IT CAN’T HAVE been a difficult decision for Bob Dylan to sell his songwriting catalog to Universal Music Group (UMG). Perhaps the more interesting question is why the record label wanted to pony up several hundred million dollars to buy it.
The logic for Dylan is straightforward. The copyright on his music will expire 70 years after his death, at which point his work will enter the public domain. The older he gets, the closer his catalog is to depreciating in value. Selling now lets the 79-year-old artist realize the portfolio’s worth, which has likely received a new lease of life as online streaming reignites growth in the recording industry. The value of music catalogs has increased accordingly, and just last week, the 72-year-old Fleetwood Mac star Stevie Nicks sold an 80% interest in her copyrights in a deal that valued her catalog at about $100 million.
What’s in it for UMG? Parent company Vivendi SA is planning an initial public offering (IPO) for the world’s biggest record label next year. The French media conglomerate is therefore in the process of gussying it up to make it as attractive as possible to new investors. Although streaming services such as Spotify Technology SA and Apple Music have reinvigorated the music industry, they’ve also highlighted some of its vulnerabilities.
Digital distribution has made it easier for artists to reach audiences without a record label, which traditionally fronted the studio and marketing costs in return for a slice of future revenue. Cutting through is still a challenge, and a label’s massive marketing budget can help, but the internet has enabled artists such as “Old Town Road” singer Lil Nas X to build a significant following (and gain leverage) before signing to a label.
The shifting power dynamics enabling some artists to negotiate more generous terms have led record labels to place greater emphasis on owning intellectual property — and the reliable income that comes with it.
In this case, it’s Dylan’s compositions. When the time comes for UMG’s IPO roadshow, a deep back catalog of recording and publishing rights will let Chief Executive Officer Lucian Grainge paint a more resilient picture of the company’s earnings. The dependable returns promised by Dylan’s oeuvre will no doubt help with that. UMG can meanwhile extend the lifespan of each song better than Dylan or his estate could alone, for instance by encouraging its stable of artists to record cover versions.
The strategy has already been deployed with some success by rival Warner Music Group Corp., which listed shares publicly for the first time in June. In its IPO filing, it was eager to point out that much of its revenue stemmed from “stable and recurring sources such as our music publishing library,” and that “less than 10% of our total revenues depend on artists without established track records.”
Music publishing (the rights to the underlying composition and lyrics) is also more profitable than the rest of the business, with earnings that represent 23% of revenue, compared with the 15% profit margin from recorded music (the performed versions of songs or pieces). It’s the same reason that Spotify has been charging into podcasts: Owning more content outright means it doesn’t have to pay as much in royalties to other parties.
The times may be a-changin’, but Dylan’s tunes will generate an annuity for many years yet.