Interest rates are rising but the music industry isn’t missing a beat. Ageing rockers Pink Floyd are hawking their back catalogue for about $500mn; Warner Music and KKR-backed BMG are among those circling a trove of anthems from The Dark Side of the Moon and The Wall.
These assets are the antithesis of the flashy artists behind them. Effectively annuities, valued on a discounted cash flow basis, they have been a beneficiary of low interest rates on one hand and revenue growth from streaming on the other. The pandemic encouraged sales: unable to hold concerts, some songsters fell back on selling out.
Private equity, hedge funds and specialised vehicles such as Hipgnosis and Round Hill have all piled in. Result: rising multiples. UK-listed Hipgnosis went from paying 13 times revenues in 2019 to 20.5 times two years later, calculates Jefferies.
Rising interest rates should thus change the calculus. Yet Citrin Cuperman, His Master’s Voice when it comes to valuing music assets, thinks otherwise. It is leaving its discount rate at 8.5 per cent, it told Music Business Worldwide, reckoning sufficient leeway is baked in.
Other factors suggest there is still room to party. Rising revenue streams is one. The US Copyright Board and industry are thrashing out an agreement on mechanical royalties, for downloads and the like.
Rights are broadening out from songs and master recordings to name, image and likeness. Tina Turner sold these rights to BMG last year. Assuming it takes off, the metaverse will offer plenty of scope to exploit such rights.
For sure, not all the mood music is upbeat. Both Round Hill and Warner Music Group took small markdowns in recent reports, without detailing reasons. But quality enduring assets like Bruce Springsteen, who sold his catalogue to Sony Music for a reported $550mn, or Pink Floyd — both of which have vast canons — have little to fear from The Fed.
Pink Floyd has presumably sussed you don’t need no education to work that one out.