The Calculators Behind the Music-Catalog Megadeals

Last year Massarsky Consulting valued over 300 catalogs totaling more than $6.5 billion. “Our website is deluged with more and more demands from newer buyers, from newer sellers,” he says.

Stars such as Bob Dylan, Bruce Springsteen, Stevie Nicks and Tina Turner have sold their catalogs to music publishers, publicly traded funds and private-equity firms.

Facing the recent high volume of deals, Mr. Massarsky sold his business this month to professional-services firm Citrin Cooperman for an undisclosed amount.

The growth of streaming and other online activity means song use is on the rise, generating payments to the songwriter and other stakeholders. Film studios, videogame makers and fitness apps as well as radio stations and streaming services pay to license or use songs.

Investors’ deals for music are also more complex. Some are buying the right to collect a certain payment stream while not owning any piece of the underlying copyright. They are also selecting specific copyrights or royalty streams for investments.

The longer a song or a catalog remains popular, the higher the valuation.

Mr. Massarsky, 66 years old, and Ms. Matsuura, 51, spoke with The Wall Street Journal about what goes into valuing an artist’s lifework and what is on the horizon for music investments. Edited excerpts follow:

WSJ: How has the client pool expanded in recent years?

Mr. Massarsky: There are all these new funds, principally backed by private equity. We’re seeing everybody from BlackRock to Blackstone to TPG to Carlyle to Apollo to KKR.

Ms. Matsuura: It’s not just about buying. It’s about what types of rights are you buying. Whoever thought of buying producer rights? Before, people used to shy away from writers’ rights. Now writers’ multiples are just as high as the publishing multiples. Performance income on the recorded music side—one of the funds, that’s all they buy.

WSJ: How has music transformed into this alternative asset?

Ms. Matsuura: There is low volatility in the royalty streams. It almost functions like a bond because you’re getting a regular and predictable cash flow. We know the story of streaming. What we didn’t see happening was that in the last two years, the whole thesis of the music industry being uncorrelated with the rest of the market would really be proven out. Something else that’s fueling this now is alternative licensing platforms, such as Roblox and TikTok. This is the next growth opportunity, while streaming is still going very strong.

WSJ: How do you value a catalog?

Ms. Matsuura: We’ll look at each revenue stream historically because history is the best predictor of the future, and we’ll look at the long-term historical growth or decline, as the case may be, and then the most recent year. We’ll have a long view and a short view. Based on that, we’ll be able to apply growth-rate scenarios.

WSJ: What makes these assets valuable?

Mr. Massarsky: We call them standards. It’s really older music—’60s, ‘70s, ‘80s, ‘90s. Maybe early 2000s. They have stood the test of time. So many things happen to increase the value of these older songs. There’s more airplay for standards on radio today than ever.

In the last year or two, older songs became the phenomena of streaming. And if that’s not enough, what about music in film and television and commercials? That old sort of great song that helps identify an operative culture or a moment in time. Those songs are trading at higher price points for a sync license opportunity. Music has really rediscovered its past in a commercial way.

WSJ: Is there a bubble? Are the prices these catalogs fetch rational?

Ms. Matsuura: If you’ve got strong industry growth, and we have that in streaming and in new license opportunities. It’s based on real organic growth: 26% in streaming. And now you’re talking about all this extra revenue coming in from social-media platforms that have deep pockets. Where’s the bubble if there’s strong fundamentals?

WSJ: What’s the future of the market looking like?

Mr. Massarsky: Eventually we’re going to see some consolidation. The investor side is becoming much more sophisticated in their financial instruments, whether there’s more going to the public market, or whether there’s going to be a different limited partner class, or whether there’s going to be interest in SPACs.

WSJ: We’re seeing artists sell their life’s work at the same time we see this broader fight for artists to control and own their work. How should we reconcile this?

Ms. Matsuura: One way of managing that tension is to negotiate such that the artist gets to keep a percentage, so they don’t feel like they’re giving away their entire baby.

Mr. Massarsky: There is a class of artists that is successful and wants to monetize their assets and prepare themselves for the future. They are giving up the risk of anything that will happen to their future royalty streams by getting their money today. The investors are taking that risk on because they see the opportunity value going forward. That’s a pretty sophisticated business thought, and it isn’t always on the minds of many younger artists who are frankly just a bit more concerned about fairness and equity.

Write to Anne Steele at [email protected]