Recently, David Crosby sold his catalog to Iconic Artists Group, a management firm. In January this year, Neil Young sold a 50 percent share in his 1,180 song catalog to UK-based music fund Hipgnosis, reportedly for $150 million.
Bob Dylan sold 600 of his songs to Universal Music Group for an estimated $300 million in December last year.
Dylan’s sale caused a ripple of excitement in the $20.2 billion global music industry. And it torchlit the rise of music funds like Royalty Exchange, Vine Alternative, and Shamrock Capital that trade in songs and catalogs.
“In the last six months the number of catalogs bought and sold has been tremendous,” says Simon Dyson, Practice Leader, Music, UK-based Omdia.
One rough estimate puts it at about 12-15 deals globally in the last two years. Only one of these was in India. In 2019 the India arm of the Paris-based Believe Digital bought out the catalog and music arm of Venus Worldwide for a reported INR 380 crore. That’s it.
There are 662 million Indians online; over 130 million of them tuned into streaming music in August 2020 according to Comscore. India houses 15 major music streaming services. The largest YouTube channel in the world, T-Series, is an Indian music company. Why then haven’t there been more deals on catalog or music company sales? The answers are a mixed bag.
“India has been dominated by the soundtrack market. All IP (intellectual property) is with music labels. Artists don’t have the leverage to go to a fund, labels do. But the pace at which music consumption is happening, India will be in a similar situation like mature Western markets soon,” thinks Vivek Raina, Managing Director, Believe India.
“Music funds are completely irrelevant to India,” counters Neeraj Jaitly, Director, Art & Artistes.
The contradiction lies in the flawed structure of the Indian music market and in the nature of music funds.
Of music funds and catalog valuations
In India,“When we buy the music we buy master (sound recording) and publishing,” says Vikram Mehra, Managing Director, Saregama India.
“In the West, if Bob Dylan recorded a track for Universal, that track was owned by Universal. But the publishing rights, the lyrics, were owned by Bob. In India – Saregama or T-Series own all rights. The whole centralisation of rights, the bunching means there is no distinction between a film and its parts; no distribution in asset classes. This has damaged the industry,” says Ameet Datta, Partner, Saikrishna and Associates.
While a recording can only be used as it is, publishing rights are more flexible – you could have another singer croon the same song, set it to a different tune, perform it live, the possibilities are endless. The trading that we see in the UK and US is for publishing rights not for recorded music.
“In Asia music companies co-own everything. So separating the rights for creating a market to invest in will be difficult,” says Dyson.
Many Indian music publishers may not agree but it is the first of the three reasons music funds, used to dealing with discrete rights, haven’t ventured in.
“Catalog valuations are usually based on an annual average of the net publishers’ share (NPS or the amount kept by the publisher) over a 3 to 5 year period. Some buyers prefer to base an asking price on the last twelve months. Classic catalogs are usually bought/sold for 10-15 times NPS while newer catalogs sell for 5-10,” says Dyson.
Parag Mehta, Partner, Transaction Advisory Services, Valuations, and Business Modeling, EY agrees,
“In music (and films) since each library is unique, the best approach is to value it based on its income-generating potential. You project the future cash flow, discount it for the present, subtract expenses,” says he.
The funds then go on to monetise these catalogs across all platforms – streaming, TV, OTT, film, synchronisation – as widely as possible. Some funds claim to have got a 20 percent return on their investment into a catalog.
“The primary difference (between Indian and developed markets) is they have data (on past sales). If you can earn INR 20 in the future, somebody gives INR 40 and makes INR 50 because he can milk it and market it better. We are not a data driven music economy,” says the India head of a global music label.
Jaitly agrees, “There is no adequate tracking mechanism for (royalty) collection. What exists is an apology of a system with IPRS/PPL. They do whatever they want, there is no transparency, no data capture, no source.”
It was only when Apple, Spotify, and Amazon came in and did the digitisation for music firms that streaming took off. This opacity is the second reason analysts are doubtful that funds could take off in India.
The India effect
“If everyone paid for the music they consumed it would be a INR 3,500-4,000 crore industry. The “shaadi” business is another INR 2,000 crore,” says the India head of a global music label.
That is the third, arguably, the most important reason why music funds would have trouble trading catalogs and songs in India – the market is simply not lucrative enough.
The INR 1,500 crore Indian music industry is deeply under monetised and in a perpetual battle with music pirates, radio operators, and others over its fair share of revenues. Almost 70 percent or over INR 1,000 crore comes from streaming music. However, less than two million of the over 130 million Indians who listen to music online, paid for it.
The biggest streaming players, Jio Saavn and Gaana, are ad-driven. While music companies get a share of ad revenues, the per-play rates are 4-10 paise against “50-90 paise globally,” says Mehta.
On the pay side while revenue shares could be as high as 50 percent it doesn’t mean much because that is split across thousands of songs. This means only a company like Saregama which has 130,000 songs to license can hope to make money from licensing. Last year it made INR 238 crore or about a massive 46 percent of its INR 521 crore top line from licensing.
Yet, Believe reportedly paid six times the estimated top line of Venus in 2019. What prompted that deal? Some analysts say it was the need to drive up a valuation for an impending IPO. Raina did not comment on the value of the deal.
But he points out that “Before acquisition, we worked with Venus for four years. We knew the value of the catalog since we were distributing for them.”
Venus’ 25,000 Hindi and Tamil songs include hit albums such as Deewana and Dilwale.
There is a crucial difference here. Believe is not a fund – it offers distribution and marketing services to almost 600 artistes and labels in India, many of them new. Therefore much of the investment will go into discovering and nurturing new talent. However music funds only invest in proven catalogs, none of the money is going into creating or discovering new music.
“Private equity funds investing in music is driven by low-interest rates in the West. This is a rally and many factors pump a rally. Bob Dylan’s music already had great value. Since stocks, bonds are not giving returns and nothing is happening in sports and Hollywood (due to the pandemic) music has merged as the Hallelujah for them.” says Jaitly.
He points out that, “Catalogs haven’t changed; this is not fuelled by music.”
Text by Vanita Kohli-Khandekar