TYPES OF DEALS & FACTORS TO CONSIDER

DEAL TYPES & FLEXIBILITY

Music deals fall into three different types: (1) acquisition of publishing, masters and related intellectual property (together, “IP”) and their related royalty streams; (2) acquisition of royalty streams only that flow from the relevant IP (but no acquisition of the underlying IP itself); and (3) advances against royalty streams (again with no acquisition of the underlying IP).

Within these three major deal types, lots of flexibility and customization exists. Acquisitions or advances may be full or partial (meaning that the Artist or Rights-Holder sells off only a part of the IP rights or royalty stream). And, within each category of deals, some buyers are “active” (meaning they have their own teams of specialists who aggressively drive new opportunities for Artists and their IP). Other buyers are more “passive” (meaning they take a more purely financially-driven approach).

It’s up to the Artist, Composer or Rights-Holder to decide what approach is right for them. After all, Artists must feel comfortable when they entrust their songs, recordings and overall legacies to anyone. The “fit” must be right, and one size certainly does not fit all. Deep Cuts has active relationships with virtually all of the relevant buyers, and we understand how they differ from each other.

THE OPPORTUNITY & WHY SELLING MAY MAKE SENSE

The first fundamental question is whether the Artist, Composer or Rights-Holder may be interested in selling some or all of their IP or royalty streams. After all, their IP (their songs and recordings) are their “babies” – deeply personal and dear to them. And, many Artists have worked hard to get their IP back following earlier business deals that didn’t treat them fairly or via U.S. copyright law’s 35-year recapture period for works post 1978. Deep Cuts is deeply versed in those copyright termination and recapture issues.

Several factors should be considered when contemplating a potential sale (partial or full) of IP or royalty streams right now.

Reason 1 – Artists Are In Control (& Retain Control)

Artists maintain control over their music and IP – they don’t lose it by selling. Artists dictate the “rules of the game” (how their music can be used, etc.), and a sale doesn’t need to be an “all or nothing” scenario. Artists and Rights-Holders decide what to sell and what not to sell. They may be willing to sell IP, or just their royalty streams (with no IP), in one song or album, or multiple songs and albums. Typically, Artists sell less than 100 percent in these deals, because they want to retain some of their IP (typical deals include the sale of 50-80 percent of the relevant IP). These are true “partnerships” where incentives are aligned. If the Artist isn’t happy, they most certainly will let their buyer partner know about it.

Reason 2 – It’s A Seller’s Market & Buyers Pay Top Dollar

Buyers are willing to pay top dollar, precisely because it’s a highly competitive market with literally billions of dollars chasing opportunities. That means so-called financial “multiples” on music earnings have never been higher. Relevant multiples depend on many factors, including (i) the Artist’s stature, (ii) the scale, stability and trending of annual earnings for the IP in question, and (iii) the type of music (whether it is mainstream or more “niche”). But there is the right type of buyer out there for just about any kind of music and IP that generate ongoing predictable earnings. Overall market conditions, of course, impact valuations. Multiples tend to trend upward in bull markets with low interest rates, and downward in bear markets with higher interest rates. Deep Cuts Media knows how to best position Artists and Rights-Holders in all market conditions.

Reason 3 – Don’t Forget The Tax Benefits (Long-Term Capital Gains)

Artist payouts in these deals can be even significantly more lucrative, because there also may be long-term capital gains treatment of music IP sales (unlike ongoing royalties that are treated as ordinary income). These tax benefits are critical to understand and should be explored with accountants (to be clear, we are not CPAs and are not offering advice or conclusions here).

Reason 4 – It’s Not “Just The Money” – It’s So Much More

The benefit to Artists and Rights-Holders is not “just the money.” After all, many Artists do not “need” the money (although top dollar today is always nice). Critically important to understand is that “active” buyers devote substantial marketing, branding, social media and other resources to seek out and drive new opportunities for Artists and their music that would otherwise not exist. Those active efforts increase the value of the IP retained by Artists, expand the audience for their songs, and drive their legacies into new generations. Artists benefit 100 percent from those efforts.

These teams of experts who actively “work” their songs and recordings are resources that Artists simply can’t match, no matter what their stature. Without active “care and feeding,” audiences and legacies generally decline over time with new generations of music fans who consume their music very differently than they did in the past. Even with more “passive” financial deals, the halo effect of working with buyers goes well beyond the money. Artists get priceless data about their super fans (emails, etc.), so that they can reach out to them directly, engage and monetize. Without data, Artists have little visibility into their fans.

Reason 5 - Estate Planning (& Defining Future Control Of Songs, Recordings & Legacies)

Many Artists also see tremendous benefit in defining their own plans for their songs, recordings and legacies in these deals. The alternative is to leave it to others (including family members) to determine and carry out the Artist’s wishes when the Artist can no longer do it themself. We have all seen stories of epic and ugly family battles over the past few years when no plan was in place. The focus should always be on Artists and their songs, recordings and overall place in music’s great pantheon. For many Artists - it’s better to plan now.

HOW WE CAN HELP

Few Artists and representatives really understand these lucrative opportunities because of music IP’s complexity and a lack of overall understanding of relevant issues, not to mention a lack of experience simply doing these deals and understanding the universe of buyers out there.

Knowledge is power, of course. And we here at Deep Cuts Media know who the buyers are, have established deep relationships with them over the years at the CEO level, understand what makes them tick, have facilitated lucrative deals time and time again, have negotiated deals valued at over $3 billion over time, have an established brand and reputation with proven success.

There is no downside in understanding what the market has to offer. And there is no cost to Artists and their representatives for reaching out to learn more and potentially explore these deals. That’s what we do here at Deep Cuts Media. We invest our time and expertise with Artists and their representatives to do it right.