For the last couple of years, I’ve been keeping a running list of all the artists who have sold some or all of their life’s work to big companies like Hipgnosis, Primary Wave, Concord, and a handful of others. Billions of dollars have been invested in these catalogues. But how much longer will this gold rush continue, especially with today’s severe inflationary pressures?
This is from a financial website called Leveling Up. It’s a big of a heavy read, but if you’re interested in this situation, it’s required reading.
There is also one other potential implication of rising interest rates on the music catalog M&A market – rising borrowing costs. Many catalog buyers borrow funds to acquire these assets, in order to increase their rate of return to equity investors. Typically, catalog buyers opt to borrow from the cheapest form of capital, which is usually commercial banks. That said, interest on bank debt is usually quoted as a floating rate, such as LIBOR, and resets every few months. The three-month LIBOR rate (depicted below) is rising off recent lows. So then, as interest rates rise, the interest burden of music catalog buyers will also increase.
Another site called Synchtank has a similar take. It’s another good take.
The Financial Times struck a more cautionary tone in their analysis of this speculative news, addressing the uncertainty that surrounds the international financial markets in 2022. They state that “music prices have softened in recent months as interest rates rise and the global economy slows”. It is a view that was amplified last month by Bloomberg UK in a piece entitled: “The Music Catalog Boom May Be Coming to an End”.
The article, which featured in their Screentime newsletter, highlighted the challenges apparently being encountered by Concord, one of the largest independent music companies in the world, as it also looks for a buyer to take ownership of a catalog encompassing almost one million songs. “Higher interest rates, inflation and a war in Ukraine have compelled prospective buyers to be a bit more cautious, according to about a dozen people involved in music dealmaking,” reports Bloomberg.