This analysis was first published in SvD Näringsliv, in Swedish, on December 9th, 2020.
Artists often complain about the payouts from Spotify – but this week Bob Dylan had reason to thank them instead. Spotify has boosted the value of his song catalogue, which has been sold for around $300 million.
During the early 2000s, the music industry looked rather gloomy. They had major problems with illegal downloads, and record sales went downhill. From 1999 to 2014, the record industry lost around 44 percent of revenue.
Then came Spotify, which launched in 2008. It was not only the start of a huge Swedish success story in tech, but also changed how the music industry and songwriting work. The business model fundamentally changed.
Simplified: When you previously bought a CD, the record company, the artist, and the songwriters all got their share of the pie. The more records you sold, the more money you made. But it also meant that if you did not release any new records, earnings were limited.
On services such as Spotify and Apple Music, the business model is instead based on the amount of listening. This means that old songs can keep on generating new money. An artist like Bob Dylan, who has millions of fans around the world, is also quite predictable when it comes to the number of streams. The number of people who listened to “Like a Rolling Stone” last year is probably about as many as the year after. It makes it easier to calculate the value of the old music rights. In the last five years, music catalogues have sold for up to 20 times higher than the annual royalty income.
This predictability has created a completely new market where old rights are now being bought and sold actively, not infrequently by new listed companies such as Hipgnosis and Round Hill Music. The goal is not only to manage the music, but in many cases also to work together with the songwriter, who sometimes retains a share of the rights, to increase the number of listens.
The fact that Bob Dylan is now selling his entire song catalog to Universal Music Publishing Group for an estimated $300 million is a telling example. The deal won’t be the last in the mega-trend that has now begun to sweep through the industry. Stevie Nicks and RZA from the Wu-Tang Clan, among others, have previously sold parts of their rights in 2020.
Investing in these assets is attractive. In a market where interest rates are low, there is risk-willing capital to invest in more unconventional places. In recent years alone, the rights companies Concord, Primary Wave and Hipgnosis have jointly spent over $3 billion on buying music catalogues.
The growth for the companies come from that streaming is gaining ground. In some countries, it has barely begun. In Japan, the CD has a market share of 69 percent, while streaming is 19 percent. In Sweden, the corresponding proportion for streaming is over 90 percent.
The companies that buy these rights thus believe that listening to music in countries like Japan will follow the Swedish development. It is also believed that more money will be paid out from other types of music services over time – for example from YouTube or Tiktok. Music rights then become digital commodities, which can be valued with the help of data, and refined through marketing.
Selling music rights in this way is not always uncontroversial. Pop star Taylor Swift has in the past year been in a very public feud with the music profile Scooter Braun, who bought Swift’s previous record company and thereby much of the rights to her music. Braun recently resold the rights to Shamrock Capital, a company owned by the Disney family. Taylor Swift will now make new recordings of her songs, to try and avoid others capitalizing on what she considers to be her music.
As Bob Dylan himself once said – in the song that has over 140 million listens on Spotify – “the times they are a-changin ‘”.
This analysis was first published in SvD Näringsliv, in Swedish, on December 9th, 2020.
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