30x?!!!!
It's the twilight of the gods. Pete Townshend said rock and roll would never die, but one thing's for sure, its performers will. No one lives forever, and after the deaths of David Bowie and Glenn Frey, we knew it could come, not from bad behavior, not drugs and alcohol, but the vagaries of life, drawing the wrong genetic number, getting cancer or rheumatoid arthritis.
So what about the music? Even though modern rock is a footnote in the overall sphere of new music, classic rock still lives, everywhere, from radio to jukeboxes to streaming services to commercials to that speaker at the drive-in...will this continue?
What you have to know is the superstars who sold their rights for a lump sum ultimately regretted it. The two biggest examples being Elvis Presley and Led Zeppelin. Colonel Parker wanted his cash, and he thought the value of Elvis's catalog had peaked. Peter Grant didn't think Led Zeppelin was for the long term, he sold out the rights, thank god the internet came along and gave the band the opportunity to renegotiate. As for those people who've sold and are happy...scratch the surface, it's more complicated than that. They own it, they can do what they want with it. And on one hand this is good, it might keep the music alive, on the other the use might not align with your identity/personality/career strategy. But if you're dead?
The truth is most acts have not survived. For every Doors, there's a Jefferson Airplane. Not everything from the past is worth a fortune.
As for selling your royalties, Josh Gruss of Round Hill Music told me he expects to make the money back in seven years. Some acts are just that broke, they need the cash, but unless you're 85, why would you do that? Don't forget musicians are historically terrible business people. But you know the maxim, everything is for sale, and if the price is high enough...
So they're saying between $500 and $600 million. That's a lot of cash, but the devil is in the details. Sell, and you pay 20% in taxes, whereas your yearly royalties are taxed at regular rates, as much as 37%. So...
It's a calculation.
Let's do the math. Bruce Springsteen is 72 years old. Is he gonna live another thirty years? Highly doubtful. There are some who live to 102, but very few. So this is the deal of a lifetime, he's got to take the cash. And let's not forget, when he and his wife die his heirs will have to pay significant inheritance tax, meaning if Bruce didn't sell now, his children almost definitely would have to sell upon his death.
So anybody who says Bruce shouldn't have taken this deal runs on emotion, not fact.
However, the big question is...what will Bruce Springsteen's music be worth in the future?
Yes, Bruce's songs are iconic, but you can't cover "Born to Run," or "Born in the U.S.A." Those are records, those are Bruce's. This isn't Bob Dylan, or even Paul Simon, with umpteen covers. However, covers are not the only way you can make money on a legacy catalog. Hell, Cadillac offered the Doors $10 million to use "Break on Through" decades ago, and the band turned it down! The price is only going up. And hedge funds don't invest unless they foresee a HUGE return. They don't want 5-10%, they're looking for a huge multiple, just like Bruce.
Now one thing we know, as long as there's a copyright law, at least in the U.S., you're gonna get paid (Disney keeps lobbying to have nothing expire, most notably Mickey Mouse). This is the silver lining of streaming. And it seems every couple of years there's a new opportunity to monetize. No one foresaw TikTok, and all these social media companies are now licensing music. So there's runway, in the short to medium term, but the long term? Elvis's merch sales are down. His fans are dying. Nobody is forever. Well, maybe Frank Sinatra and the Beatles. And who could have predicted the Doors would hang around this long. But will your band last, will your songs last?
You don't want to sell. These are your creations, these are your babies, you want to manage them, hold them closely. But now you're confronted with death. No one lives forever. Like I said above, emotionally it might not make sense, but intellectually, financially, it certainly does.
Now I bet some of the previous sellers are now kicking themselves, thinking they should have held on. It's always an issue when to sell. We saw this with SFX, what is now Live Nation. At first prices were extremely good, then they were stratospheric, but if you waited too long, the value went down. (And let's not forget Sillerman sold SFX to Clear Channel, he got his money, and the music business has a history of consolidation, who is going to own your rights in the future? Certainly someone you have no relationship with, never mind whether your interests align.) We have no frame of reference, no history, no classic rocker has been dead so long their audience is gone, so we can properly compute the value of their works. Classic rock could be forever, or when Generation X is gone, it could take a swift fall. Then again, classic rock is just not music, it represents an era of experimentation, when the culture went hand in hand with the music, when musicians moved the needle in every day life, when music was everything. That is not today, which is why today's music has a shorter lifespan. Think of the paintings and sculpture of the Renaissance, they're forever! Could that be classic rock? Just may be, especially if there's enough melody
So it's weird. Despite Springsteen's quote today, the label has always been the enemy, it doesn't pay accurate royalties, the faces keep changing, you can never trust your label. So on one hand you get your money up front, on the other you lose control. Wasn't classic rock all about control?
And how much money do you need?
Then again, you don't want to just give it all to the government. The government essentially pays you to invest, to give some away, it's one of the drivers of the economy. Then again, when you get really rich, how much can one person, one family purchase?
So Springsteen’s kids will inherit a ton of cash, but they won't own any of the music. And cash? You can spend it all in a day. Music rights have almost a guaranteed return, ergo the 30x above. But stocks, other investments? They can go down as well as up. And never forget, Steve Bing died essentially penniless, with under 100k. And he was not a dumb guy.
So, this is a once in a lifetime opportunity. When the prices get insane, it's hard to say no.
But once again, the valuations are by people who specialize in money, not music. It's not feel, it's math. There are a limited number of catalogs available. Is it key to have critical mass, or has Merck Mercuriadis driven the whole rights business right off a cliff? Remember when the internet came along, Napster? The labels had huge deals with legacy acts, they had to pay millions up front for albums that couldn't possibly make a return equal to what was laid out. Stuff happens in the future you can't foresee. Like Black Friday or 2008. You could lose money on all your stock, but if you still had your music assets, royalties would be paid.
On the surface 30x appears out of control. Springsteen just can't say no. On another, it's the death of the dream. The money was always there, but it was never up front. Hell, Bruce wanted to keep ticket prices low. Now the money's right in your face and it affects credibility, it's hard to create art with the dollar signs in sight. That's a business proposition. And music is a business, but it survives on the efforts of artists. And the value of music grew to such heights because of classic rock. That's why it's classic! But when Bruce Springsteen and Neil Young sell out to the man, it breaks your heart. You can understand it, but still... The man was always the enemy. Corporations are the scourge of America. And now Sony owns the work of Bruce Springsteen, the poet laureate of the streets? That's just sad.
--
Visit the archive:
lefsetz.com/wordpress/ --
Listen to the podcast:
-iHeart:
ihr.fm/2Gi5PFj -Apple:
apple.co/2ndmpvp --
www.twitter.com/lefsetz --
If you would like to subscribe to the LefsetzLetter,
www.lefsetz.com/lists/?p=subscribe&id=1 If you do not want to receive any more LefsetzLetters,
Unsubscribe To change your email address
this link
