Lefsetz Letter » Blog Archive » The FT Publishing Podcast

Lefsetz Letter » Blog Archive » The FT Publishing Podcast

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Podcast: https://on.ft.com/3V8F5LY

Transcript: https://on.ft.com/3VbVTBD

You took a 30% haircut on your money.

Let’s say you sold your catalog. What did you do with the cash?

First you paid taxes, and commissions to your team: your manager, lawyer… So, the figure you read in the news, that’s not the net, far from it.

And then you’ve got to invest the money. Keep it in cash and you’re losing money. There’s not a single cash investment that’s keeping up with inflation. Sure, you could invest it in real estate, which has inherent value, but you can’t do that overnight, it requires research, kicking the tires. No, what most people do is put the money in the market. Sure, if they’ve got a good financial advisor, investments are hedged, it’s not all in stocks, there are bonds and so much else. But if you’ve been reading the financial news…the market is bad, overall. We’ve seen an uptick very recently, but the experts at the WSJ believe the market is behind reality, and has further to fall. Which makes sense, the market doesn’t always perform rationally, and people don’t want to believe their stocks are cratering, so false hope keeps the market at an unreal level, until…

And then there are those who bought the dip. The WSJ did an exhaustive study on this. Most of their assets are now underwater. It was different back in March 2020, when the market crashed and Michael Rapino and others bought stock in their companies to give the impression of solidity. The market crashed and soon went back up. No one expects that to happen today.

So, you got all that money from the publishing company, and now not only have you lost a significant amount of it, on paper at least, but you’ve also given up that yearly income your songs and/or recordings and/or royalty streams were generating, which is why the publishing company paid such a high multiple to begin with!

Which is going down. Hipgnosis drove the number sky high, supposedly 22x for Neil Young. You don’t see that number anymore, nowhere close.

22x. That means 22 times yearly earnings. Positively insane for old acts whose material is aging daily. Especially in a world where catalog means 18 months old. Then again, classic tunes have ascended somewhat, I point you to Spotify’s deep dive:

“Spotify for Artists: Catalog”: https://bit.ly/3yoTHgA

Artists tend to be terrible business people. It’s like that old Wimpy story, they’ll take 7x when they’ve got miles to go in their lives. Yup, they sell their songs or royalty streams and in some cases the money is recouped by the company in fewer than five years. Meanwhile, you’re done.

So, Neil Young sells out to the friendly Merck and…

“Old Man” is used in an NFL commercial. Sung by Beck, but…does Neil Young really want his classic number associated with a football game featuring aged quarterbacks? No, and he bit back online, which is all he can do, because he sold his songs:

“Neil Young Registers a Quiet Protest Against Beck’s ‘Old Man’ NFL Commercial”: https://bit.ly/3VezsvV

So you got a chunk of change and gave up your rights and you lost money on what was paid you. Sound like a good deal?

And then there’s when you sold. Bob Dylan was too early, he could have gotten more if he held out. As for Springsteen… What kind of bizarre world do we live in where Diane Warren refuses to sell her songs and the Boss makes a deal? Doesn’t artistic integrity stand for anything anymore? Don’t you want to control your assets? Think of how much money and time you put in creating them.

And as much as Springsteen got, history has always told us that these deals are underpriced, because those involved can’t see the future. Usually, the artist is influenced by the manager, who wants their commission. Colonel Tom Parker sold all of Elvis’s recording assets to RCA. Talk about a bad deal… That’s the gift that keeps on giving, to RCA, not Lisa Marie. And Peter Grant sold Led Zeppelin assets to Atlantic, thank god the CD came out and the company needed unforeseen rights and Led Zeppelin could cut a new deal. You see there’s always a way to make more money on music. That’s Merck’s pitch. And he’s right, but once you get involved with the money people…

It all comes down to money, and you don’t beat the banks or the professional investors.

No one foresaw huge inflation and concomitantly high interest rates. Investors want to get paid. And now song returns are below interest rates. And you don’t screw the banks. So Blackstone could end up owning all your songs, and if you think they care how they’re used, you’ve never met a banker. It’s all about return, baby.

So maybe you got a huge multiple. Maybe you’re doing estate planning. But most of these acts’ deaths are not imminent, especially not Springsteen’s. Dylan could live another fifteen or twenty years, think of how much more money he could make.

No one cares about your songs other than you. Get that straight. And those with percentage participations don’t like to sit at home and make no money. If there’s an opportunity, they at least want to kick the tires. And then you see the giant number and…

As publisher Randall Wixen says, show me one person who didn’t regret selling their catalog. I’ve never found one. It’s just that these new deals are…new. Then again, many of these acts must have seller’s remorse, after that market haircut. But it’s too late now, baby. They were getting those big checks every year, while they continued to own the assets which were growing in value, now they’re out of the game.

Listen to this podcast. Insiders know all this. But there are very few insiders.

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