On December 7, 2020, a day that will live in infamy, we reported that Bob Dylan had sold the rights to his music catalog for $300 million. The sale transferred all royalty and management rights covering more than 600 Dylan-penned songs to Universal Music Publishing Group. At $300 million, it was the largest amount paid to a single artist to date for a music catalog – three times what Steve Nicks fetched for an 80% stake in her catalog just a few days prior – double what Neil Young got a month earlier. And as it turns out, we're now learning that Bob Dylan likely earned much much more than $300 million.
A few days after the Dylan sale was confirmed, Rolling Stone heard from several sources with "intimate knowledge of the situation" who claimed that the final sale price was $300 million. One of the sources was certain that the deal was particularly enormous because he was personally involved when Dylan REJECTED a $400 million offer from a music publishing company called Hipgnosis Song Fund.
Hipgnosis Song Fund is founded by a guy named Merck Mercuriadis. Yesterday Merck confirmed in an interview with The Guardian that his company did indeed offer $400 million after two years of negotiating and wooing. In Merck's words:
"We were ready to make a deal then Universal made an offer that we couldn't possibly compete with. You'd have to be a company of that size to absorb the price they paid… [which was] much higher than the $300 million reported at the time."
Based on reporting that's coming out now, it's now safe to assume that Bob Dylan sold his catalog for at least $400 million.
That $400 million is especially-impressive when you consider that Bob is objectively the second-most talented member of the Dylan family, behind Jakob.
Why Are So Many Artists Suddenly Selling Their Catalogs?
Short answer: Because there's so so so much money to be made! Duh!
Long answer: Catalog valuations have never been higher thanks to the gushing royalties produced by streaming services like Spotify and even social media platforms like TikTok, YouTube and Instagram.
Historically, song catalogs sold for around 10X the average annual royalties produced. Recently, some song catalogs have been selling for 20X annual royalties.
Another factor is that the pandemic has totally zapped all touring income for a year with no short-term end in sight.
There's also a tax incentive for artists to sell now. There's a special tax code specifically related to music catalogs that allows sellers to pay the IRS long-term capital gains as opposed to short-term. That difference reduces an artist's federal tax rate on the sale from 37% to 20%. If Bob Dylan just sold his catalog for $400 million, he saved 17% compared to a short-term investment. That saved him $68 million. Furthermore, there's another loophole that allows especially crafty artists to sell their catalogs through a Nevada-based trust to avoid California's 13.8% state tax rate. Both of these tax loopholes are rumored to be on the chopping block in a Biden administration, so artists may see this as their last chance to maximize their windfalls.
If Bob Dylan sold his catalog for $400 million through a Nevada trust, he presumably only paid 20% in taxes TOTAL. That would mean he took home $320 million. If those two loopholes are closed, a future $400 million deal would net out to $200 million for the artist.
Why Are Private Equity Firms Suddenly Paying Hundreds Of Millions For Song Catalogs?
Short answer: Some investors think the royalties produced by song catalogs will only grow with time AND that music is recession proof.
Long answer: Not to get overly financial here, but more money has been printed in the last decade than in the 50 previous years. Trillions of dollars were printed out of thin air in the last 12 months alone. In an average year, total US money supply increases by about 5%. In the last 12 months, US money supply increased 30%.
Why does that matter?
There's just so much damn money floating around the global financial system. That's why stocks are at all-time highs. That's why Bitcoin is at $45-50,000. That's why you're hearing about random rookie baseball cards selling for $100,000. That's why you're hearing about people paying $1 million for a piece of digital art.
That's also why music funds like Hipgnosis have raised billions upon billions of investor cash to spend on music catalogs. The music funds then take the catalogs and lump them together as a "securitized" asset class which investors can invest in. If that sounds familiar, you might be thinking of how the 2008 real estate crash happened after a bunch of over-valued mortgages were lumped together and sold to banks as "mortgage-backed securities" which ultimately exploded when everyone realized that maybe a person making $25,000 a year shouldn't be given a $1 million mortgage to buy a tract house an hour outside of Fort Lauderdale.
I'm not saying the same kind of bubble is happening with music catalogs. For one thing, 200 million Americans don't live in a song catalog. For another, music really might be recession-proof. If the economy blows up next month you'll likely see a precipitous drop in the value of digital art and baseball cards, but people will continue to listen to music. And as long as there well-capitalized companies like Spotify, TikTok, YouTube and Facebook paying royalties, catalogs should continue to generate reliable income for their owners and investors.
And in case you are curious here are just a few of the mega catalog sales that have happened in recent years:
Imagine Dragons – $100 million
Calvin Harris – $90 million
Taylor Swift – $300 million (she was not the seller)
Stevie Nicks – $100 million (80% sale)
Neil Young – $150 million
Ryan Tedder – $200 million
Bob Marley – $50 million (sale occurred in 2018 and was for a partial stake)
Lindsey Buckingham – $100 million (over two transactions, first in 2012 and then a second in 2020)