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The Lefsetz Letter: Katy Perry Sells Catalog

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The banks are going to end up owning the rights to the greatest songs of all time. How could the artists be so stupid? So shortsighted? So contrary to what they’ve been saying forever?

Which is the man has screwed me.

It won’t be long before you find out that some of these legendary acts who sold their rights are out of cash. How can that be, you ask? Well, in truth you can blow millions in a day, never mind a year, and never forget that Iron Mike Tyson ended up broke.

A good musical artist is a bad business person. Oh, there are exceptions, but the skill set is very different. One runs on inspiration, the other on cold hard cash.

So let’s see how this plays out…

Artist who generates cash is sitting at home when the phone rings from their lawyer or manager and they’re told some newfangled publishing company is going to pay millions for their rights.

Now imagine this. You’re sitting at home, getting stoned, watching television, and out of the blue someone calls to say they’re going to give you tens of millions of dollars. Sounds great, right?

Well, it’s especially great for your lawyer and manager, because if you make the deal they’re going to get paid. And very few managers are going to say no. Because as much as artists are screwed by labels, managers are screwed by artists even more. They don’t always have paper contracts, and that doesn’t mean they’ll get paid anyway. And the lawyer is on a percentage, or even if not, will have a huge payday. So are they going to tell you not to sell? Of course not!

Under the best of circumstances, they’ll be neutral. And the artist is too ignorant to say no. It’s free money. The tax rate may go up…we’ve been hearing that canard for years now and it hasn’t happened, they can’t even get rid of carried interest, do you think they’re going to screw artists? D.C. is afraid of raising any tax, especially on vocal artists who can spread their hurt via their words and music.

Or you hear someone else has sold and you want that money too.

So it’s an incredible payday.

But it’s more like the marshmallow test.

This is what I don’t understand… If the artist has financial issues, why are these outfits paying them so handsomely? Money is not stupid. Money is smart. You may decry Wall Street, but when it comes to numbers, when it comes to spreadsheets, that’s their expertise.

So, Katy Perry is selling to Litmus, only that’s backed by the Carlyle Group. And if a bank puts up the money, it wants its money back. So the asset, i.e. the company, i.e. the publishing rights, your rights, are going to be sold again so the bank can get its money back. Or if you sell to Hipgnosis, your rights are going to end up being controlled by Blackstone.

This is math folks, and the investors in Hipgnosis are in an uproar. You see publishing rights were a hedge, a regular return, when interest rates were low, but now they’re sky high, so it’s a bad investment, never mind the raw issue of asset value. Merck might be your best friend, Merck might be looking out for your catalog, but if you think Merck can stand up to money, if you think Merck is going to be in control forever, you were probably dumb enough to sell your rights in the first place.

And it’s not only Hipgnosis. Round Hill just sold, albeit to Concord, but Concord is majority-owned by Michigan Retirement Systems, a pension fund. And a pension fund only puts up a billion dollars if it believes it’s a safe bet, it has a fiduciary duty to all those workers.

And do you think when the bank owns your music it’s going to say no to using it…absolutely anywhere? Try getting all those rights of approval in your deal, you won’t, because the buyer doesn’t want to be hamstrung.

So, kiss your rights goodbye, all you’re going to end up with is a pile of money, which will be sliced and diced, taxed, and then what are you going to do with it? Invest it? Well, you had an incredible investment, a regular rate of return, which was recession-proof, that’s why all these investors lined up to buy these rights to begin with! The market may go up and down, but songs provide a regular return. May not be sky high, but you won’t get wiped out in a day.

Yeah, go and invest that money, if you’re smart enough to do that, if you don’t blow a chunk right out the box, which you will do, because that’s what people do when they get a windfall, they buy cars, they go on trips, they fly private… Investments go up and down. Music returns…seemingly forever, the copyright in America never seems to run out, credit Disney and Mickey Mouse. Your kids and their kids can live off your music, but you chose to blow it all.

And even worse, as referenced above, you’ve got no control. Your babies, your creations. Who knows when the muse will hit again, who knows if you’ll ever be inspired.

Even Bruce Springsteen… Don’t talk to me about inheritance taxes, if you do well with the money it’s going to be taxed too, but it won’t have this guaranteed rate of return.

As for value… Look at it this way, these companies are paying for decades-old songs. And the value keeps going up. Everybody who sold early is regretting it.

And income is only going up. The streaming outlet raises consumer prices a dollar, from ten to eleven bucks…and that’s a 10% increase on return to the rightsholders, it’s a gift! But you don’t get that gift, because you sold. And the gift is only going to grow. Streaming prices are never going down, they’re only going to go up, and new avenues of exploitation are coming down the pike on a regular basis. No one foresaw TikTok… But you won’t benefit, because you sold out.

Ah, but you’re broke. Well, if your catalog is worth so much, your income stream, you can borrow from the bank, or against your house, and pay that off over time, and you won’t be paying forever. And god forbid you’ve been living far beyond your means…maybe you can learn to live within a budget, cut back a little, it’s amazing what you can live without.

But when it all comes down, when the dust has settled, you’ll see your song in a suppository commercial. Synched to some crappy movie or TV show, something you would never approve, but it’s too late.

Money doesn’t have feelings, the bank doesn’t care about you. Nor do the successors in ownership, your songs will be tossed from company to company and all your cries about artistic freedom will be laughed at, the joke’s on you.

But you got 18x! Well, what happens after 18? Never mind 18 becomes 16 when the streaming rates go up by a buck. What looks like a good deal gets worse every day.

And there’s nothing you can do.

But life is short, you say.

But it’s also long. You could live to 90. And Katy Perry is only 38. And believe me, you won’t be writing hit songs and performing on stage in your nineties. But if you still own your songs, you will keep getting paid. After all, if you’re alive, so are your fans, who need to hear your music, which therefore never becomes worthless.

Money for control? I thought control was everything. That was the essence of being an artist, you didn’t want anybody to tell you what to do.

Well ain’t you a sucka…

“Katy Perry Sells Catalog Rights to Litmus Music for $225 Million”: https://tinyurl.com/n55a6vhw

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