What is the state of the music catalog sale market?

By Matthew Kishlansky

There has been a dynamic tension for artists and producers interested in selling their catalogs over the past 24 months: depressed multiples vs compressed timeframes for certain buyers. We have seen that rising interest rates have lowered the multiple to annual earnings that investors are willing to pay for catalogs. That has slowed down dealmaking for sure. ?Yet, as we finish the second year of those rising rates there are private equity funds who raised capital purely for this purpose and some of them are running out of time to deploy that money before they have to return it to investors. We believe something must give between sellers looking to receive higher multiples and buyers whose pockets are slowly burning away from hot cash holdings.

There is another perspective from those in the industry that think that many of the catalog sellers in the 2019-2021 timeframe weren’t beneficiaries of low interest rates but instead beneficiaries of newcomer private equity funds dedicated to buying music rights. Those funds, the theory goes, needed to overpay in some splashy headline grabbing transactions in order to announce themselves to the industry. The challenge is that they overpaid on those deals and now need to score some bargains in order for their funds to deliver satisfactory returns to their limited partners. Those funds are no longer outbidding the major labels that have always been the natural buyers of royalties.

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In our view optimism remains amongst the buyers that revenues will continue to rise as the industry continues to find new ways to monetize content. There are more sources of revenue and there is genuine belief that the industry can enlarge the payments coming from those new sources. Buyers hope that they can pay for an average of the past three years’ value just before some of this growth occurs. Sellers meanwhile hope that expected growth justifies the higher multiples they dreamt of receiving just before rising rates stalled the market. Who will blink first?

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