Steve Jordan, a drummer, began working as a studio musician when he was in high school in the 1970s. By the age of 19, he was performing with the band “Saturday Night Live” and touring with the Blues Brothers.
But he said he realized early on that if he was to be financially successful, he would have to do more than just make music. He has to take control of that music.
“I already knew that I could not put all my eggs in one basket and be a successful musician,” said Mr. Jordan, now 64. “You have all these musicians who haven’t been paid what they should be. If they’re hired to play just one song, they don’t get royalties. They’re not musicians, and they don’t get royalties. , even if what he played is the hallmark of the song.”
He entered into a copy-publishing agreement with Warner Chapel Music, a music publishing company, in 1989. “It helped me get a better royalty stream,” he said.
So when the pandemic shut down live performances and most personal collaborations between musicians, Mr Jordan had an asset – his publishing rights and other royalty payments – against which he could borrow, allowing him to own his music production company. allowed to continue investing in .
Royalty payments have long been an issue in the music world. Record labels usually took the lion’s share. The move to streaming, which broadened audiences but sharply cut revenue, further cut into earnings for many musicians.
The pandemic shook things up further. Without live performances, artists were forced to rethink how they were managing their finances. This prompted some of them to come up with new strategies to keep control of their royalties. Investors have also joined in, seeing royalties as a new kind of asset. They’re buying the rights to artists who want to leave the world of streaming royalties to someone else.
“We have clients who are looking at their royalties in different ways,” said Mona Manahi, managing director and head of services practice at Geller Advisors. “We have artists who want to buy back their owners to retain the rights owned by record labels and publishers. We also have some clients who want to sell their music rights.”
On the investor side, there are large funds, such as hypnosis, who are raising capital to buy an entire music catalog. More companies like song financial Giving artists a cash advance for some years of their royalties, but allowing artists to retain ownership.
“The industry has changed in the last 24 months because of one company, Hypgnosis,” said Matthew Knowles, a music executive and father of music stars Beyoncé and Solange Knowles. “That’s the company that changed the whole industry when you sold your royalty rights.”
Hipgnosis had money available to invest before the pandemic, allowing it to buy the rights to songs from musicians who were suddenly not making any money from performances.
“For artists, touring is their No. 1 income,” said Mr. Knowles. “Nobody knew the performance was coming to an end, and they certainly didn’t know it was going to come back 18 months to two years ago. Even A-list actors and some big acts Those who have a lot of weight on them are struggling.”
The amount paid for royalties, of course, depends on the artist. But it also relates to the type of royalty. Selling a master recording could fetch 10 to 14 times the annual royalty stream, but publishing rights could be closer to 18 to 22 times, Mr Knowles said. An advance that will be paid back is usually twice the royalty.
Still, he said, the style of music also matters, as rock artists tend to receive more than hip-hop and R&B artists because of the size of the audience for their music.
Figuring out what to do if you’re an artist—or someone trying to value the royalties of an artist—can be complicated. Streaming has fundamentally changed the economics of music royalties.
In the 1990s Eli Ball, chief executive of Lyric Financial and a music producer, said that when artists sold records they received $1 to $1.50 per record. Currents play a small part of this. Or to put it another way, an album that sold a million copies paid an artist $1 million to $1.5 million in royalties, but a million stream of songs from that album would have paid the artist about $3,500. is.
Publishing royalties – which are paid to those who own the copyright to a composition of music themselves – can be more valuable because they are paid directly to the copyright owner. But whatever the stream of income, Mr. Ball said, there is a significant lag between when royalty payments are set and when they are paid. His company exists to bridge that gap for musicians.
“It is only a sale of future royalties that they are collecting and not a sale of their inventory,” he said, noting that there could be a gap of more than a year between the royalty being generated abroad and the receipt of the check. .
For musicians trying to manage their finances, such middlemen have been helpful during the recession. Mr Jordan said he used Lyrick’s factoring because “when you are good for X amount of money and you know the money is coming but you need to secure a mortgage or continue a start-up or sign someone, Requires X amount of money. According to your label, it was something to get the ball down the field.”
He added: “It has been a real godsend. It has allowed artists to retain the rights to their work. You have options.”
It hasn’t always been so. Ron Miller, a hit songwriter for Stevie Wonder (he co-wrote “For Once in My Life”) and other Motown musicians in the 1960s and 1970s, died in 2007 with little control over their royalties and their finances Hui. His daughter Lisa Don Miller, a former Morgan Stanley vice president and now an artist, has been seeking to reclaim royalties since his death.
It took him eight years in court to get the royalties back for the performances of the songs he wrote – over 600.
“The people to whom he entrusted the right to be rich,” she said. “Maybe he got $2,000 to sell 10 percent royalties, which is generating tens of millions of dollars for a catalog. I want people to know who my father was.”
Of course, some artists want to sell their rights and receive an immediate one-time payment. That’s where outside investors come in. Buying multiples for the entire catalog are greater than any measure of the future value of an investment. It’s good for the artist. But it is uncertain what this could mean for the investor.
Mr Ball, who competes with funds that buy the entire catalog, doesn’t dismiss his strategy.
“Their goal is to grow their portfolio as large and fast as they can, and when they get above a certain level, the value of all those catalogs is much more than the sum of the parts,” he said.
But he said he had more confidence in funds run by people with music industry experience than those run by private equity managers. “They’re really smart people, but they don’t understand the specifics,” he said.
Mr Knowles said he thought it good to give the old artist the option of receiving a lump-sum payment and work with him trying to manage the various royalty streams. He also said that he is confident that the music business will continue to perform in a way that justifies the amount to be paid.
“The growth in streaming has grown,” Knowles said. “It has changed the dynamics of the music industry. It has also reduced our overhead. We are in a very good place in music.”