Dolly Parton | Music Industry Blog
In a recent interview with the BBC, Dolly Parton said she was considering selling her publishing catalog, saying she would simply start a new publishing company and start from scratch. For one thing, this isn’t the first time she’s publicly pondered the move. (the first time was in December 2020), and therefore likely aims to drive up buyer demand and create an overbid. But on the other hand, it’s an interesting illustration of the mindset of older artists looking to sell – they feel confident enough in their careers that they can just look like an author selling the rights to his last novel and move on to the next. But more importantly, while cashing in may seem like a safe bet, there is a risk for both parties, not only the risk that valuations are too high, but also that they are not high enough.
Catalog investment is booming
The pace of M+A acquisitions of the music catalog is accelerating, with announced transactions exceeding 12 billion in 2021, more than doubling since 2020*. While these numbers are boosted by some large institutional stocks, like UMG selling off some of its business ahead of its IPO, there is a rapid acceleration in the number of artists and songwriters selling. The market should continue to be buoyant. On the buy side, an increasing number of new vehicles and investment institutions are entering the space, driving up demand in a market with limited supply. On the sales side, although many big names have already sold, this is only a minority of the big names in recorded music. This misalignment of supply and demand helps drive up prices, which further accelerates the market.
Older, white, English-speaking men dominate
An interesting feature of today’s music catalog M+A market is its fondness for old, white, male and Anglo repertoire. This reflects the investment thesis of many acquirers, who build investment cases on valuation methodologies focused on historical cash flows. Basically, this means that investments are shaped on yesterday’s performance as an indication of tomorrow’s success. In most asset class markets this is a very sensible approach, and in music it is a crucial element – but it is not enough on its own. Indeed, streaming (eg Spotify) and social video (eg TikTok) are transforming the way music is consumed. Fandom is fragmenting and listening is fragmenting, which means the big hits of yesteryear are unlikely to perform the same way on streaming tomorrow as they do on radio today. At the very least, it introduces a significant degree of volatility into the outlook an investor may have. It’s no surprise that this is where MIDiA spends a lot of time in the consultancy and consultancy work we do it for music investment funds.
The next music industry is being built
This is where the risk appetite of the artist and songwriter comes into play. For an older songwriter or artist, the sale represents an opportunity to build on past successes, capitalize on the unprecedented booming music market. But the market still has a lot of growth. In fact, the best days are probably still ahead of us. 2021 was the fastest growing recorded music market in modern times (watch out for official MIDiA figures, coming very soon)! While the digital service provider (DSP) streaming market, epitomized by Spotify, may be maturing, non-DSP streaming (TikTok, Meta, Twitch, etc.) is just getting started and has contributed significantly to the growth of 2021. In addition, new horizons are emerging in the form of the Metaverse, NFT, Blockchain and Decentralized Autonomous Organizations (DAOs). Web 3.0 is riddled with risks and exaggerated expectations, but, as with any consideration of future technology, it is easy to overestimate the short-term impact and underestimate the long-term effect. term. Meanwhile, there are moves around the world to increase the amount of streaming money that goes to creators themselves. Add the growth of emerging markets; increase the transparency of rights; and the booming economies of music creators and creative tools and you have the foundation for a whole new chapter for the music industry.
Which brings us back to Dolly Parton. In many ways, she resembles the player sitting at the poker table with a stack of chips in front of her. If she leaves now, she collects a fortune, but what the hell is she still playing a little longer. Except that, in the case of the music business, the odds are not equal. Unless Russia plunges the global economy into a catastrophic crash – which, of course, is no small possibility – things will only get better for the music industry. But, just like at a poker table, an artist or songwriter doesn’t need to go all-in. A growing number of investors are becoming more sophisticated in the way they work with creators. For example, allowing them to keep certain rights, or part of the global rights. This means that the creator benefits from the future upside while benefiting from the initial money. It also means the creator stays invested, with an incentive to help keep those old songs alive (and, therefore, increase their value to all parties) rather than just moving on to the next chapter.
There’s no doubt that the music catalog business has exploded, and there’s also an argument that prices are inflated, at least compared to business then and now. But for creators and investors who are willing to take a long-term view, things may just be getting started.