Trapital - the decision to sell

the decision to sell

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Hey! The legendary music producer Rick Rubin has been on quite the press tour to promote his new memoir. His interview sound bites have gone viral. Rubin has reached audiences who likely never knew much about him before. I’m sure this is great for book sales, but it’s fascinating to see people be “discovered” who music fans have known forever. This is the co-founder of Def Jam!

Either way, I’ll brace myself for an influx of Rick Rubin quotes in pitch decks for the rest of the year.

This week’s memo is about artists and record labels who sell their music catalogs. Ownership is great, but selling your music is a complex decision that deserves more than blanket advice. Let’s dive in.

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selling music is a complex decision

A few weeks ago, Procter & Gamble acquired Mielle Organics—a Black-owned beauty company, which led to mixed responses. While some praised the founders for their sale, others shamed them for selling to a big, white-owned corporation. The founders had to convince customers that the formulas won’t change under P&G.

I’m not surprised. Many artists hear the same critiques when they sell their music.

The rise of ownership conversations has increased general awareness of its importance for financial independence. This is a good thing. But the narrative makes these decisions seem more black and white than reality. Artists have many reasons to sell, and ownership of music assets is often more complicated than it seems.

music ownership is active, not passive

Music is often (incorrectly) compared to artwork. A valuable painting just needs basic maintenance, an adequate storage environment, and an occasional museum tour to appreciate in value. Meanwhile, music is more like a collection of assets that require a family office that understands the ins and outs of entertainment. Otherwise, the value of the assets may likely decline.

Artists constantly receive pitches for placements in TV and film, sample requests from artists they never heard of, and more. They need to follow the next big thing to determine if it’s a fit. The best managers are actively looking for ways to maximize the asset in ways that the artist and their family desire.

In the past three years, Primary Wave, the New York-based private music publishing and talent management company, quadrupled the annual revenue of Whitney Houston’s estate, 30x its merch sales, and the estate still owns 50% of its assets moving forward. Primary Wave had the resources to do what Houston’s family was not about to do on their own. Even though Houston’s 2022 biopic I Wanna Dance With Somebody has flopped at the box office, the estate is still in a better place than it was in 2019.

music is cyclical, and the market is high

Music also has a shorter shelf life than artwork. The Mona Lisa was created 700 years ago and is still the most valuable painting in the world. But in music, we barely talk about the songs that came out 70 years ago.

Here’s what I wrote last month in the Trapital Mailbag Q&A:

Given the non-perpetual value of a song, there’s a desire to time the market. The music industry has gone through historic highs and lows in recent decades. Many artists are currently receiving 20x and 30x multiples on the asset’s annual revenue, which is quite high. But if an artist holds off now to time the next high mark, there’s a risk that the artist may no longer be around, and control of their assets may be left to their family members who aren’t equipped to manage it all.

In those cases, it’s easier for the artist and their families to take the lump sum payment today and invest that money in other assets easier to pass down to future generations.

Other artists prefer to keep it all themselves. Last week, I broke down why Diddy doesn’t want to sell Bad Boy Records. He has turned down offers because he has ways to maximize the asset with other brands in the Combs Enterprise portfolio.

Similarly, Russ says he turned down a $50 million offer for his music and often says he would never sell regardless of the price. This is no surprise. The 30-year-old artist often says that “his soul is not for sale,” which implies he places a priceless value on his music assets, even if he was offered $100 million. For many artists (and fans), the emotional connection to ownership outweighs the financial upside.

artists want liquidity for several reasons

Entertainers can easily become asset-rich and cash-poor. All it takes is one or two big advances and the lifestyle creep sets in. There’s pressure to keep up with the Joneses.

Once that advance money is gone, the artist hopes that those royalty checks, touring revenue, and other business ventures will pay the bills, taxes, and other debts. But that assumes that everything else about the artist’s life is in line.

Dr. Dre just sold a lot of his assets for ~$200 million, but this is a 57-year-old man recovering from a near-death brain aneurysm and a $100 million dollar divorce settlement. Sure, he made good money from the beats by dre acquisition by Apple, but that was nine years ago. Plus, any Apple stock he still likely owns is down 20% in the last year. It’s easy to understand why he may prefer $200 million today to $10 million per year for the foreseeable future.

Another example is Justin Bieber. He’s one of the youngest artists to publicly sell his music in a reported $200 million deal. But if Justin didn’t have to postpone tour after tour after tour, he would likely have more cash to fund his lifestyle. I spoke to a few sources close to the deal who said that this liquidity for Bieber will help cover money owed from those canceled tour dates.

The music business is confusing by design. This leads to even more confusion about how the industry works—even among people who work in it every day. The discussion around these asset sales is another symptom of that.

It’s great to see the artists who turn down deals because they have the means to maximize the asset on their own. They likely understand its full value. It’s also great to see executives like Coach K and P potentially sell their record labels, reap the rewards of what they built with Quality Control Music, and continue doing what they do best.

But keeping the asset just to “keep it,” or shaming others who decide to sell, may be missing the forest from the trees. This isn’t about selling grandma’s house. This is about maximizing value for an asset that will inevitably lose its value 40 years from now. By then, those masters may be more valuable as family heirlooms than as consistent revenue-generating assets. But it all depends on the artist’s goals.

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coming soon from Trapital

Podcast: Streaming Insights and Trends from Ari Herstand. Ari and I talked about some new findings coming up in his new book, How To Make It in the New Music Business, 3rd edition. Comes out on Thursday!

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