Music Catalogs Are Selling for Serious Cash. Now Wall Street Wants In - Rolling Stone
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Music Catalogs Are Selling for Serious Cash. Now Wall Street Wants In

KKR’s re-entry into the music business, buying the copyrights of OneRepublic’s Ryan Tedder in an unusual direct acquisition, signals a new wave of Wall Street interest in an area financial giants have ignored for years

Lead singer Ryan Tedder of OneRepublic performs during the 2019 Global Citizen Festival on the Great Lawn of Central Park, in New York, NY, September 28, 2019. Global Citizens Festival is aimed at bringing awareness for world leaders to empower women, combat plastic pollution, fght Infectious diseases, and build global human capital. (Photo by Anthony Behar/Sipa USA)(Sipa via AP Images)

Lead singer Ryan Tedder of OneRepublic performs during the 2019 Global Citizen Festival on the Great Lawn of Central Park, in New York, NY, September 28, 2019.

Sipa USA via AP

The catalog acquisition frenzy in the music industry continues to accelerate. Right now, the gorillas in this jungle include Larry Mestel’s Primary Wave and Merck Mercuriadis’s Hipgnosis Songs Fund, two investment and management firms: in 2021 alone the latter company has acquired copyrights and/or income streams from Neil Young, Lindsey Buckingham of Fleetwood Mac, Shakira, and Jimmy Iovine.

These big-spending upstarts — snapping up famous catalogs off the bet that they can make piles of cash off sync licensing and various royalty streams — have gotten the industry’s traditional “majors” on the hop. Warner Music Group pulled down over $250 million in debt in October last year to fund two acquisitions, including, I’m told, the catalog of a major songwriter who would otherwise likely have sold their music elsewhere. Universal Music Group, as explained in this column, dug deep behind its sofa cushions to buy Bob Dylan’s catalog for around $400 million at the close of last year — showing that it too could punch hard in the race to secure music rights.

Have the likes of Hipgnosis driven the market up to breaking point? Don’t bet on it. Activity in the music industry this past week suggests that acquisition multiples are about to spiral even higher — as Wall Street’s biggest names wrestle to own music assets as well.

On Monday, January 13th, a true financial heavyweight entered the music M&A field. Kohlberg Kravis Roberts (KKR), an investment behemoth with over $230 billion in assets under management, announced it has snapped up a majority stake in a publishing catalog from Ryan Tedder, the OneRepublic frontman and writer for the likes of Adele, Beyoncé, Stevie Wonder and the Jonas Brothers. Reuters suggested this catalog was worth $200 million.

This isn’t the first time in recent memory that Wall Street mammoths have gotten involved in the inner workings of the music business. In 2016, BlackRock (a company with $7.8 trillion in assets under management) led a $300 million investment into Primary Wave — money that was subsequently spent on legendary music catalogs like Bob Marley’s. Elsewhere, the Core Equity Partners fund of Blackstone acquired US collection society SESAC in 2017 for a deal rumored to be in the region of $1 billion. And in 2019, Morgan Stanley quietly picked up producer royalties from Kanye West collaborator Jeff Bhasker for a rumored $60-plus million, in a deal brokered with a Morgan-side “buddy” of Bhasker’s manager, Neil Jacobson.

The KKR entry, though, feels different. This is a direct acquisition of a blockbuster rights catalog by a Wall Street thoroughbred, and for a nine-figure sum; it is a more linear takeover of copyrights than, say, The Carlyle Group investing into Scooter Braun’s Ithaca Holdings, or Providence Equity pouring money into Tempo Music Investment’s $650 million spending purse. KKR is taking on responsibility for buying and managing the songwriter’s publishing catalog in-house. (One other firm “doing a KKR” right now is relative minnow Shamrock Capital, which has around $2.5 billion in assets under management and directly acquired the master rights to Taylor Swift’s first six albums for around $300 million in November.)

We can expect to see more of this. Nat Zilkha, Chairman of KKR’s Gibson Brands, hinted that the Tedder buy will be the first of many for KKR in music when announcing the deal. Zilkha said (bolding mine): “At KKR, we are focused on a number of investment initiatives across the music and entertainment industries and we believe Ryan’s unique combination of artistic brilliance and business acumen will help us amplify these efforts.”

Interestingly, this is KKR’s second bite at buying into the modern music industry. Having acquired 51% of Bertelsmann’s music rights company, BMG, in 2009, KKR then offloaded this stake in 2016 for around $1 billion, giving Bertelsmann full ownership. Considering that BMG posted an annual operating profit of $155m in 2019 — and that Universal Music Group, via its Tencent stake sell-off, is currently being valued at 27-times its EBITA profit that same year — it appears KKR may have made a hasty decision by selling BMG when it did.

It wasn’t alone. Another financial giant, US banking behemoth Citigroup, took ownership of “the fourth major music company,” EMI, in 2011 after the music firm failed to keep up with its interest payments. Yet Citigroup too got out far too early: Citi sold the music publishing half of EMI — EMI Music Publishing (EMP) — to a consortium led by Sony for $2.2 billion in 2012. By November 2018, when Sony fully acquired EMI Music Publishing from its fellow investors, EMP carried an enterprise value of $4.75 billon. Thanks to streaming’s explosion, the valuation of the music company Citigroup sold in 2012 had doubled in barely over half a decade.

Now, with KKR swooping back into the market, Wall Street is licking its lips in music’s direction anew. Expect the likes of Morgan Stanley to crank up its presence in this space, or perhaps JPMorgan Chase and Deutsche Bank, which have both stayed particularly close to the Universal Music Group story in recent years. Watch out too for Goldman Sachs, whose music market and company valuations from top analyst Lisa Yang have both helped the value of hit songs soar in the past few years and steeled institutional investor confidence in music copyrights.

Welcome to 2021, where — against a backdrop of canceled tours and a live music industry in crisis — the music catalog sell-off game is poised to explode yet further. Evidently, the world’s financial lynchpins want in on the gold rush.

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.

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