Daryl Hall has filed court documents accusing his former musical partner John Oates of the “ultimate partnership betrayal.” The documents claim that Oates breached their business partnership.
Oates intended to sell 50% of their joint venture, Whole Oats Enterprises, to Primary Wave. Primary Wave is known for acquiring music catalogues in order to profit from streaming royalties, advertising syncs, and other means. Hall was not aware of Oates’s decision as they were going through a “global divorce,” referring to the dissolution of Whole Oats which holds their trademarks, likenesses, and recorded music royalties. The potential sale, which could have been worth millions, is now uncertain.
This aligns with a series of problems facing Hipgnosis, a highly prominent company that is currently acquiring music rights. It has already spent over £1.5 billion on catalogs from artists such as Justin Bieber, Leonard Cohen, and many others. However, there has been dissatisfaction among investors, non-executive directors have resigned, and there are concerns about the company’s governance. Additionally, the company has stopped paying dividends and analysts have lowered their payment predictions, all of which suggests a troubling situation for the company.
Is the trend of acquiring music rights losing momentum or coming to an end? The poster child for music investments is facing financial troubles, a popular pop duo is engaged in a legal dispute over the sale of their assets, and high interest rates are making borrowing for investments risky.
Partner at Reed Smith, Gregor Pryor, has been part of several significant music rights transactions. He remains optimistic that there will be no sudden downturn, but the increase in interest rates has led to a more thorough evaluation of potential buyers’ finances. Pryor explains, “Buyers are now scrutinizing valuations more closely to ensure they can surpass the cost of borrowing.”
Pryor believes that there will be a decrease in investment in the future, but he also states that he does not expect a significant decline in the market as there is still room for growth.
Alexi Cory-Smith, founder and CEO of Bella Figura Music, a relatively new company that is buying rights, feels the snapping up of music publishing “got very, very overheated” recently – for example Bruce Springsteen’s catalogue was sold to Sony Music Entertainment in 2021 for an estimated $550m, while Neil Young and Bob Dylan are among the artists with deals in the hundreds of millions.
However, according to Cory-Smith, the current state of the market is being driven by a rational mindset. She explains that her company follows a strict and thorough process when evaluating deals. As a result, there have been instances where potential opportunities have been abandoned due to not meeting their standards.
Neelesh Prabhu, one of the founders of Bella Figura, has shared data on this topic. He states, “In the past 15 months, we have evaluated deals worth a total of one billion dollars. Ultimately, we have invested $80 million.” Prabhu maintains that the current market is not being affected by increasing interest rates – at least not yet. “Our investors remain optimistic about the music industry and still view it as a valuable asset class,” he explains. “Despite the rise in cost of capital, the cash flows we receive are surpassing the growth rate of interest rates.”
When dividing ownership, it is crucial – just like Hall and Oates discovered – to maintain positive connections with the other author(s). “We possess the Guy Chambers repertoire,” explains Cory-Smith, referencing the songwriter who collaborated on Robbie Williams’s most successful songs. “This requires us to collaborate closely with Williams’ management because all assets require approval and there may be discussions regarding certain requests” – for instance, when a song written by Chambers and performed by Williams is being considered for use in an advertisement.
According to Cory-Smith, her company desires partial ownership of rights, but she stresses the importance of the artist maintaining a financial stake as well. She explains, “It’s crucial to have their approval and collaboration, rather than them working against you.”
Performers like Taylor Swift and Radiohead have been advocates for artists retaining ownership of their recorded and publishing rights. This has become a moral and financial concern for artists who may not wish to sell any portion of their copyrights.
JKBX, also known as Jukebox, is a recently established company that provides an alternative option for investing in music royalties. Unlike other companies such as Hipgnosis or Primary Wave, which focus on owning a significant portion of rights, JKBX allows individuals, not just large investors, to purchase shares of the income from those rights. The copyrights, however, remain with the original rightsholder, whether it be a label, publisher, or the artist.
The CEO of the company, Scott Cohen, compares their ability to transform sources of income into controlled securities to what David Bowie did in the late 1990s with Bowie Bonds. He explains that this allows for the release of capital without relinquishing copyrights. He 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 providing any investment recommendations.
According to Cohen, the music business is a competition based on popularity, which has been the case for a while. Being at the top means making a significant amount of money. As a result, successful songs will always draw in investors, whether they are institutions or individuals.
An unnamed specialist claims that Hipgnosis, although skilled at attracting attention, does not fully represent the market. While it may be disheartening for new players to see these headlines, it will not deter current operators.
Cohen concurs, stating that analysts often discuss a company’s management and debt, but rarely mention any potential issues with the assets they have acquired.
According to Pryor, despite the potential conflicts mentioned, there are still numerous opportunities for large-scale deals to occur as long as they involve “evergreen assets” (i.e. highly successful global properties). He compares it to purchasing the location of Selfridges and notes that it will likely be a competitive endeavor.
Source: theguardian.com
