Music group BMG is preparing to spend as much as $1bn on songs and recordings this year, doubling down on acquisitions even as some investors are scaling back as interest rates rise.
The Bertelsmann-owned company has set a budget of €450mn to buy catalogs in 2022 in addition to its potential $500mn acquisition of British rock band Pink Floyd’s back catalogue, according to people familiar with the matter.
BMG chief executive Hartwig Masuch said some investment vehicles that had helped create the recent frenzy surrounding music rights were growing cautious, depressing prices and creating an opportunity.
“A lot of deals were totally irrationally priced 12 months ago. there’s pressure on prices right now,” Masuch told the Financial Times. “The irrational behavior just to create volume. . . is out of the market [now].”
BMG has made it to an advanced stage in the auction for Pink Floyd’s catalogue, with a price floor set at $500mn, according to people familiar with the matter — making it one of the biggest artist deals ever.
Separately from its own budget, BMG last year struck a partnership with KKR to jointly acquire rights with a combined war chest of $1bn. The group has made “six or seven” deals, and much of that money is still unspent.
Flush with cash, BMG is scooping up deals that rivals are letting go of due to cold feet, according to Masuch, a trend he noticed about four months ago — just after the Federal Reserve began raising US interest rates.
“We basically execute, every week right now, a deal that was already tied down by one of the investment vehicles because suddenly they’re not able to execute.”
BMG on Wednesday said it had acquired the songbook of Jean-Michel Jarre, the French electronic musician who has sold 85 million albums. Earlier this week, BMG bought the catalog of Scottish rock band Simple Minds.
In the first five months of 2022, BMG’s revenue has grown 25 percent compared to a year ago, helping to allow for its acquisitive streak. The company’s revenue in 2021 was €663mn.
With interest rates at record lows in recent years and streaming reviving the music industry, investors have piled into the music copyrights market, transforming songs into a more mainstream financial asset.
Blackstone, KKR and Apollo last year committed more than $3bn to buying song copyrights. Prices for songs have soared while rock stars such as Bruce Springsteen and Bob Dylan have sold their songbooks for hundreds of millions of dollars.
Prices for music catalogs have grown to multiples of 20 times their historical earnings, double the 10 times multiple they previously traded at. At elevated prices, yields fell to 5 percent or lower for the most coveted songbooks.
But as interest rates rise and fears of a recession grow, “suddenly, people get a little cautious”, said Masuch, comparing this era to that of 2010, after the financial crisis, when investors became more weary of the music sector.
Masuch said BMG, as well as big labels Universal, Sony and Warner, have an advantage over investors who have entered the space. With their expertise and infrastructure, traditional music groups can extract more money from songbooks, he argued. Since selling its original business to Sony, BMG has built an eclectic catalog of artists, including Iron Maiden, Boy George and Alt-J.
Even as the red-hot song buying trend shows signs of cooling, Masuch argued that the financialization of music in recent years had been positive. Music had become an “absolute must-have asset in a broader portfolio”, he said, comparing it to oil or gold. “That’s a really good result of the last four years.”