Big Red Hot Chili Peppers deal shows song catalogs are a ‘safe asset class’

The Red Hot Chili Peppers are reportedly selling the rights to their song catalog, which includes hits like ‘Californiacation’ and ‘Scar Tissue’, for $140 million – in a deal that could have implications for the industry music.

London-based music investment firm Hipgnosis will acquire the catalog, Billboard reported this week. The deal would add to the company’s already impressive list of A-list editing deals, from Neil Young and Shakira to former Fleetwood Mac guitarist Lindsey Buckingham. Hipgnosis did not immediately return Yahoo Finance’s request for comment.

To put the deal into perspective, the Red Hot Chili Peppers catalog currently generates between $5 million and $6 million a year for publishers, Billboard reported. It sold for around 25 times that amount.

Red Hot Chili Peppers will sell a catalog of songs for $140 million

The reported deal with Red Hot Chili Peppers highlights how song catalogs “have become a really interesting asset class for a lot of investors and hedge funds, and that’s created the space to warm up a bit and for that the multiples go up,” said Visionary Music Group founder Chris. Zarou told Yahoo Finance.

Zarou, who manages multiple artists including Grammy-nominated singer, songwriter and record producer Logic, explained that securing music catalogs is “an incredible way for an artist to monetize their life’s works and capitalize on advantageous tax incentives,” he said.

Buyouts are often considered long-term capital gains in the United States, while ongoing royalties are considered ordinary income, according to the music veteran — and the best of all possible worlds.

“I see this as a win-win for everyone…it’s a cool development,” added Zarou.

A “of course”

(Source: NYT, WSJ, Billboard)

(Source: NYT, WSJ, Billboard)

Similar moves have been made by other high-profile bands and singers, and the trend appears to have gained momentum throughout the pandemic.

Bob Dylan sold more than 600 copyrights to Universal Music Group last year in a deal valued at more than $300 million. Before that, Stevie Nicks sold a majority stake in her writing for $100 million.

Music publishing encompasses copyrights for songwriting and composition, such as lyrics and melodies. Although publishing rights are often not worth as much as the actual recordings, they can still generate a significant amount of revenue over time with radio airplay, advertising, movie licensing and more.

“Buyers view it as a safe asset where you’re likely to see annual returns in perpetuity – similar to real estate, although it likely has even better returns, especially if you buy the right catalog,” Zarou explained.

Live concerts with sold-out tours tend to bring the most money into an artist’s wallet; However, with gigs on hiatus amid the coronavirus, that revenue stream has momentarily disappeared.

Alternatively, selling song catalogs can be a relatively easy way to make up for any lost wages.

“I think [the pandemic] played a role for better-known artists who would usually be on the road to sell arenas and stadiums to generate income, ”suggested Zarou – although he warned artists against such a decision without much thought. .

TikTok Phenomenon

The value of a song has risen sharply since the rise of TikTok, with (mostly younger) users being exposed to old classics from the past.

“We live in a time in the music industry where a 25-year-old record can show up on TikTok and then all of a sudden the value of that publishing catalog has changed dramatically,” Zarou said.

He cited the rise in popularity of Fleetwood Mac’s “Dreams” after the 1977 song went viral on the app last year.

“Now that song is consumed on a much higher level and, not only that, it’s now been introduced to a whole new generation of people who didn’t even know it existed,” he continued.

“So the unpredictability of a catalog – fueled by TikTok and social media – is also a great advantage for the buyer,” he added.

Alexandra is a Producer and Entertainment Correspondent at Yahoo Finance. Follow her on Twitter @alliecanal8193

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