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The Right Stuff

Digital publishing rights: Can profits be made by exploiting these?

This article was first published in the latest issue of the Moneyweb Investor. To read the magazine click here.

If there’s one thing I’ve learned from The Beatles, it’s that money can’t buy you love – but money might be able to land you the rights to The Beatles’ publishing catalogue…at a staggering £24.4 million.

When Paul McCartney showed Michael Jackson a booklet with all the songs he owned, Jackson quipped: “I’m going to get yours.” And in August 1985 he did just that, buying the Beatles catelogue for a king’s ransom.

Could you do the same – although perhaps on a smaller scale? And can you make money from music publishing catelogues?

What are publishing catalogues?

David Alexander from Sheer Publishing explains: “Publishing catalogues are bundles of musical copyrights which earn income from mechanical income (CD and DVD sales or digital download), public performance (online, mobile, radio and television airplay) and synchronisation income (use in adverts, films or TV programmes).”  

Alexander says that most investors will view this asset as passive income – but the clever investor, he notes, always looks for an investment at a low yield that will have high potential if managed correctly. “A good music publisher can add significant value to a publishing catalogue.”

Timing is crucial for potential investors. “Often, the main problem is having the knowledge of when these catalogues become available for purchase. Publishing catalogues don’t come up for sale very often.”

Some catalogues never see the open market at all. “Large, multi-national publishing companies will pay large multiples for catalogues – and they are usually approached directly if there’s a catalogue for sale.”

The risks are the same as any other investment, he adds. “Caveat Emptor. In other words, know what you are buying, and know what the costs of exploitation, collection and repatriation will be.

“SA investors have to raise capital to purchase these catalogues and if they are buying in foreign currency the rand amounts can be high,” he says. “If the cash is financed at the prime lending rate in South Africa they would have to be able to realise a large yield on the assets in order to justify the purchase.”

He notes that if the South African company has an offshore funding partner, where interest rates are very low, it becomes a much more attractive proposition.

Buying catalogues 101

“Music publishers take assignment (or more rarely, license) of the copyright in music and lyrics,” explains Ryan Hill, MD of Universal Music Publishing. “There is also commonly more than one composer or lyricist on a work, and hence multiple copyright owners who share ownership.”

While the publishing market in SA is small, Hill says investors should look at the large and established independents first. “Larger media conglomerates also look to purchase catalogues to fulfill 360-degree content access models.” He lists Media24 and TMG as examples.

Hill mentions paperwork, where the lack of a paper trail as well as what he calls “key-man issues” are potential snags. “Catalogues often don’t have the rights properly assigned, or those rights terminate too soon.” These are issues to be aware of when getting into the business.

Paul McCartney had, in fact, wanted to purchase the catalogue of his and Lennon’s songs – but he wanted to own the rights jointly with Yoko Ono, arguing that it “felt wrong” for him to own Lennon’s share. Unable to reach an agreement with her, the deal went to Jackson instead.

Another thing to consider, says Hill, is constantly changing tastes and genre shifts – a phenomenon to which smaller catalogues are even more vulnerable. As an example, he says: “If you purchased a deep house music catalogue in 2013, the shift to hip-hop would have reduced earnings potential quite precipitously.”

Investors should also look at catalogues including popular songs outside of the commercial sphere, such as theme songs to popular TV shows. “Then you are guaranteed royalty earnings going forward until the series stops airing.” Other music used for TV, if the rights are still owned by the creators, can later be reused as what is known as Production or Library music, says Hill.

Lastly, Hill mentions that investors can look at buying copyrights from a deceased estate. Hill says that one has a higher chance here of sitting on evergreen, consistently-earning hits, but cautions that such catalogues often fall under CD sales, licensing from advertising agencies or sampling by other artists.

“Copyright in a work has a maximum economic lifespan of the life of the composer plus 50 years.” Adds Bronwen Harty, CEO of the Southern African Music Rights Organisation.

Investors can also turn their eyes to the international realm. “International catalogues are represented by various publishing entities in SA through sub-publishing agreements with international publishers, but they can also be owned outright,” she says.  

Why buy?

“One purchases a Music Publishing catalogue in order to enjoy the royalty returns going forward, or sometimes strategically because the owner of the catalogue is good at finding new talent and/or has good relationships with TV producers and thus brings in commissioned work,” says HIll.

Because publishing rights and the music industry is a very specific business, Hill advises against walking into it without some background knowledge. “Or,” he says, “one enters into an administration agreement with a third party publisher.”  

The more established artists have learnt the business side of the industry and will follow the advice of investors and business partners, while new artists – whose rights can be bought more cheaply – are less educated and more emotional, notes Hill.

“Consider how established they are and what sort of business model they adhere to.” He explains that some publishers are focused on quantity, signing up every artist they can get their hands on. When these artists decide to ditch the label, selling their publishing catalogue soon becomes an option.

This is an industry perhaps left to insiders and experts.

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