Front Burner - Big money is buying up big songs. Lots of them

Episode Date: May 6, 2021

Some of the best-known names in music are selling the rights to their entire catalogues of songs, netting tens and even hundreds of millions of dollars. Today, why so many artists are cashing in now, and why investors are betting billions on music.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. It's investing advice I've heard a lot during the pandemic. Put your money in things that are always going to have value. So gold or real estate. But what about your favorite songs? in the past couple of years music's biggest songwriters have literally been giving it away as companies spend billions of dollars

to snap up their entire songbooks. This week, the Red Hot Chili Peppers reportedly became the latest selling their catalog for over $140 million US. The fun behind a lot of these buys is this company called Hypnosis, and it was started by a guy from Canada. And his investment pitch, demand for oil and even gold waivers. But people, people always want music. You know, when times are good, we celebrate the soundtracks of great songs and equally well when we're experiencing challenges, we take escape and comfort the revenues that are uncorrelated to what's taking place in the market.

I'm Jamie Poisson, and today, why the world's biggest artists are selling their catalogs and why companies are paying untold millions to buy them. I'm joined by Ben Cesario, music industry reporter for The New York Times. Hey, Ben, thanks so much for making the time. Oh, thanks for reaching out. So the Red Hot Chili Peppers are selling the rights to their entire catalog of songs. But I know this isn't the same thing as selling the actual recordings, right? So when we talk about song rights, what are we actually talking about here? What do we mean?

In music, there's basically two separate copyrights that cover what we hear. One is for the recording. Those are the actual sounds that are captured on tape and that you listen to. of the actual sounds that are captured on tape and that you listen to. And the other is what's called the composition or the publishing, which is what songwriters do. That should be the vibe. Like what you just. Yeah, it is so hard because there's so little time in each thing. But just keep them really simple. The old fashioned way to look at it is that's what can be written down on a piece of paper. It's the lyrics, it's the melodies, the chords. It's the basic fundamentals of a song that anybody could then record to make their own version of it.

Okay. And so how do you make money off of publishing rights? And so how do you make money off of publishing rights? Every time a song is listened to or sold, it generates a royalty. And there's a very complex system throughout the world that does this. But essentially, every time you buy a CD, there's a certain rate that's supposed to go to the songwriters and the publishers, who are usually the people who control the copyrights for songwriting. It's the same thing on radio. It's the same thing on streaming services. And also whenever a song is used in a movie or a TV commercial or something, they have to pay the writer and the publisher to use that song. Never let me go.

Let's go save the world. publisher to use that song. So there's lots and lots of ways that each use usually generates a kind of small amount of money. And those add up to a lot if it's a popular song. Right. And so now that we've covered off exactly what we're talking about here, can you name some names for me? So since Hypnosis and other companies, too, went on this sort of music catalog spending spree, which artists have been selling their songs? Well, for Hypnosis, they bought 50% of the catalog of Neil Young. They bought Shakira's songs. They bought a share of Blondie's songs. Dozens of others. The really big one was Bob Dylan sold his catalog to Universal Music for somewhere north of $300 million.

We don't know the exact figure. Paul Simon. And then it's a huge and really surprising list of artists. Many of them are older artists who get to a certain level of their life or career where, you know, they've amassed a huge catalog behind them. And so for them, a lot of it is estate planning. There's a lot of younger artists too. And Hypnosis just announced that they acquired a catalog of a guy named Andrew Watt, who's written for Dua Lipa and Post Malone. I'm pretty sure Andrew Watt's only 30 years old. So it's not just old fogies. There's a lot of

young, successful people who are very much still in the game who are selling their past work. And so can you take me through some of the reasons why they might want to do that? You mentioned estate planning, or I know that there are tax issues too, but what other reasons would an artist have right now to sell their songs? Well, the dollar signs are the biggest reason. There's a whole line of investors, you know, waving huge amounts of money at successful artists to buy their catalogs. And so whether you're old or young, I think if somebody comes to you offering tens of millions or hundreds of millions of dollars for your work, it's hard to say no to that.

One really big factor here is the pandemic. I mean, all musicians basically have been grounded in not touring. And for most artists, that's where they make most of their money. So there is a phenomenon of artists saying, you know, I haven't been able to tour for a year. I usually count on that income. And so to make money, one option I have is selling my catalog. And David Crosby from Crosby, Stills & Nash, he has talked about that. Along comes COVID and I can no longer play live. And I'm not going to be able to play live anytime soon.

He's not touring. And the money he makes from streaming as an artist is minuscule. So he's basically said, The one asset that I have is the publishing, right? And selling my income stream that way allows me to, and I hate the word even, retire and take care of my family. I'll see you next time. organization, empowering Canada's entrepreneurs through angel investment and industry connections. do not know their own household income. That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples,

I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. You mentioned that there's big money being offered right now. And so I want to kind of get into why. And maybe we can talk about Hypnosis, which seems to be the company driving a lot of these massive purchases. Could you just tell me first, who is the founder? I know it's this guy named Mercuriatus.

Yes. He's a Greek Canadian. He talks about growing up in a small town in Nova Scotia and going to Halifax just to like buy records and flip through magazines and stuff. Yeah, I was very, very clear from a young age, obsessed with music, even at six, seven, eight years old. He talks about the importance of sort of being a kid in an out-of-the-way town and music being this thing that connected him to the world and the trip to the record store being like the high point of his life as a kid,

which I think a lot of people can relate to. You know, at the same time as I was falling in love with Neil Young, I was falling in love with Elliot Roberts. I went searching for people that surrounded these artists that maybe played roles that I could replicate. He's been the head of a record company called Sanctuary. He's an artist manager. At various times he was either the manager or had a hand in the management of people like Morrissey, Elton John, Beyonce, Guns N' Roses. His biggest current client I think is Nile Rodgers from Chic. And Nile Rodgers is also on the board of Hypnosis. They started that company in London, and their thesis was that there's an inelastic demand for music.

And whether the economy is good or bad, people want to hear music. Streaming has provided this new avenue where people are paying steady monthly subscription fees. It's less dependent on, you know, hey, it's Christmas time. I'm going to go buy some CDs for relatives or something. People are paying their fee every month, listening to music all around the world. And so the way these investors look at catalogs is that year after year, they generate a pretty stable and predictable return in the royalties that they generate. And so if you have a catalog of, say, 50,000 songs, there's going to be a certain number of hits in there. There's going to be a certain number of lesser hits that maybe appeal to fans.

But on average, you can chart out these generate $1 million a year, $10 million a year, $15 million a year. So it's kind of like real estate investors buying properties and rents, that it's a predictable flow. So that's Merck's pitch to the London investors. And they went public on the London Stock Exchange, and they got all of these big institutional investors. One of them is the investment fund for the Church of England. What? Really? The Church of England is investing in this? The Church of England now owns a piece of Neil Young and Shakira and Blondie and maybe Red Hot Chili Peppers, too. Oh, man, that's so funny.

And just talking about some of the songs that he's snapped up, I know we've talked about some of the artists, but I understand it's like truly massive hits here, like the Eurythmics' Sweet Dreams. Sweet dreams are made of the years. Who am I to tell? It's like truly massive hits here, like the Eurythmics' Sweet Dreams. Mariah Carey's All I Want for Christmas is You, Fleetwick Mac's Go Your Own Way. Ben, like, why has Hypnosis in particular been good at getting artists to hand over their songs? I think there's a particular part of his pitch that appeals to artists, which is that Merck is saying, I'm going to be your advocate in this business.

There are a lot of bankers in suits out there trying to do what I'm doing. There are very few, if any, other real music people that have helped to be a part of artists' careers and that really understand the ethos on which these artists have built their careers. And he has a critique of the way the music business is run now, particularly when it comes to songwriting and publishing. He and lots of others think that the way it has developed, especially with streaming, is just unfair to songwriters. They're not earning enough money. A lot of the royalty rates and other details are locked up in basically laws and country by country regulations he wants to lobby to change those things and he's made a pitch to the artists that the more power he's able to accumulate using their songs as leverage the more he will be able to

change the system huh is that a. Is that a good point? Do you think that that makes sense? It's a good pitch. I think a lot of artists agree with him that there is something unfair about the songwriting game and that usually when a dollar comes in from streaming, much more of it goes toward the recording and the record company than goes to the publisher.

He's making a very appealing pitch and it comes across as sincere, but he has not said exactly how he's going to do that. You know, one question I do have for you is, why are people like Merck and others so confident they're going to get their billions of dollars back here? Well, part of it is just the predictability of return. Part of Merck's thesis here is that he's buying proven catalogs, that these are the songs that have already been played on the radio for years and years and years.

What it's about is great proven songs, these big hit songs that are the fabric of our society. And these great proven songs have very predictable, reliable income. And the investment community, you know, looks at, you know, things like Golden Oil for similar reasons. And so, you know, is Go Your Own Way by Fleetwood Mac going to be played on the radio and going to be streamed for years to come? Yes. There's there's very little doubt that it will continue to be a hit. Will it still be as big of a hit in 10 years, 20 years, 30 years? Who knows? But that's that's that's basically the bet that he's that he and others are making.

others are making. I mean, Universal Music also made a bet that young people today will continue to be interested in Bob Dylan decades to come. That's a risky bet, if you ask me. Who knows? Yeah. I guess the other thing I'm wondering about is like, what if some new Napster-like disruptor comes and just completely turns this industry on its head yet again. That's true. There's a lot of frustration and controversy in the music industry right now among artists who feel that the streaming business just favors the big corporations at their expense, that your average musician, and even a lot of the stars, even though they're not really out in public about this, they'll say that, you know, I see my record company getting rich, and I see Spotify getting rich. But when I look at my check for what my songs are on Spotify,

it's just not enough. So a lot of artists are pondering like what they can do about it, whether they want to be on these streaming platforms in the future. There's a lot of artists are pondering like what they can do about it, whether they want to be on these streaming platforms in the future. There's a lot of talk about alternative models and NFTs and blah, blah, blah. I was just thinking of NFTs when you were talking. Yeah. Who knows whether any of that will pan out, but like that is true that we don't know what's going to happen in the next chapter. And it could be to the disadvantage of people like Merck. Ben, before we go today, I wonder if you could just help me understand one more thing I was trying to wrap my head around.

So just about everybody, I'm sure, has heard about how Taylor Swift is actually re-recording her albums to get her music rights back. And this is the other kind of rights we talked about at the beginning of the conversation, the rights for the master or the recording itself. But this is confusing because it always seemed like there was a culture of trying to keep your rights in music, right? So can you tell me why would all these artists be offloading their rights when people like Taylor Swift are fighting so hard to get theirs back? Why is this so important to you? Because I just think that artists deserve to own their work. I just feel very passionately about that. It is confusing, but I think the key

is just that you can't sell what you don't own. For an artist like Taylor or Kanye West or any of the artists that are sticking to more like indie DIY deals, which has become a pretty big deal, they want to control their work. They want to own their work. And part of that is because down the road, they want to have the choice of what to do with it. Whether it's your recordings, as the Taylor Swift thing is about, or whether it's your songwriting, a lot of artists, when they get to a certain position of fame, they hit this realization, like, wait a second, I don't actually own my stuff like I made these hits those are my songs that's my voice that's my face and somebody else owns it that's a tough pill to swallow and a lot of what

happens behind the scenes of music industry with stars is how can they get them back and that sometimes is like the most important asset that they own. And so there's, you know, there's writers like Diane Warren, who's written huge pop hits for, you know, Aerosmith. Almost anybody you can name. She's one of the most successful songwriters of our time. She has said like, no way would I sell my copyrights. These are my babies.

I'm everything I am Because you loved me So while it may look like everybody's doing it, there's a pretty strong contingent saying, I think this is a bad idea and I don't want to do it. Okay. This is super interesting. I've learned so much today. Ben, thank you so much for this conversation.

Thank you. Okay, so in an oddly related story, also about rights and ownership. Yesterday, the U.S. said it supports waiving patent protections for COVID vaccines. And it's throwing itself behind a World Trade Organization proposal to pause intellectual property restrictions. Now, that is a move that could help speed the distribution of vaccines around the world. distribution of vaccines around the world. The head of the WHO has already called the U.S. move a historic decision for vaccine equity because it looks out for the health of people everywhere. Not having to license formulas could let developing countries make their own doses, although there's still other huge barriers like manufacturing capacity and getting raw materials.

Canada has yet to decide on whether it will back the WTO waiver. We did a whole episode about this recently, and you can find it in our feed. That's all for today. I'm Jamie Poisson. Thanks so much for listening to FrontBurner. We'll talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.