29). The funds may go toward acquisitions, debt repayment, share buybacks and other general corporate purposes, according to the filing.
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The company will often offer common stock, shares of its preferred stock, debt securities, depository shares, warrants, purchase contracts or a combination of these offerings, according to the filing. Reservoir Media currently has an authorized capital stock of 825 million shares — 750 million common shares and and 75 million shares of preferred stock. As of Feb. 5, it had 64.82 million shares of common stock outstanding. No shares of its preferred stock have been issued.
Tapping the market for additional capital now would enable Reservoir Media to benefit from a recent upswing in its share price. Its stock, which trades on the Nasdaq, reached a 52-week high of $9.20 per share on Friday (April 26) — and its highest point since May 4, 2022 — and closed at $9.03 on Monday(April 29), up 26.6% year to date. Reservoir Media went public in 2021 by merging with Roth CH Acquisition II, a special purpose acquisition corporation, or SPAC.
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The company’s pipeline of potential deals was roughly $2 billion in total value, CEO Golnar Khosrowshahi said during the company’s Feb. 7 earnings call. “We remain a highly respected and regarded partner,” she said, “and our proven reputation for being a steward for catalogs through value enhancement initiatives allows us to acquire some of the best assets in the market.”
Since its inception in 2007, Reservoir Media has invested $938 million, according to its latest investor presentation — with $770 million of that amount spent on acquisitions of catalogs and companies. It owns Chrysalis Records, Tommy Boy Music and Philly Groove Records and manages artists through Blue Raincoat Music and Big Life Management.
In February, the company reported first-quarter revenue growth of 19%, to $35.5 million, and raised its guidance for full-year revenue to $140 million to $142 million, implying 15% annual growth at the midpoint.
Seeker Music has acquired the publishing rights to Marcos “Kosine” Palacios’ catalog, including his share of hits like “Anaconda” by Nicki Minaj, “Birthday Cake” by Rihanna, “DANCE (A$$)” by Big Sean as well as the soundtracks he wrote for FOX’s Empire and Star and his work as half of the production duo Da Internz. Additionally, Kosine has been named Seeker’s first-ever Samplémoose ambassador.
The Samplémoose platform is a key part of the company’s strategy to boost the profile of its catalog by offering select producers, artists and songwriters access to an easy-to-clear, curated selection of loops, beats and flip-starts made out of the company’s songs. Already, Samplémoose efforts have led to the creation of Coco Jones’ song “Double Back,” which flips “Rain” by SWV. Other flips from Seeker’s catalog include Shaboozey’s “A Bar Song” (flipped from J-Kwon’s “Tipsy”), Chris Brown’s “Freak (from Nelly’s “Air Force Ones”), Teyana Taylor’s “Freak” (from Adina Howard’s “Freak Like Me”), and IVE‘s “All Night” featuring Saweetie (from Icona Pop’s song of the same name).
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Through his new ambassadorship, Kosine will spearhead the expansion of more Samplémoose initiatives. Last week (April 10-12), the producer put together a songwriting camp with Seeker called Samplémoose Sessions, which brought together nearly two dozen music creators to flip songs from Seeker’s catalog. Some of the songs used at the camp included Christopher Cross’ “Sailing” and “Arthur’s Theme”; The Go-Go’s‘ “We Got The Beat,” Whitney Houston’s “Million Dollar Bill” and Fantasia’s “When I See U.”
Seeker Music, which was founded in 2020 by songwriter and entrepreneur Evan Bogart, takes a creative and active approach to catalog management, treating older songs with the same approach as its new, frontline releases. To date, the company has acquired catalogs from artists such as Run The Jewels, Teddy Geiger, Jon Bellion, John Ryan, Plested and MoZella. Its frontline publishing roster includes Kito, Robopop, Sofía Valdés and K Sotomayor, while its frontline label roster includes Kareen Lomax, CARR, Dead Pony, Latroit, ONR and Fourth Daughter.
“In joining forces with Seeker Music and the Samplémoose initiative, I feel a profound sense of alignment with a team that not only values the legacy of music but also pioneers new pathways for creativity and innovation,” said Kosine in a statement. “This partnership marks a significant milestone in my career, offering a unique platform to reimagine the classics while nurturing the next generation of talent. I’m thrilled to embark on this journey, blending tradition with innovation, and to contribute to the music industry in a way that resonates across generations.”
Evan Bogart added: “When we started acquiring catalogs at Seeker, I only was interested in songs I wish I wrote, or projects I wish I had worked on, and that’s hands-down, undeniably Kosine’s body of work. Me and Kos go way back and have been collaborating on music for almost 15 years. Now, we get to write our next chapter together, working closely on Samplémoose, and investing in each other, in ways a publishing company and producer haven’t before. It’s a major honor to have this opportunity to build with him.”
South Korean investment and management firm Beyond Music has acquired the music catalog of Puerto Rican reggaetón star Yandel, including his publishing interests and royalties, his share of performance royalties and neighboring rights royalties. The acquisition is a “first of its kind” for an Asian music company that’s acquiring a Latin artist’s catalog directly, according to […]
Let me start this column the way I ended the last one: Private equity isn’t destroying the music business. But it’s worth wondering: How will so much outside investment change the way the music industry works?
Obviously, we’re going to see more documentaries, Broadway shows and box sets, both to make money and to promote catalogs. But will this lead to significant changes to royalty distribution or the industry’s balance of power? And is there even a small chance of what might be called a subprime publishing meltdown?
As Cyndi Lauper sang, though, money changes everything — and that was before her recent rights sale. So I spoke with a half dozen serious players — music publishers and private-equity-backed catalog buyers of rights, plus lawyers and consultants who have been working on these deals since investment started flooding into the music business at the end of the 2010s, about how these new players are changing the business. Any new investment sector will have successes and failures — a new report from Shot Tower Capital says Hipgnosis Songs Fund overstated its revenue and overpaid for catalogs, although Hipgnosis has said it disputes this — but what does all of this mean for music in the long term?
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One of the few points of agreement is that this has been great for creators so far, especially songwriters. These deals involve creators who are already making money, but the ability to sell their catalogs lets them replace a steady stream of revenue with a one-time cash infusion — it’s “allowed artists the ability to have more liquidity opportunities,” according to one buyer. This is helpful if they need cash, want to diversify their assets, or have to think about estate planning. The emergence of outside buyers has also spurred traditional music companies to buy more publishing assets, especially in cases where they already own related rights, for reasons that can be either strategic (“we can bundle rights”) or defensive (“we can monetize this without interference”). That competition implies that prices will rise, which is good for creators.
It also means that potential investors will bid for a wider range of catalogs, including more recent songs in more genres — which is already happening. So what happens when some of the world’s biggest investment entities own so many catalogs? They will push — using the various tools at their disposal — to raise the value of their assets. They will not do this out of goodwill, of course; they will do it out of self-interest. But any move that raises the value of the song catalogs that they own will also raise the value of the song catalogs that they do not, and this could be very good for songwriters.
“Investors now stand in the shoes of the songwriter,” as one buyer of catalogs told me, “and will use their political clout to help make how a songwriter is paid fairer.” An executive who works for another company that buys catalogs is skeptical of some private-equity-backed ventures, because “their incentives are misaligned with those of creators.” But that doesn’t seem to be the case here. To the extent that some aspects of copyright regulation involve political power, the influence of private equity could counter that of the big technology companies that generally lobby to undermine copyright. Two executives even suggested that private equity could serve as an engine of reform to make collective management organizations more transparent. “We put up with all of this,” the argument goes, “but Wall Street won’t stand for it!”
Right now, some of the catalog acquisition business rests on the idea that new buyers can do more to promote songs than the current owners, especially with film or theater projects. Eventually, though, at least some of that advantage could disappear. Executives can see what works, and some of them will inevitably bring that knowledge to other companies. Plus, as we reach Peak Rock Doc, catalog owners — traditional publishers and private equity players alike — could start to see diminishing returns.
What about the downsides? The reason private equity has such a bad reputation is that it usually buys assets with considerable leverage and holds them for a limited amount of time, which can often result in layoffs at companies in which they invest. Although deal structures vary, a source familiar with many deals told me that buyers generally don’t borrow more than half the purchase price of copyright assets, which seems reasonable.
Eventually, of course, some buyers will become sellers, presumably because their funds have run their course, or perhaps because they do come under pressure. In some cases, operators will be able to attract other investment. In others, “secondary sales will just expand the field for what is in play,” a publishing executive pointed out. A market for publishing assets inevitably means that not everyone will succeed — but it should also provide other buyers. A certain amount of consolidation may be inevitable, but it might not be so bad. Some writers will worry about how the new owner of their songs will treat them, but realistically — and this might sound cold, but it’s also true — that’s something creators need to think about before they sell.
Is there any chance of a broader market failure — a subprime copyright crisis, of sorts? Music copyrights generate steady cash the way mortgages once did, but while individual investments can rise or fall, it’s harder to imagine that a financial squeeze would lead to a selling frenzy that would send prices downward across the board. This isn’t a massive liquid market the way housing is, plus there’s less leverage and far more due diligence about the assets being purchased. (One lawyer said that this market is encouraging creators and publishers to improve their contracts and document-retention practices.)
Although it might seem counter-intuitive, the market for music copyrights might actually be more solid than that for housing. So far, on-demand streaming has proved pandemic-proof, and it seems recession-proof, so the only danger would be a collapse of the copyright system — and it’s hard to imagine how that would happen, especially now that the music business survived illegal file-sharing. Outside investment in music rights will change, like everything else in the business, but it looks like we’re going to see steady, long-term change — most of which creators have good reason to be optimistic about.
If you believe everything you read — and the state of U.S. politics suggests that, unfortunately, many people do — private equity has replaced money as the root of all evil. The truth, as usual, is a bit more complicated.
The latest piping hot take comes from The New York Times opinion section, in a piece that argues that “private equity is destroying our music ecosystem.” (No, not the ecosystem!) The problem seems to be that private equity, which often loads companies up with debt and can be unrealistic in its goals for returns — this much is true, although it’s not clear that public companies or other sources of capital are better — is “gobbling up the rights for old hits and pumping them back into our present.” This sounds downright grotesque, what with the gobbling and the pumping and so on, but it’s really just an ostentatious way to say that companies with money are buying creators’ rights as an investment.
This is bad for the ecosystem, the Times says, because the investors behind these deals — the most prominent example in the piece is Primary Wave’s purchase of 50% of Whitney Houston’s music and other rights — promote the songs they own in a way that somehow squeezes out new music. If that’s the case, though, they’re doing a terrible job of it. In 2023, a full 48% of U.S. on-demand audio streaming came from music released between 2019 and 2023, according to Luminate. A Billboard analysis of 2021 music consumption in the United States showed that music from after 2010 accounted for 78.7% of on-demand streaming, music released in or after 2000 accounted for 90% and all music recorded before 1980 accounted for fewer streams than Drake.
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This idea that new music is losing ground to old songs seems to come from a misunderstanding of catalog music, which consists of tracks released more than 18 months ago. The market share of catalog has never been higher — it was 72.6% last year, up from 65.1% in 2020, and it was much lower before streaming took off. But while many people associate catalog with classic rock — AC/DC, the Eagles and the ’60s and ’70s acts that dominated the category in the CD era — that’s an outdated idea. The music that drives this category isn’t that “deep catalog,” but rather what many executives call “shallow catalog” — releases from the last five or 10 years, often from artists who are still active. Some journalists see the size of some private equity deals and jump to the conclusion that classic rock is killing new music. Even by music business standards, though, this is bad math. When it comes to on-demand streaming, Drake isn’t only bigger than the Beatles — he’s more popular than all the music from the ’60s, plus the ’70s and the ’50s, combined.
The Times opinion essay gets the trend backward: Private equity doesn’t make songs popular, it buys songs that are steady in the popularity they already have. Even before music streaming got big, some investors realized that classic songs generate steady royalties that are far less vulnerable to market cycles than most assets. U.S. songwriters got more interested in selling their rights after 2006, when the IRS began to treat income from catalog sales as a capital gain, which is subject to a lower tax rate than personal income from publishing royalties. Streaming simply smoothed out the peaks and valleys of reissue revenue into predictable returns that appeal to investors — especially for songs that have stood the test of time.
Although private equity invests in song catalogs, it rarely manages them, and most of the executives who do come from the music business. (At least some of what they do now is not so different from what they did then.) For that matter, most of the ways the opinion piece says investors are “building extended multimedia universes around songs” aren’t quite as new as they seem. The Monkees and Alvin and the Chipmunks were both “multimedia universes” in their day, as was Tom T. Hall’s “Harper Valley PTA,” a country hit (for Jeannie C. Riley) that inspired a movie, a TV show, Spanish and Norwegian translations, and a sequel song. Nicki Minaj built her hit “Super Freaky Girl” around Rick James’ “Super Freak” — with encouragement from the 50% owner Hipgnosis Songs Fund, according to the Times — but James’ song was the basis for a hit back in the CD era. Remember “U Can’t Touch This?” Hammer time?
The radical thing about on-demand streaming is that most of the music ever made is now easily available, in a way that its popularity can be measured by consumption rather than purchase. And it has become clear that music from the last few years is more popular with listeners than industry executives thought, especially relative to brand-new and older music. When older songs do blow up big on streaming services, it often has less to do with promotion than serendipity — Fleetwood Mac’s “Dreams” returned to the Hot 100 in 2020 after a TikTok video of a skateboarder went viral and Kate Bush’s “Running Up That Hill hit No. 3 two years later after Stranger Things music supervisor Nora Felder decided it would be the perfect song to use as a plot device. And although many adults consider those songs classics, one reason they became hits again is that, from the perspective of younger fans, they are new. Isn’t this a good thing?
There are plenty of problems with streaming, including its low payments to most creators and the difficulty of breaking new acts. But neither of these has anything to do with private equity — the first comes from the way royalties are distributed and the reluctance of consumers to pay more for subscriptions, while the latter has more to do with how hard it is to stand out amid the sheer volume of new music that comes online every day. More serious discussion about these issues is important, but lamenting the fact that important creators earn so much money for the rights to their work isn’t the right way to start it.
BMG acquired the catalog of Cologne, Germany-based record label Coconut Music. The deal includes the recorded rights of singer Haddaway, whose 1993 single, “What Is Love,” became a massive global hit and reached No. 11 on the Billboard Hot 100. The deal gives BMG 100% control of the track, which was also sampled in Eminem‘s 2010 hit “No Love” featuring Lil Wayne. The song was also covered in 2023 by David Guetta, Anne-Marie and Coi Leray as “Baby Don’t Hurt Me.” Additionally, it was a cornerstone of the recurring Saturday Night Live sketch “Roxbury Guys” and its 1998 film adaptation, A Night at the Roxbury.
The acquisition also includes tracks by Bad Boys Blue, London Beat and Wolfgang Petry. Coconut Music was founded in 1981 by Karin Hartmann and Tony Hendrik.
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The Coachella Valley Music & Arts Festival announced a partnership with NFT marketplace OpenSea to launch Coachella Keepsakes, a series of three collections that will serve as an “all-access pass” to some of the festival’s exclusive experiences and products, according to a press release. Using the Avalanche blockchain network, each of the collections will pair collectible Coachella IP artwork with real-world benefits, including exclusive access to areas including the VIP Rose Garden and Oasis Lounge as well as limited edition Coachella merchandise, VIP passes and more. The first release in the series, dubbed the VIP Pass + Oasis Lounge Keepsake, was released on Mar. 5; it provides owners with a 2024 VIP festival pass and the new Oasis Lounge. The second release in the series, the Canvas Welcome Box Keepsake (available Mar. 25), will offer access to unique merchandise, digital content, access to the Rose Garden and more; that one will be available starting Mar. 25. The third and final drop will include an artist collaboration, with details to be revealed in late March.
A consortium led by the Persianas Group and the Nigerian Sovereign Investment Authority — an independent investment institution of the Nigerian federation — is partnering with Oak View Group and Live Nation on a proposed 12,000-capacity arena in Victoria Island, Lagos, Nigeria. Other partners on the $100 million project include Tunde Folawiyo, managing director of the Yinka Folawiyo Group; Nigerian investment fund Adino Capital; and MBO Capital. Upon completion, the venue will become the first dedicated arena in Nigeria. It is expected to create more than 1,500 direct and indirect jobs.
Warner Music Group (WMG) expanded its agreement with Tips Industries Limited (Tips Music), one of India’s leading music labels. WMG has been exclusively distributing Tips Music’s catalog since 2020. Under the new agreement, WMG will spearhead the commercial and distribution responsibilities for all of Tips Music’s frontline and catalog music, spanning 23 Indian languages and more than 30,000 songs. Tips owns the “lion’s share” of Bollywood film soundtracks from the 1990s, according to a press release.
The U.K. office of Believe signed a long-term, global label solutions deal with indie label Bella Union that encompasses new Bella Union releases and select catalog. In addition to all-format physical and digital distribution, Believe will provide services including synchronization; digital service provider and retail editorial and marketing partnerships; strategic release management; unique digital expertise and in-house technology; video and audience development; and ongoing advance funding. Bella Union’s current roster includes Beach House, Father John Misty and Ezra Furman.
Hook, a music platform that allows fans to legally remix popular songs to use on social media, extended its seed round, bringing on additional investments from Natalie Massenet and Nick Brown‘s Imaginary Ventures in addition to a group of strategic music and social media industry investors and advisors. The new investment brings the company’s total seed round to $3.5 million, adding to the original funding led by Point72 Ventures and Edgar Bronfman Jr.‘s Waverley Capital.
Collaborative music creation platform BeatConnect secured $2.25 million CAD ($1.67 million) in funding ahead of its relaunch. The round was supported by music and tech investors including Sfermion, FICC, Anges Québec and Triptyq Capital. The relaunch, slated for the spring, will amount to an overhaul of BeatConnect’s multiplayer Digital Audio Workstation (mDAW) that will incorporate gaming elements into its music production capabilities.
ADA and Warner Music Australia signed a global distribution deal with Americana label Cheatin’ Hearts Records, which is home to Australian country, folk and blues music. Founded by Luke Woods and Aaron Curnow, the label has put out albums by Henry Wagons, Melody Moko, Watty Thompson and more. The first music to be released under the deal is from Tasmanian singer-songwriter Claire Anne Taylor.
Independent digital distributor and artist and label services company IDOL has signed new deals with Le Plan Recordings and Old Soul Music. IDOL expanded its deal with New York-based Le Plan to provide global digital distribution and marketing for all of its catalog and frontline titles along with physical distribution for new releases. Its deal with North Carolina-based Old Soul, recently launched by Austin Hart (a.k.a. producer L’Orange), encompasses global distribution and marketing.
Artists who decided to sell their catalogs in 2023 did a little better, on average, than the year before, according to a new report by Shot Tower Capital, a Baltimore-based investment banking firm that focuses on media and entertainment.
The average multiple of private music publishing catalogs — excluding a small number of iconic catalogs that fetch a premium — increased to 17.2 times net publisher’s share (or gross profit after paying writer royalties) in 2023 from 16.7 times NPS in 2022. Including iconic catalogs, the average multiple decreased slightly in 2023 to 19.2 times net publishers share from 19.4 times NPS in 2022.
While the average multiple improved this year, the 17.2 times NPS average was well below the peak of 20.1 times NPS in 2019, as well as below the 17.9 NPS average for the period spanning 2019 to 2023.
Even so, catalog valuations have held up well amid recent higher inflation rates, Shot Tower explains, even as interest rates — which began to climb in 2021 after falling to historic lows at the onset of the COVID-19 pandemic in 2020 — have tamped down valuations. That’s because buyers’ future growth expectations have increased, due in part to increased upcoming distributions from the Music Licensing Collective — thanks to favorable Copyright Royalty Board rate determinations this year — and the development of new digital sources such as TikTok.
A shift amongst buyers in the catalog market has also brought catalog valuations down from their 2019 peak.
Hipgnosis Songs Fund, the publicly traded investment trust founded by Merck Mercuriadis, was the price-setter from 2018 to 2021. In the latter year, Hipgnosis Songs Fund bought stakes in such catalogs as Neil Young, Shakira and Red Hot Chili Peppers. Before Hipgnosis Songs Fund’s IPO in 2018, the average publishing catalog multiple was 16.2 times NPS in 2017. That jumped to 18.8 times NPS in 2018 and 20.1 times NPS in 2019 and 18.8 times NPS in 2020. In 2022, though, when Hipgnosis Songs Fund was unable to raise more money through additional equity offerings and stopped buying catalogs, the average publishing multiple dropped to 16.9 times NPS. Since 2022, Hipgnosis Songs Management has been employing a more disciplined approach for its privately held fund, Hipgnosis Songs Capital, which is backed by Blackstone, sources tell Billboard.
Shot Tower believes catalog buyers like Hipgnosis Songs Fund and Round Hill Music Royalty Fund — another publicly listed investment trust that Concord acquired in October — now have less influence in current transaction valuations. Instead, large companies are showing their willingness to pay a premium to control rights such as licensing. As interest rates increase, the Shot Tower report states, “yield-focused financial investors have pulled back” and strategic buyers — major labels and publishers — “continue their focus on acquiring quality assets with control where they can impact long-term growth.”
New capital investment will favor the approach taken by these strategic buyers, according to the report. Publishing and recorded music catalogs that provide full control — such as owning 100% of the publisher’s and songwriter’s shares — will continue to be highly valued by strategic buyers. Rights of “marginal quality” catalogs and passive income “are finding less demand.” There’s are good reasons for placing a premium on control: Shot Tower estimates the ability to eliminate third-party distribution and administration costs is equal to an immediate increase in a valuation multiple of 2.0 times NPS or NLS. In addition, having control over a catalog provides opportunities for licensing and new projects with “potential to drive growth far in excess of industry averages.”
While the typical publishing catalog transaction value has leveled off since the 2019 peak, a few iconic catalogs — Shot Tower defines them as exceeding $200 million — approached 30 times NPS in 2023, a level matched in 2021 but higher than amounts paid in 2022. These catalogs go “primarily to an existing label/publisher with highly strategic (and sometimes defensive) reasons for purchasing at above-market prices,” the report explains.
One such iconic recorded music catalog sold for nearly 30 times net label share in 2023, according to the report — a much higher multiple than recorded music deals in previous years. (The report does not name the iconic catalog sold in 2023, but the only recorded music transaction exceeding $200 million that was made public this year was Litmus Music’s purchase of Katy Perry’s catalog for $225 million.) In previous years, iconic recorded music catalogs sold for between 22 times and 26 times net label share, or profit after royalty payments; and distribution, manufacturing, warehousing and shipment costs, but before marketing expenses.
Recorded music multiples — for both iconic and non-iconic catalogs — have risen over time while publishing multiples are consistent with levels seen in the late ‘90s, according to Shot Tower. That’s because the record business’s shift from physical to digital has helped improve record labels’ margins. Shot Tower points to Warner Music Group as an example: In 2010, when physical sales exceeded digital revenues, WMG’s adjusted earnings before taxes, interest, depreciation and amortization margin was 13.4%. By 2023, WMG’s adjusted EBITDA margin had improved to 23.8%. Shot Tower estimates that every 1% shift in revenue from physical to digital and streaming has increased WMG’s EBITDA and cash flow margins by about 25 basis points (a basis point is one-hundredth of a percentage point). If digital sources eventually account for 95% of recorded music sales, margins have the potential to improve another 5%.
Expect similar multiples in the coming years, says Shot Tower. Although its crystal ball is “a bit hazy” — uncertain interest rate and macroeconomic environments make predictions difficult — the firm expects interests to “moderate” in the first half of 2024 and multiples “to remain steady for the foreseeable future with higher-than-projected industry growth being offset by the continued drag of higher interest rates.”
Based on current growth projections, and adjusting for the current interest rate environment, ex-icon publishing multiples will range from 15.9 to 16.7 times NPS over the next four years. That’s in line with prior periods but a slip from the most recent years and well below the peaks from 2018 to 2020. Multiples averaged 16.4 times NPS from 2014 to 2022 but exceeded 18.0 times NPS from 2018 and 2020 and peaked at 20.1 times NPS in 2019.
As for recorded music, Shot Tower expects an average ex-icon multiple of 12.9 to 13.4 times net label share over the next four years. That’s in line with post-2020 trends that saw multiples jump as investors became convinced streaming would be a financial boon to recorded music revenues. Historically, the larger marketing spending associated with master recordings and a lower diversity of revenue streams has caused recorded music to trade at lower multiples to publishing assets. Shot Tower believes recorded music will continue to trade at a discount to publishing multiples despite margins improving as streaming accounts for a higher percentage of recorded music’s revenue mix.
But the value gap has become closer between music publishing and recorded music assets. In 2020, recorded music transactions carried an average NLS multiple of 10.4 times while music publishing transactions averaged an 18.8 NPS multiple that year — with a gap of 8.4 times between them. In 2022, that gap narrowed to 4.3 times, with a 12.4 times NLS multiple for recorded music and a 16.7 NPS for music publishing.
Shot Tower Capital has closed financings and M&A transactions in excess of $16 billion since its founding in 2012. Those have included such deals as the sale of Imagem to Concord, the sales of Phil Collins and Genesis catalogs also to Concord, and Michael Jackson’s estate share of Sony/ATV to Sony. If the Shot Tower principals David Dunn and Rob Law’s entertainment deals from the prior employment at the firms Alex. Brown and and Bear Stearns, respectively, are included, they have closed over 125 media, entertainment and consumer related transactions representing aggregate value exceeding $70 billion, according to the report.
HarbourView Equity Partners has acquired what it refers to as “select” publishing assets of Kane Brown, the country music star whose catalog of three studio albums has so far generated 8.4 million album consumption units during his career. Terms of the deal were not disclosed. Brown’s hit songs include such tunes as “What Ifs,” “Homesick,” […]
Concord announced the completion of its $468 million acquisition of the Round Hill Music Royalty Fund on Thursday (Nov. 2), officially completing the year’s biggest catalog deal. The deal includes over 150,000 songs, among them works by The Beatles and tunes recorded by Elvis Presley, Meatloaf, James Brown and Billie Holiday, but also marked a pivotal moment for publicly traded royalty funds and Concord’s scale of business.
Concord CEO Scott Valentine, who succeeded Scott Pascucci in February, spoke to Billboard about the deal, what it says about the state of the music royalties market and how Concord plans to deal with the headwinds that currently face the music industry.
On Oct. 31, you closed the acquisition of Round Hill Music Royalty Fund. Why was it attractive to Concord and what does it say about the state of the song catalog market?
When you look at the landscape of acquisitions of scale and quality, [Round Hill’s] assets had been on our radar for a while. Our view was that the stock price of the company wasn’t giving the appropriate fair value to what the assets were worth. Josh was one of the early proponents of the notion of music assets as financial assets. We have similar backgrounds, having started in investment banking. The quality of assets that Round Hill had accumulated was remarkable, in terms of the breadth, the genres and the ability for these assets to be used in film and television. There are Beatles songs in here for God’s sake. I’m referring to these things as assets. They’re works of art, really, that have stood the test of time from a revenue perspective.
You’ve indicated that this deal counters the broader narrative that the music royalty market has deflated over the last year or so. Why?
Our deal proves that from an institutional perspective the underlying value of copyrights is still there. We’ve just gone through the first-ever cycle of price increases at the DSPs. It seems, knock on wood, that the impact on churn has been within the tolerance levels [of customers]. You have continued growth in countries around the world that have never in the history of the music business been significant sources of legitimate revenue. We are now expecting fairly regular price increases [by the DSPs] in mature markets. So, if you believe in the long-term trends that suggest the value of music should increase over the mid-term. Then, as institutional investors, it comes down to what is your time horizon?
But with Concord acquiring one publicly listed music royalty fund, and Hipgnosis investors voting to possibly wind up the Hipgnosis Songs Fund, doesn’t this spell the end of the publicly traded music royalty fund experiment?
The story isn’t written yet on Hipgnosis. Their shareholders and board still have time to [explore options]. The thing that strikes me about the commentary around Hipgnosis has been the fundamental belief by shareholders in the underlying value of the assets it owns. Shareholders rejected the sale of those assets because they seemed to fundamentally believe the value of those assets was greater than [what they could get in that) proposed in the sale.
The question is whether a publicly traded fund is or isn’t the right vehicle to access returns. We’ve tapped the asset-backed securities space and have done very well. There is certainly private investment happening and it continues to happen. I still see significant institutional interest in this space. We are still getting inbound requests from artists, managers, etcetera, asking us to look at assets for sale. The underlying market for assets is robust. Because interest rates have gone up, the high end of the price scale has come down. But there is still plenty of activity where the prices make sense.
How do you view Concord’s creative mission and direction?
We built the company over time around our catalog. We have an extraordinary catalog of works that span over a century. Because we’ve been financed by pension funds and institutional investors, the cash flow of the catalog and investing in catalogs has been part of how we grow the company. But I’m keenly focused on the notion that we are not a fund. We are a fully functional organic music company. You can’t be a music company without creating new art and discovering new artists and exposing those new artists to the world. They will create the next remarkable piece of art that 50 years from now people talk about buying. Concord has the scale now and the relationships to be a leader in catalog acquisition and exploitation but also front-line investment. And on the music publishing side, we have really grown that business over the last three to four years. We have the writers of some of the largest songs in the world. One of ours co-wrote most of the last two Harry Styles records. On the recorded side, we’ve always been in more niche genres — jazz, bluegrass, adult contemporary. We have not been in the front-line pop business or R&B or hip-hop. Those genres have always been the domain of the majors. It’s because it takes a significant amount of marketing expenditure and recording…. That said, we’re now the size that we can compete occasionally to get a few artists in those genres. I think it’s important to grow that business.
We have seen layoffs hit different music companies over the last 18 months. Do you feel your team is in good shape? Are you looking to make any pivots in strategy or structure?
From a senior exec position, [former chief label officer] Tom Whalley stepped back, so we had to find a replacement. That’s why we got Tom Becci. Because he is taking on this new role, there is a little bit of tweaking that will go on — the integration of frontline and catalog. How people report up through the recorded music division and how people spend their time may take some tweaking. But it’s a structural shift —reporting changes. I feel like we’ve always thought about the business and growth in a careful way so that we hopefully did not over hire or put people in situations where, if there was a retrenchment in the business, we had challenges. I don’t see the need for wholesale changes or layoffs in the near term.
What is the thinking behind putting frontline and catalog under the same roof?
From our perspective, the issue with catalog versus frontline is you’re really talking about a relationship with an artist. If we have an artist on one of our frontline labels who also has catalog, having two different divisions working that artists’ life work creates some weird, unintended division when the artist is hoping to have one team of people. So, it’s an alignment to get into the way the artist is thinking about their own work. There is an industry tendency to spend a lot of work on an artist’s latest album for good reason. But in the world we live in today, an artist’s older works can be reactivated very quickly in tandem with the release of a new album. We hired Tom largely because he’s had a little bit of everything. He has worked in catalog, frontline at Universal, in management. He’s got perspective from all these different angles.
What is happening with Concord’s theatrical division?
We own Rodgers and Hammerstein. We rep 30,000 theatrical rights. It’s a sneaky, large part of our business. It’s a very interesting corner of our business that we’ve built through acquisitions in the last five years. We did those acquisitions [starting in] 2018, and the challenge has been that a lot of our business is licensing to schools and universities that were impacted during Covid. We were also a producer in Hadestown, and an investor in Some Like It Hot. We are continuing to invest in new shows on Broadway and repping works that are going out on tour. There is a fair amount of investment going on there.
What are revenues going to come in at this year?
I think we’re going to come in around the mid-$600 million range. We’ve been growing pretty consistently.
How much debt does the company carry?
The ABS was $1.8 billion and then we just did the separate tranche with Apollo for $500 million. We have a revolver as well with a consortium of banks. I don’t remember that balance, but we did not use up all of our dry powder [on the Round Hill deal]. One of the reasons we wanted to do the initial bond offering with Apollo was that we thought there was an opportunity to go back to the market when we wanted to finance acquisitions. We think there is going to be a rinse and repeat component to our access to that market.
Concord’s $469 million bid for Round Hill Music Royalty Fund, announced on Friday, did more than give Round Hill’s shareholders a tidy premium over the previous day’s closing price. The offer, which must be approved by 75% of Round Hill shareholders at the company’s Oct. 18 general meeting, also provides a vote of confidence in music asset valuations and the ability of the marketplace to seek out value.
Andy Moats, director of music, sports and entertainment at Pinnacle Financial Partners, says Concord’s offer is “a win-win for all parties.” Round Hill, which had been trading at a steep discount to its catalog’s value, was offered a premium over the share price prior to the announcement. Concord gets to pay fair-market value for a catalog of 150,000 songs by the likes of Bruno Mars, The Supremes and Louis Armstrong.
The deal comes as Round Hill’s share price struggled to meet expectations and falls short of it the value ascribed by multiple independent experts. Concord bid $1.15 per share, 11.5% below the per-share net asset value (NAV) ascribed to Round Hill by Citron Cooperman, a leading valuation expert. Round Hill’s shares had been trading at a 47% discount to NAV the prior day and had fallen 11.5% year to date.
But the fact that Concord’s bid is slightly below Round Hill’s NAV shouldn’t be viewed as a negative, says Larry Miller, clinical professor and director of music business program at New York University. “When you see a liquidity event like this at even close to NAV, I think that is a sign of a strong business fundamentals, notwithstanding how some class of investors — in particular investors in alternative assets — might view the value of the catalog to NAV.”
Moats agrees that Concord’s bid should be seen as a positive despite falling short of Round Hill’s recent NAV. “It was consistent with what we’ve seen in the past” in terms of where deals transact, he says. Not all deals close precisely on valuations, Moats says. Some prices are above valuations and some fall below. The Round Hill price is “within range of what I’ve seen over the last five years where something trades relative to its valuation,” he says.
Other people see additional positives in Concord’s bid for Round Hill’s music royalty fund — which still leaves Round Hill with a substantial publishing and recorded music business. To some, the acquisition reflects a functioning market in which Round Hill’s music assets are moving to Concord’s more efficient cost structure.
Roy Salter, senior managing partner at Virtu Global Advisors, says the deal shows the market is working as intended. “Among the major messages symbolized by the Concord transaction is the continuing advancement of music royalty capital market efficiencies, wherein an increasing number of pension and profit-sharing funds, insurance companies, sovereign funds and similar capital market constituents are steadily entering the market in search of predictable, non-correlated investment returns, and business operations which support music royalty administration continue to be enhanced such as enables optimal market-efficiencies,” he says.
For others, Concord’s bid is an important vote of confidence for firms’ NAV models. “The key takeaway from this Round Hill deal is that it affirms the valuation methodologies that have been used for large music portfolios,” says Michael Poster, an attorney with Michelman & Robinson. “For all the negativity that has come out of a handful of analysts around some of these valuation methodologies, at the end of the day, the market tells the story.”
NAV, a measure of an investment fund’s assets minus debts and liabilities, has been a sticking point for Round Hill and the other publicly traded music royalty fund, Hipgnosis Songs Fund, in recent years. Citron Cooperman, FTI Consulting and other valuation experts employ valuation models that calculate music catalogs’ values by estimating their cash flows over a lengthy period of time. A company’s NAV can improve if the valuation expert believes the catalog merits a lower discount rate, for example, or because favorable industry trends suggest previous revenue forecasts are too conservative.
Some equity analysts have raised questions about not just the valuations but the music industry’s tendency to constantly update NAV. Most funds in other sectors hold their new acquired assets at cost “until there are verifiable reasons” — such as a market transaction — “to suggest a change is warranted,” Stiefel analysts wrote in a Jan. 7, 2021, note to Hipgnosis investors.
Over the last roughly two years, a gap between independent valuation expert’s NAV and Round Hill’s trading price had widened dramatically. The discount to NAV stood at 5% on Dec. 31, 2021, when Round Hill’s NAV was $1.12 per share, and peaked at 51.6% on April 3, 2023, when Round Hill fell to $0.615 per share.
To give the market more faith in its NAV, Round Hill commissioned a second valuation report, by FTI Consulting, that put its NAV within 3% of Citron Cooperman’s estimate. This additional valuation supported Round Hill’s view that its portfolio was being “significantly undervalued” by investors, Round Hill CEO Josh Gruss said at the time.
The move appears to have helped some: Round Hill’s share price rose 19.7% over the following month (Hipgnosis shares, not part of Round Hill’s efforts to change investors’ impressions, fell 4% over that period). But whether investors remained concerned with NAV methodologies or motivated by rising interest rates and other macroeconomic factors, Round Hill’s share price remained well below NAV until last week.
Concord’s bid also provided a boost to Hipgnosis Songs Fund shares that have also been trading at a deep discount to NAV. The day before Concord’s bid was announced, Hipgnsosis shares closed at 0.798 pounds ($1.00), a 58.3% discount to the company’s NAV on March 31 of $1.92. Whether investors regained faith in the NAV or expect Hipgnosis to negotiate a similar asset sale, its shares jumped 15.7% to 0.923 pounds ($1.15) the day of the announcement, peaked at 0.962 pounds ($1.20) on Tuesday and closed at 0.93 pounds ($1.16) on Wednesday.
Had Concord’s bid come in significantly less than NAV, there could have been ripple effects that touched everybody from banks to investors. In such a scenario, people would re-think the value of catalogs and their interest in investing in music assets.
But that didn’t happen. Concord and Round Hill, both widely considered to be smart players in the music asset market, agreed to a price tag close to the often-criticized NAV. If the market was looking for a signal about how to value Round Hill, it received a credible confirmation.
“There’s a lot of stability and consistency in this space,” says Moats, “and this transaction provides that.”