In the last few years, several musicians have sold their music catalogs for significant amounts. Bruce Springsteen sold his for $550 million, Tina Turner’s sold for $50 million, while Paul Simon’s went for somewhere in the $250 million dollar range. Left and right, it seems that legendary artists and their estates have had signs up stating “Music Catalog for Sale”.
So, what exactly gets sold when the catalog gets new ownership? Also, why are artists entertaining these deals now?
Many artists sold their catalogs during the COVID-19 pandemic while concert touring was not occurring. Doing so provided revenue, along with a potential tax benefit. Tax laws allow for taxing some music catalog sales as capital gains if the sale meets certain requirements, which means artists would be taxed at a 20% rate versus a 37% rate.
Our focus, however, is on the intellectual property aspect of such sales. First, what exactly is sold when an artist sells his or her music catalog? What does a Music Catalog for Sale indicate for an artist’s future?
Types of IP in Music Catalogs
Generally speaking, music catalogs involve copyrights and some trademarks. The United States Patent and Trademark Office (USPTO) states, “A trademark can be any word, phrase, symbol, design, or a combination of these things that identifies your goods or services.”
Artists often use trademarks to protect a musician or band’s name, logo, and even particular phrases within a song lyric. For example, Taylor Swift has trademarked many of her album names, particularly the ones she has re-recorded. Similarly, Bruce Springsteen has trademarked the band name “Bruce Springsteen and the E Street Band.”
Copyright law protects artists’ musical creations. The US Copyright Office defines a copyright as: “A type of intellectual property that protects original works of authorship as soon as an author fixes the work in a tangible form of expression.”
What Rights Are Given Up with a Music Catalog for Sale?
Copyright protection gives the owner a set of rights on the copyrighted work. These rights include:
- Reproducing the work.
- Preparing derivative works based upon the work.
- Distribute copies of the work to the public by sale or other transfer of ownership or by rental, lease, or lending (usually called licensing).
- The ability to transfer some or all of these rights, subject to applicable laws.
(Check out Copyright.gov for a complete list)
Most of the contracts regarding these sales are not public, so we generally don’t know exactly what rights an artist has granted. But generally speaking, the new owner of the catalog will have certain rights to use the catalog, particularly for generating revenue.
Remember the movie “Pulp Fiction?” The song “You Never Can Tell” by Chuck Berry was used for the memorable dance contest scene featuring Uma Thurman and John Travolta. A licensing fee was paid to whomever owned the rights to the song, giving the producers of the film the right to use it in the movie. Let’s go even farther back, and think about “Saturday Night Fever.” The music of the Bee Gees, a popular group at the time, was frequently used in this film, likely generating plenty of revenue for the owners of the Bee Gees music catalog.
What about derivative works, which enable the owner to create works based upon the original IP? For example, maybe the new owners of Bruce Springsteen’s catalog want to do a Snoop Dogg version of “Born to Run,” one of Springsteen’s signature songs. While we don’t know if Bruce has actually transferred this right, creating derivative works is a valid transferrable IP right, subject to statutory laws, of course.
What if the new owner decides to vest itself of parts of the catalog? They can transfer their IP rights for the portions they want to get rid of, keeping the rest—subject to whatever terms the artist has specified in their original contract.
It is quite apparent that music catalogs are valuable assets, which can generate significant income, depending on the bundle of rights purchased by the new owner.
Other Reasons for Selling a Music Catalog
There is a potential tax benefit for the artist who is selling their music catalog, as discussed earlier. But are there other benefits to selling?
Some of the artists who have sold their catalogs are more established and have a large body of work. It can be rather time consuming and complex to manage such a large amount of intellectual property. If an artist has children, perhaps he or she does not want to burden them with managing the properties, thus making it more appealing to sell the catalog.
In addition, there is no guarantee that income from sources such as music streaming will continue. Uncertain market conditions, technology changes, and evolving intellectual property laws lead artists to think about cashing in while the market is hot.
Whatever the reasons, this trend is likely to continue as companies continue to offer significant sums for music catalog purchases.
The Michelson Institute for Intellectual Property, an initiative of the Michelson 20MM Foundation, provides access to empowering IP education for budding inventors and entrepreneurs. Michelson 20MM was founded thanks to the generous support of renowned spinal surgeon Dr. Gary K. Michelson and Alya Michelson. To learn more, visit 20mm.org.