Recently the Red Hot Chili Peppers sold the rights to a song catalog containing a large number of hits for $140 million. According to the report, the Red Hot Chili Peppers hit songs catalog is currently generating around $5.5 million a year. Thus, the value of the rights sold for $140 million was determined to be approximately 25 times this amount. The Red Hot Chili Peppers have inspired many investors and hedge funds with this sale. As a new asset class, song catalogs may become more important in the future. Chris Zarou, founder and CEO of the independent record label Team Visionary, said: “it is an amazing way for an artist to monetize their life’s works and to capitalize on beneficial tax incentives. I look at it as a win-win for everyone. It’s a cool evolution.”
Hipgnosis Songs Fund and Primary Wave companies, which have acquired many broadcasting rights, already have famous names such as Neil Young, Shakira, John Lennon, and Dire Straits in their purchase history. In this arrangement, these companies can earn money from royalties, licensing, and brand deals. Hipgnosis and Primary Wave companies realized that the value of their music assets was stable at a time when all markets were turbulent due to the pandemic. According to Hipgnosis CEO Merck Mercuriadis, if Donald Trump does something wild, gold and oil prices may change, but the songs will always be the same. During the pandemic, many other superstar singers and famous bands sold their musical rights. Bob Dylan sold 600-odd music rights to Universal Music Group for a fee of close to $400 million. Universal Music Group, one of the old giants of the music industry, did not want to let new startups like Hipgnosis to dominate these valuable assets alone.
Music publishing covers the copyrights of lyrics and melodies. Publishing rights are generally not as valuable as real recordings, but they can generate significant revenue over the long term. According to Zarou, investors consider music rights to be a reliable asset that you are likely to see sustainably in annual earnings. Just like real estate. Moreover, they have even better returns. If you buy the right catalog. Sold out concert tours, which have been the biggest source of income for musicians for a long time, have been disabled due to the corona virus. To make up for this, it might be a good idea to sell music rights.
Unexpected Benefit of Tiktok
The value of old popular songs increased thanks to Tiktok. Thanks to the music used in Tiktok videos, which have many low-average age users, the old classics are getting listened to again. “We live in an age of the music industry where a 25-year old record can appear on TikTok and then suddenly the value of this broadcast catalog changed dramatically,” Zarou said.