Music Publishing A Good Investment

by Tamera H. Bennett

Two hundred million dollars is just a drop in the bucket to purchaser classic song copyrights such as "The Sound of Music" and the "King and I."  I guess that  is what Imagem Music Group, a Dutch pension fund, thought when they purchased the music publishing catalog containing  the hits and Broadway classics penned byRichard Rodgers and Oscar Hammerstein II.

ASCAP lists the music publisher for Rodgers and Hammerstein II as Williamson Music, Co.  In addition to the hits of Rodgers and Hammerstein II, Imagem Music Group acquired songs by Irving Berlin and Lorenz Hart that were included in the Williamson Music, Co. catalog.

How did the number $200 Million come about if the purchase price was not disclosed?  At some point, estimated annual song catalog earnings have probably been discussed among industry professionals.  Typically in music publishing/song copyright acquisitions, the buyer will examine the net publisher's share of earnings and then multiply that by a factor to reach a purchase price.  That factor can vary on the low end of two to three times net publisher's share to as high as 10 to 15 time net publisher's share.   It is estimated the Rodgers and Hammerstin catalog was valued at seven to 14 times net publisher's share. In the end, the copyright owner typically knows what they are willing to sell for and the buyer has to figure out how many years it will take to recoup the investment.

So what is net publisher's share of earnings?   Assuming there is only one music publisher that owns the copyright in the song, the income that will go into net publisher's share will be 50% of public performance income which is paid direct to the publisher (in this case from ASCAP) and 50% of all other income sources.  All income, other than public performance, will be paid 100% to the music publisher and counted as publisher's gross revenue.  The publisher then remits 50% of that income from mechanical royalties, synchronization royalties, print royalties and other income streams to the songwriter(s).  What remains is the net publisher's share of earnings.

In addition to past revenue streams, a buyer and seller should be looking at future revenue streams.  With CD sales dropping and legal/paid digital downloads not yet catching up to the decline in physical product sales, other revenue streams are key in determining future earnings and valuing a song catalog.  Factors include whether or not the existing publisher was on top of administering the catalog and collecting revenue or if there would be an immediate need to audit licensors, did the existing publisher work to exploit the catalog, does the catalog include songs that will be viable for sync uses in film/tv/commercials, has the catalog been exploited for greeting cards/toys/non-traditional uses, are there hits/classics that will continue to be re-recorded by new artists, and are there branding opportunities available.

If you want to read more about the recent buying and selling of music publishing catalogs read this article at Reuters.  It gives a nice overview when HUGE publishing catalogs are the subject.  Keep in mind, most independent catalogs will not be valued anywhere close to $200 million.

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