Last month, as part of the relaunch of Billboard’s “Music and Money” series, Michael Poster Head of Corporate and Securities at Michelman & Robinson, LLP spearheaded a discussion about “What Buyers Want” in the music industry. During the virtual live presentation, Poster offered insights about how buyers are currently viewing investment opportunities within the music space.
Below are some key takeaways from Poster’s appearance.
Insight #1: Buyers May Be Overpaying for Music Rights and Catalogs
Prices for music catalogs increased significantly over the past few years, and those looking to invest in music rights or catalogs want to make sure that the assets under consideration justify the high price tags. Of course, as Poster noted, “It’s all a matter of perspective,” and an acquisition amount that one investor may think is excessive may be a “fantastic deal” to another. According to Poster, “There may be strategic elements to any given transaction that the outside world doesn’t see,” including the buyer’s particular goals.
Poster went on to explain that at the end of the day, overpaying oftentimes comes down to buyers overestimating the long-term performance of a catalog and the value of sustainability. He said that, “Buyers may allow themselves to get emotionally attached when working on a deal, causing the price to continue to drive up.”
Insight #2: Making Room for New Investors
In recent months private equity firms like KKR, which had for a while left the music investment marketplace, have come back with a renewed interest in the space. Poster predicts that along with these players making inroads in music investment will be more public companies as well as family offices, though current pricing is keeping them at bay.
Poster said, “I think we’re going to start seeing more uses of public capital than we really ever have.” Money that will “provide a good alternative to the more traditional private equity route for some operators looking to raise funds.”
International investment in the music industry is also a growing trend. Poster explained that most of the global buyers are located in the United Kingdom, Australia, Germany, Asia, and Canada. He added that “these international investors must focus on tax planning” to avoid having tax withholdings adversely impact returns.
Insight #3: Diving Into a Broad Market
According to Poster, there is no one-size-fits-all music catalog available to buyers. The market is made up of different assets and can be divided many different ways; for instance, by genre (such as pop, country, rock, hip hop, R&B, soul, jazz and film scores), rights type (master recordings and publishing, passive and active rights) and deal size. As such, “There are a lot of nuances to [the marketplace, which] can be looked at three-dimensionally and sliced and diced lots of ways.” said Poster. “One thing that I’ve seen is that there are buyers for just about every type of music asset, and that wasn’t the case five years ago.”
Insight #4: A New Age of Non-Fungible Tokens Has Arrived
Artists have begun to sell music and merchandise in the form of non-fungible tokens or NFTs. Poster stated that people are still trying to wrap their heads around the idea of NFTs and the role that they are going to play in the music market. In his view, “There’s a bit of a shiny new object scenario at play here right now that I think needs to get worked through.” However, Poster admonished that linking an NFT to the performance of a catalog “begins to look a lot like a security,” which has potential regulatory implications in light of evolving Federal guidance on NFTs and other cryptocurrencies.
“What Buyers Want” was an informative event hosted by Billboard that provided participants an opportunity to hear from some of the most respected industry experts. To listen to the full panel discussion, check out this link here.