Who should sell their music catalog vs. who should hold? Is that actually how it is playing out?

By @Matthew Kishlansky

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The conventional wisdom is that older artists are natural sellers. First and foremost, they seek to avoid a complex catalog valuation process by their estate. That estate may need to be divided amongst their heirs, many of whom may have disparate tax situations not to mention may be uneducated about the mechanics of royalty collection, etc. Meanwhile, the conventional wisdom we have seen for young rising artists is to hold on to their rights in the hopes that their biggest successes are still in front of them. The hope is that if your next album is even bigger than your previous three then you can potentially drive up the visibility and value of your back catalog through future success.

But a savvy investor would point out that it’s actually the younger artist who should be more motivated to sell: they have substantial future income tied into their future popularity and therefore should be motivated to diversify their risk into non-music assets. If their career tanks, they’ll be happy they sold back when they were on top. If their career surges, the last thing they’ll be worrying about is having sold too soon on their older work. Further, if they continue to experience sustained success, they may be getting taxed heavily and will be thrilled to have converted a substantial amount of their asset growth into deferred gains and tax-exempt income rather than just piling on more ordinary income at the top tax rate.

And this gets to the biggest source of inertia for sellers: too few have ANY actual financial plan, let alone confidence in the person who has put it together for them as either a strategist or as someone who has the gravitas to keep them on that plan for the long term. So despite the fact that in many, if not most, cases the artist or producer would be better off from a risk, tax and lifestyle perspective to sell their catalog now, they resist for fear of not knowing what they would ACTUALLY DO with the proceeds. It’s a clear failure of financial planning: they didn’t put people they trust around them to maximize their choices as well as their wealth.

We have worked with artists that the sale of their catalog is what empowers them to bet on themselves for the rest of their career. They believe they have secured their financial future by selling their catalog and using the proceeds to create an endowment for them and their families that can fund their annual spending needs. Thus rather than needing their career to generate income to pay their bills, they are empowered to follow their creative passions rather than playing it safe. In most cases this is liberating, allowing them to take control of their financial and artistic lives in their prime versus in their golden years. Some will tell you that their greatest successes have come from a place of musical and career risk taking rather than playing it safe.?

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Selling music catalogs can also entail additional risk such as : potential undervaluation, loss of future income, limited negotiating powers, and tax implications. It's essential to carefully weigh all risks against your current financial needs, long-term goals, and confidence in the future potential of your music catalog before deciding to sell. Consulting with financial advisors, music industry professionals, and experienced legal counsel can also help you make an informed decision.

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