The Music Industry Disrupted: The COVID Era

Abstract

It is hard to overstate the impact the pandemic had on the music industry, particularly for live music events. As David Bowie predicted, touring and performing live had become the only unique things left for musicians. In the streaming and peer to peer file sharing era, touring has become a vital part of any musician’s income. Many legendary bands and musicians have hit the road again in recent years, using touring as their primary means to make a living. But during the COVID pandemic, most were unable to tour, eliminating this source of income. This chapter discusses the impact of the pandemic on the music industry, and the ways that industry players adapted to the loss of revenue associated with pandemic lockdowns.

It is hard to overstate the impact the pandemic had on the music industry, particularly for live music events. As David Bowie predicted, touring and performing live had become the only unique things left for musicians. In the streaming and peer to peer file sharing era, touring has become a vital part of any musician’s income. Many legendary bands and musicians have hit the road again in recent years, using touring as their primary means to make a living. But during the COVID pandemic, most were unable to tour, eliminating this source of income. This chapter discusses the impact of the pandemic on the music industry, and the ways that industry players adapted to the loss of revenue associated with pandemic lockdowns.

4.1 Adapting to the Economic Shock of the Pandemic

The year 2020 was to be a banner one for concert tours, with an estimated $12.2 billion in projected revenue for live music events. The lineup of artists scheduled for major tours for 2020 was eye popping, including Taylor Swift, Paul McCartney, the Rolling Stones, the Eagles, Billie Eilish, Justin Bieber, Kenny Chesney, Alanis Morrissette, Harry Styles, Green Day, BTS, Pearl Jam, James Taylor and Jackson Browne, the Pet Shop Boys, and the Foo Fighters, just to name a few. And these are big name artists with significant brand recognition; it is hard to count how many lesser known artists were also scheduled to tour or give concerts. Almost all plans for live performances ground to a halt in March 2020 due to the pandemic, generating vast ripple effects across the music economy. There is a significant amount of ancillary economic activity associated with live concert tours, including those involving transportation, accommodations, restaurant meals, concessions, and merchandise along with many others. Not only were the musicians and those directly involved with concert touring affected, but all the associated businesses as well. Strict lockdown requirements also meant that music venues, record shops, and recording studios closed their doors. Large music festivals and events like Coachella, SXSW, Glastonbury, and Eurovision were canceled or postponed. Nederlander Concerts, a concert promotion company, went from a schedule of 191 concerts and 92 special events in 2020 to none. Peter Schwenknow of DEAG Deutsche Entertainment AG states that “[w]ithout a doubt this worldwide pandemic has been like a meteorite strike for the entire live entertainment industry. This crisis has had an impact on every single player in the industry which makes this situation incomparable to previous crises.”¹ Pollstar estimates that the live events industry lost at least $30 billion in 2020. Hundreds of artists and bands that had announced current or upcoming tours had to cancel due to the pandemic. Henry Cardenas, president and CEO of Cardenas Marketing sums it up succinctly, “What was projected to be the highest grossing year in live entertainment history has resulted in 90% loss due to the pandemic.”²

Many artists came up with creative ways to still perform live, either in person or virtually. Some held drive-in theater concerts and others created virtual experiences. A virtual livestream series featured musicians Chase B, Questlove, and Ravyn Lenae in partnership with Levi’s. Billie Eilish performed in an interactive livestream show. Many other artists did virtual live performances, including Erykah Badu, the Roots, and Ludacris. Some used social media platforms like Facebook or Instagram, or did pay-per-view virtual events. The K-pop band BTS generated $20 million in ticket sales for its pay-per-view event BANG BANG CON The Live.³ Prior to the pandemic, the online video gaming platform Fortnite hosted a live set by the DJ and electronic music producer Marshmello, viewed by 10 million people in 2019. Performance via online platforms became the model for how to still perform live during the lockdowns. Other artists performed on Fortnite and Roblox, using virtual reality created music venues. The band Twenty-One Pilots gave a virtual performance on Roblox, and fans logged in as avatars to watch the show. Virtual performances were a safe way for fans to connect with musicians, and without the hassle of in-person attendance. Fans could avoid travel expenses, crowds, or the need for chaperones for minors at concerts. For many fans, the convenience of virtual performances outweighed the potential benefits of being there in person. As one mentioned, “I like being an avatar because you don’t have to deal with crowds or annoying people. It’s cooler because you can do a lot more with it because it’s not real life.”⁴ The show also had an interactive component, in which fans could vote for the order in which they wanted the band to play songs. Twenty-One Pilots’ virtual show was a success, not only because of the huge exposure to fans (with 13 million visits) but also as an innovation in creating a market for a new type of product. The UK band Easy Life played a concert in a virtual re-creation of London’s O2 arena on the Fortnite platform. The special perk for attendance was that the band played a song not available anywhere else. Audience members had to find a way to a special virtual venue to see the band perform this song. As band member Sam Hewitt said, “It was a reward for people who did. In a world without physics, why shouldn’t we be as creative as possible?”⁵ Artists are also finding new ways to generate revenue from virtual concerts, such as virtual merchandise or “verch,” like hats or shirts that fans can purchase for their avatars, or exclusive songs or games for purchase during concerts. An additional benefit of virtual performance is that fans must typically register at a site in order to view the show. This gives artists and labels significant access to data on fans, including their name, location, and phone number, how much they spend, how many minutes they watched a show, and whether they used the chat or other features on the platform. This helps musicians to narrow down those “superfans” who tend to come to more shows or purchase more VIP experiences. It enables the musicians to create specific opportunities or products to market directly to these superfans.

The impact of the pandemic on the live concert touring industry is clear. It is less clear what effect it had on the recorded music industry. Digital technology enabled the music industry to recover some of its losses via an increase in revenues from streaming consumption. Streaming revenues increased for the three major labels, Universal Music Group, Sony Music Entertainment, and Warner Music Group, each reporting increases of 8.5%, 5.9%, and 11% respectively in 2020–2021.⁶ This is most likely due to a rise in paid subscriptions for premium streaming services (Denk et al., 2022). However, other research shows that music streaming fell in many countries. Sim et al. (2021) used streaming data from Spotify to analyze the impact of the pandemic on streams for the weekly top 200 songs for 60 countries for two years. Their main findings indicate that the pandemic led to a decrease in the use of music streaming services, which seems counter to preliminary assumptions. If people are spending more time at home, wouldn’t they be relying on more entertainment services like music streaming? Their explanation for this decline is that COVID lockdowns meant that fewer people were commuting to work, going to gyms, traveling, or pursuing other activities during which they’d listen to music. Commuting times especially are periods in which people use music streaming services; Nielson’s Music 360 Survey estimates that 29% of those polled in their 2017 report on music consumption in the United States listened to music in the car.⁷ Music streaming is often not a standalone product but is instead a complementary activity during times when people are engaged in other pursuits. In addition, there was increased demand for video streaming services, which are a substitute good for music streaming as a form of entertainment. For instance, consumption of video-based entertainment on YouTube and Netflix increased during the lockdowns. Overall, competition for consumer attention was high during the pandemic, with music streaming coming out behind video streaming as people stayed home. Denk et al. (2022) have similar findings in the music markets in Germany. Although consumers spent more time at home during the pandemic, spending on music fell, primarily because of cancelations of live events; sales of physical music were also adversely affected.

Artists found a variety of creative outlets to reach fans by developing podcasts, TV or film projects, or writing projects. Some musicians established branding partnerships with non-music-related companies to get additional exposure and outreach to fans via different channels. For example, the American rapper Travis Scott established a partnership with McDonald’s, promoting a Travis Scott meal, with an animated commercial, merchandise, and charity fundraising. Other artists turned to using technology to come up with innovative ways to monetize music and other art forms. An example is NFTs (non-fungible tokens). NFTs are cryptographic assets that are completely unique and can represent a piece of digital content like photos, videos, or audio files. An NFT is defined as “a rare collectible that is stored on a digital ledger.”⁸ NFTs use blockchain technology which is a public ledger to keep track of who owns what asset. This blockchain technology lets users see who owns what tokens to assets, and makes it relatively easy to trade and verify owners of these assets. Blockchain technology has long been used to safely store data without the use of any other company or organization as a means of security.

To give an example using the non-digital realm, a dollar bill is fungible, meaning that if you trade your dollar for another, they are exactly the same in terms of what they can purchase. On the other hand, a rare baseball card is non-fungible, meaning that if you trade it for another card, you have something completely different from your original card.

An example of a famous NFT is one created from the “disaster girl” photo, which shows a four year old girl smirking in front of a house on fire. This image went viral and became a well known meme. The NFT of disaster girl recently sold at auction for about $500,000.⁹ In essence, NFTs are digital tokens that represent assets, and can be created from anything, including art, real estate, or other physical objects. One is reminded of ancient societies who used stones, beads, or other tokens to represent assets when thinking of NFTs. While these examples may appear, on the surface, to be somewhat absurd, consider that modern society uses paper currency which has no intrinsic value, or electronic ledgers (bank accounts, credit cards, Venmo, CashApp, or Apple Pay) all of which can be used as currency and represent the ownership of assets.

One may wonder why, in the digital era, a copy of a digital file isn’t exactly the same as the original file? In some respects, it is. But NFTs are specifically designed to give the owner property rights over an item with a unique identification code, giving it a stamp of uniqueness and rarity. It’s the digital equivalent of the original Mona Lisa painting versus copies of it. Musicians are taking note of NFTs a way to generate revenue from their music and other art forms. The Canadian musician Grimes sold several pieces of her artwork as NFTs for $5.8 million in 2021. The American rock band Kings of Leon released their 2021 album When You See Yourself as an NFT. Buying the album in this way allows the owner to download the record, view unique artwork, and get access to vinyl copies of it.¹⁰ There were a limited number of tokens on the blockchain that represented ownership of this album, and owners can sell it to others if they wish. In this way, an NFT of the album is exactly like a limited edition run of the physical copies of an album with its associated artwork and vinyl LP, but instead held in the digital realm. An added benefit to the band in selling a record as an NFT is that the money from the sale goes directly to the band members, bypassing streaming services who take a 30% cut of all streaming revenues. Another example of using NFTs in the music industry is in concert ticketing. A major benefit to NFT ticketing is that it may help limit secondary markets in ticket sales. NFT ticketing will also benefit both musicians and fans, with musicians receiving greater revenues from ticket sales and consumers avoiding paying inflated prices on ticket resale sites.

There are countless ways that people in the music industry utilized its creative resources to pivot from the major impact of the pandemic on their working lives. The digital revolution has resulted in major changes in the music industry, and digital technology is one that many turned to during pandemic lockdowns. Social media platforms in particular have developed new tools for artists to create content at home without the need for a professional recording studio. Platforms like Snapchat have jumped on the bandwagon as well. It bought Voisey, the music collaboration tool, in 2019. Although Snapchat later dumped Voisey amid major restructuring in 2022, the fact remains that social media platforms are well aware of tools for music collaboration and want to be part of the social media wave for music creation. Music fans are no longer passive listeners; instead they can take an active role in the creation of music, inspired by the musicians and bands they follow. Fans staying at home due to COVID lockdown protocols used these opportunities to create new content without gatekeepers in the way. With greater numbers of social media platforms offering features to encourage musical creativity, user-generated content has become an increasingly important component of the industry.

TikTok in particular has become the predominant social media platform for user-generated video content. It has become a significant force in cultural production by users inspired by the music they listen to and the videos they watch. TikTok has also launched music careers for some of its users. In 2018 Lil Nas, a then-unknown artist went viral on TikTok with his song “Old Town Road,” which helped the song debut on the Billboard Hot 100 in March 2019.¹¹ Other artists have used TikTok to promote their newest tracks, leading to strong placement on Billboard charts as well.¹² With an estimated one billion users across more than 150 countries, it is currently one of the most popular social media platforms in the world. It has introduced many new features, one of which is Music Machine, a MIDI production tool to make music. TikTok has exploded in popularity as a fast and efficient way for social media users to share video content and is another outlet for artists to create and share music. It has also become a way for users to create music on their own and participate in the creations of others. Music producers, both amateur and professional can put out instrumental music on their feeds, encouraging followers to write lyrics and melodies. One notable example is music producer Kato on the Track who creates instrumentals for his followers to edit and use.¹³ TikTok users are also more likely to make music-related purchases. Compared to the general population, they are more likely to pay for a streaming subscription (40% of them, compared to 25% of the general population), and 17% of them buy merchandise regularly, compared to 9% of the general population.¹⁴ Popularity on TikTok can also lead to record deals. Tai Verdes (stage name for Tyler Colon) put out his single “Stuck in the Middle” which went viral on TikTok with a million views, and led to offers from labels for record deals. TikTok has also led to relatively unknown artists signing deals with major labels. According to TikTok, over 70 artists that launched their careers on the platform have now signed with major labels, and over 176 songs have surpassed 1 billion views.¹⁵

Who are TikTok’s users? Their numbers are immense, by far surpassing Spotify’s global active user base. In October 2020, the platform had about 732 million monthly active users; in comparison, Spotify’s was 345 million.¹⁶ Although TikTok’s monthly user base at that time was less than half that of YouTube (more than 2 billion), for a relatively new app, these numbers are impressive. TikTok users tend to be younger, with 42% of them between 18 and 24 years old. TikTok users typically open the app at least 19 times per day, and spend an average of 89 minutes on it daily.¹⁷ About 75% of its users discover new musicians on TikTok, and 63% report that they have heard new music on TikTok that they had not heard elsewhere.¹⁸ Clearly TikTok is a social media outlet that is a great means for reaching a young, music listening audience.

TikTok offers a new way to listen to music; it encourages interactivity from users, who can create lip sync videos or their own unique videos to existing songs. On TikTok, music listening has become more participatory, with many songs spawning more user-generated content. Trends like TikTok challenges can make songs go viral too; examples include Celine Dion’s “It’s All Coming Back to Me Now,” or Sia’s “Snowman.” According to Ole Obermann, Global Head of Music at TikTok, “we are a platform that is about music engagement—not consumption. Whether that’s views, creations, Likes, or shares. It all mixes together in this kind of new form of fandom.”¹⁹ TikTok also plans to increase its role in livestreaming. Both Ed Sheeran and Justin Bieber have livestreamed performances on TikTok, with 5.5 million and 4 million unique viewers respectively to these performances. Its livestreamed show in Korea featured various K-pop bands including the hugely popular boy band BTS. To watch the show, viewers just had to register for a membership with Lotte Duty Free, which sponsored the show. There is a significant potential to monetize livestream performances like this, and TikTok continues to build and develop livestreaming services with an eye toward future revenue sources on the platform.

TikTok also plans to increase the number of services it offers that are linked to the music industry. It has launched SoundOn, its own music promotion and distribution platform. This is yet another way to lower the barriers to entry in the music business, by providing new and existing artists a means to market and distribute their music and reach fans. Artists can upload their music directly to the platform and earn royalties on views. It also helps musicians distribute their music to other social media platforms as well, expanding potential audiences. SoundOn also promises that artists will keep rights and a majority of the royalties (100% of royalties will go to music creators in the first year, and 90% after that) to their music.

While TikTok has become a popular way for musicians to get their music to the masses, it is not necessarily a vehicle to guarantee long-term success. It can be difficult to sustain the momentum from a viral hit to a longer lived career. According to Christal Cody, Warner Records associate director of fan engagement and digital marketing, “[TikTok’s musical influence] is really built around a moment, a meme, and repetition. It’s less about the artist and the song and more about how it matches with what [users] are trying to accomplish.”²⁰ But musicians want to be more than just a moment, as American singer-songwriter Trevor Daniel sums up, “I just mostly want [TikTok] to put me in a place career-wise when I follow-up, it’s just as big.”²¹ It is a launching pad for many, but musicians don’t want to be pigeonholed into being only a “TikTok artist.” Musicians must find a way to display their talents that pushes them past a viral moment on the app. This can be challenging in a marketplace flooded with new talent. As social media platforms like TikTok level the playing field and lower the barriers to entry, musicians find it increasingly difficult to keep themselves in the public eye. With the flood of new content, “everyone’s an artist but almost nobody’s breaking”²² says Chris Anokute, co-manager of the American singer-songwriter Muni Long. Technology has removed some of the barriers to entry into the music industry. Now any aspiring musician can create and distribute songs or snippets of songs via streaming services and social media. In a way, musicians conduct their own “market research” by seeing what goes viral versus what doesn’t before devoting energy and time to promoting a track or continuing to develop a piece of a song. But this democratization comes at a cost; a flood of new music shifts the supply curve for music to the right, resulting in a decrease in equilibrium price and thus lower incomes for musicians. One could also consider this lower equilibrium price not only in terms of the monetary value (like the price of a song), but its inherent aesthetic or popular value in listeners’ minds. With so many new releases, it can be hard for artists to stand out. According to MIDiA Research, the number of self-releasing artists increased by a third in 2020, and more than 60,000 new tracks are uploaded to Spotify each day.²³ Using data from discogs.com, it is estimated there were seven times more releases globally in 2017 than 1960.²⁴ With the constant flood of new music releases and the neverending pressure to stay before the public eye in social media posts, it is no surprise that many musicians feel burned out from the relentless need to promote themselves. Some artists release even more music in an attempt to keep the public’s attention. The Australian band King Gizzard and the Lizard Wizard released five albums in a single year. With inexpensive digital tools, anyone can create and release music, and the growing glut on Apple Music, Soundcloud, Spotify, and others reflects this excess.

With streaming and file sharing, physical distribution is no longer as necessary for sales; and catching consumer attention on shelves in brick and mortar stores is less relevant than ever. Instead, the focus is on grabbing attention for streaming music or social media content. One upside is that independent labels are releasing more creative and experimental works. In another time, these pieces might not have seen the light of day. But the ease of releasing new music has made it possible for these types of tracks available to the listening public. At the same time, it’s harder than ever for any artist to break through, given the nonstop flow of new music that is churned out on a regular basis.

The new model is altering the ways that musicians release music. Instead of relying on full length album releases, artists put out more singles but spread out over time. Knowing that streaming is the predominant way to listen to music, artists are well aware of the need to keep fans coming back for more. Releasing singles one by one, instead of an entire album at once, makes sense in this new era. The end goal is to build up both a brand and a reliable fan base that can be monetized over time via streaming revenues, concert touring, merchandise, and even sponsorship deals. In the old days of physical album sales, this model would not have worked. Releasing too many albums or singles too quickly in sequence would mean that a new release would hurt the sales of the previous one. It was costly to produce and distribute physical albums; in the digital era it is no longer the case. Therefore, labels and musicians have a greater incentive today to release more music in a steady drip, to maintain a regular stream of revenue and keep themselves in the listening public’s eye. TikTok has even affected the way artists write music. If the motivation is to go viral on the app, gaining millions of views and Likes, artists have an incentive to create that one snippet of music that they hope will go viral, rather than finish an entire song. Noah Kahan, an American singer-songwriter who is signed with Republic Records, finds that escaping the pressure of creating a TikTok moment has affected his songwriting in “deeply disturbing” ways, and says “[i]f you’re a young artist who creates music with a process that requires time, space, contemplation, and privacy, you are going to have a really shitty time here.”²⁵

The deluge of new music has made it difficult for musicians to gain traction in a crowded market. While TikTok can be an effective launching pad for new musicians, success on it is unpredictable and less subject to manipulation or control by labels or managers. The current marketplace for music promotion is radically different from the old days:

It used to be that you released an album, got Rolling Stone to review it, got on tour, got on late-night TV, and that was how you broke,” says one senior executive at a major label. Even if luck was a factor, the path was clear. “It was four or five things. Now you need four or five things a week, or at least a month, or else your streams don’t go up.²⁶

Musicians are required to be an active presence on various social media platforms, perform live (or find alternate sources of revenue during the pandemic), and use digital technology in various ways to reach fans or generate consistent revenue streams. TikTok is yet one more channel in which artists have to work to promote themselves. The musician Halsey took to TikTok to call out her label for allegedly refusing to release a song, claiming “my record company is saying that I can’t release it unless they can fake a viral moment on TikTok.”²⁷ The artist, FKA twigs commented that “all record labels ask for are TikToks and I got told off today for not making enough effort”,²⁸ and others like Doja Cat have made similar comments. Of course, self-promotion has always been part of the music industry, and social media is just the newest means of that promotion. The push for online marketing was intensified by the COVID pandemic. As pandemic lockdowns led to cancellations of concerts and public appearances, musicians had to find other ways to reach their audiences. Still, many artists feel that record labels strongly encourage musicians to keep up active social media posts on numerous platforms, giving them less time to focus on writing music or performing. For more established and successful musicians, they can hire digital promotion teams to manage social media content. But newer or midsize acts have a harder time; they have built an audience but have not yet broken through to enough commercial success to hire such teams to handle the requirement of creating content to post on TikTok, Instagram, Twitter, or Facebook.

4.2 Property Rights Revisited: Selling Master Recordings and Publishing Rights

The COVID pandemic led to a widespread cancelation of live music concerts and festivals all around the world and musicians and bands had to find alternate sources of income to make up for this sudden loss of touring revenue. One way that some higher profile artists have made up for lost income is by selling the rights to their back catalogs of music, either the publishing rights, the master recording rights, or both. By obtaining these rights, the rights owners can collect money from royalties, licensing, and other forms of monetization of this intellectual property. The benefit to buying these rights is that the value of music assets is stable or growing, due to the increasing popularity of streaming. Prices for goods like food or housing can vary according to macroeconomic conditions. Energy prices are dependent on technology, remaining supply, and political stability or volatility. Any of these is subject to geopolitical events, recessions, or booms, but the value of music is not typically affected by these factors. The continued popularity of streaming services makes the ownership of music rights especially important. Investors are attracted to this reliable source of income from streaming subscriptions, which explains the motivation behind firms investing in back catalogs. There are more opportunities to monetize songs in back catalogs, not only with streaming services, but other digital means like ringtones, video games, movies, and other means of broadcast.

Given that owning music rights seems to be a fundamental part of a musician’s identity, why would any ever artist sell off the rights to their music? One part of it is the financial motive, a natural consequence of the difficulties of making a living by selling albums. Yet ownership of intellectual property is so important that it is no surprise that many musicians put considerable effort into regaining them if they have the means to do so. A few historical examples of the importance of song rights ownership are illustrative of the complicated dynamics of rights ownership, and will be highlighted here.

In 1965, former Beatles members John Lennon and Paul McCartney each owned 15% of the shares in their publishing company, Northern Songs. The other two band members, George Harrison and Ringo Starr shared a very small percentage ownership, which galled Harrison and prompted him to write “Only a Northern Song” whose lyrics reflect his dissatisfaction with the deal. Lennon and McCartney wanted to take majority control over the company by buying an additional 23.1% of the shares. Unfortunately, after extended negotiations, they were unable to purchase enough shares to get that majority control. They lost the publishing rights (and all future income) to their songs to ATV Music which then gained complete ownership.²⁹ Having learned his lesson the hard way about the importance of owning intellectual property, Paul McCartney later sought to acquire publishing rights to back catalogs, including those of musicians like Buddy Holly and others. Ownership of these rights meant that McCartney was entitled to the income generated by song sales, radio airplay, and use of the music in movie soundtracks, television, or other broadcast means, which created a steady source of income for him. Unfortunately for McCartney, he happened to mention the benefits of owning back catalogs to the pop star Michael Jackson. The two had had a previous collaboration on the song “The Girl Is Mine” which appeared on Michael Jackson’s megahit 1982 album Thriller and were collaborating on the 1983 song “Say Say Say” at the time. Jackson took the advice to heart and allegedly joked to McCartney, “One day, I’ll own your songs.”³⁰ In 1985, he made this prediction a reality by purchasing the publishing rights to a 4,000 song catalog that also included a majority of the Beatles’ back catalog (about 251 songs) for about $47 million from ATV Music.³¹ This move was a bitter blow to McCartney who had hoped he could buy back the rights to the Beatles songs. But he was outbid by his former friend and musical collaborator. In 1995, amid various financial pressures, Jackson sold half of his rights to Sony Music (which merged with ATV) for a reported $100 million. As part of the deal, Sony retained an option to buy half of Jackson’s 50% ownership in the future. After Jackson’s sudden death in 2009, Sony exercised that option and purchased Jackson’s remaining ownership of Sony/ATV for $750 million and thus became the sole owner of most of the Beatles’ back catalog.

McCartney filed a lawsuit against Sony/ATV in 2017 to regain ownership of his songs. The main point of the lawsuit was based on the US Copyright Act of 1967, in which the Act declares that rights will revert to the original songwriter after 56 years (or 35 years for songs written on or after January 1, 1978). For example, the Beatles song “Love Me Do” was written and released in 1962, and hit its 56 year mark in 2018, thus potentially reverting its ownership back to the Beatles. As a side note, the British pop group Duran Duran were in a similar situation with Sony owning the rights to many of their hit songs. They attempted to regain the rights to these songs (prior to McCartney’s lawsuit), citing the US Copyright Act. But the U.K. High Court ruled against them, stating that the US law didn’t apply in Britain and that British contract laws under which they were signed prevailed. The outcome of this case (while specific to the terms of Duran Duran’s contracts) had possible implications for McCartney’s case. In 2017, McCartney and Sony/ATV reached a confidential settlement over ownership of the song rights, the details of which have not been made public.

One of the most interesting examples of the monetization of intellectual property was the invention of Bowie bonds by the late British musician David Bowie. In 1997, he worked with investment banker David Pullman to create a financial instrument called Bowie bonds. These were investment securities backed by the intellectual property rights associated with Bowie’s first 25 albums that were recorded before 1990. At the time of the creation of Bowie bonds, the albums included in the agreement generated yearly sales of more than 1 million copies. Given that the bonds were backed by such hit records like Ziggy Stardust, The Man Who Sold the World, and Heroes, the dependable income stream from album sales appeared to make an investment in Bowie bonds a sound financial decision. Investors who purchased the bonds received regular interest payments on the bonds, and received the face value of the bonds once they reached maturity. The bonds had a face value of $1,000 with the interest rate of 7.9% (paid twice a year) and a maturity (on average) of 10 years. The sales from the 25 albums generated the cash flow that was used for the bonds’ yearly interest payments. The Bowie bonds were essentially a loan backed by future income based on Bowie’s album sales. In short, Bowie gave up royalties on these 25 albums for 10 years for an upfront payment to Bowie of $55 million; the bonds were purchased by the American insurance giant, Prudential. Bowie used part of that payment to buy back rights to part of his back catalog, some of which were owned by his former manager. Overall, the deal was advantageous to him since he received a large cash payment in exchange for 10 years of future royalties. And once the bonds matured and were paid off, the rights to his music would revert to Bowie. At the time of their issuance, Bowie bonds were rated as investment grade by Moody’s, meaning that they were a safe investment with a low risk of default. Bowie bonds were unique in that they were the first ever instance of a financial security that was based on a musician’s intellectual property and the revenue generated from their album sales.

The decision to create asset backed securities based on David Bowie’s intellectual property was a shrewd investment for him. He was ahead of the curve in terms of the direction the music industry was headed. Again, from his 2002 interview with the New York Times:

The absolute transformation of everything that we ever thought about music will take place within 10 years, and nothing is going to be able to stop it. I see absolutely no point in pretending that it's not going to happen. I'm fully confident that copyright, for instance, will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing.³²

With the realization that he could monetize intellectual property, and with the awareness of the coming major changes in the music industry due to changes in technology, Bowie took advantage of the situation to create a financial instrument that worked to his advantage, and also to eventually retain the intellectual property rights to his albums, all before the digital era rendered copyrights and intellectual property protections moot. The digital disruption of the 2000’s meant that album sales plummeted in the wake of music piracy, revenues from album sales dried up, and Bowie bonds lost value. The bonds were eventually downgraded by Moody’s to just a notch above junk status. But for Bowie, this was a brilliant financial decision that gave him upfront cash and allowed him to regain the rights over his albums within a relatively short period of time.

The current interest in back catalogs (i.e. those songs older than 18 months) as an investment is based on a song’s life cycle. A newly released song goes through a typical cycle that includes the following: sales peak in the months immediately following its release, then the market reaches saturation and sales fall off. Songs do have a potential for rediscovery and re-growth, and given the somewhat arbitrary nature of viral hits, this is possible at any time. An example is Fleetwood Mac’s 1977 hit “Dreams” which experienced a resurgence in streams and downloads following the viral TikTok video of Idaho potato factory worker Nathan Apodeca lip syncing to the song while longboarding to work after his truck broke down. The song experienced a massive spike in streams, entering at number 29 on the Rolling Stone’s top 100 chart, doubling its streams within three days after the video was posted. Since songs are stored and accessible on Spotify, Amazon, Apple Music, and other streaming platforms, they are easily searchable and can be rediscovered at any time, thus significantly extending their life cycles as revenue generating products. In the UK, streams of back catalog music have increased to 72% in 2021 compared to 60.3% in 2019, and for the United States it is 75%, up from 64% in those same years.³³ This fuels continued interest in the investment in back catalogs as an asset class. In addition, the low interest rate environment, as central banks kept interest rates depressed to boost domestic economies during the pandemic, was an additional factor that made investment in back catalogs an attractive option.

As an investment, buying music rights may be a sound financial decision. Many firms seem to think so, including both investment companies and independent music companies, such as Hipgnosis Songs, Round Hill, Kobalt Music Capital, Reservoir Media, Primary Wave, and the Concord Music Group. Hipgnosis Songs in particular has been especially aggressive in its investments, with a portfolio of more than 70 artists and 70,000 songs. Hipgnosis, with the support of the Blackstone Group Investment company, devoted another $1 billion to continue purchasing back catalogs. Of course, all these acquisitions depend on the continued growth of the music industry and streaming revenues in particular. Still, enough firms seem to believe in the steady source of passive income generated by the music business, and back catalogs of proven musicians tend to perform well financially despite any other turmoil that may occur in the rest of the economy. The major labels, BMG, Sony, Universal, have also joined the trend in investing in back catalogs. They have a competitive advantage over investment firms in that they have experience and an established infrastructure within the music industry. They have longstanding connections, global networks, and expertise which they can leverage to bolster revenues from synchronization (sync) rights via the placement of music in TV, movies, video games, advertisements, and other video-related areas, thus driving up revenues earned from back catalog purchases. Major labels often have connections across a variety of industries. For example, Universal Music Publishing Group has a strong relationship with movie and TV studios like BBC, NBC, Dreamworks, Disney, and Paramount, to name a few.³⁴

Why are musicians so interested in selling their back catalogs now? After the previous discussion about the importance of intellectual property rights ownership, it seems counterintuitive that musicians would want to part with their creative ideas for cash. In the early days of the nascent music industry, the ’50s and ’60s, the business was more like the wild west, without established norms. Problems of information asymmetry led to many stories of musicians who felt they were taken advantage of by managers or labels. The music business gradually evolved, and newer musicians learned from their predecessors; in the ’70s and ’80s artists knew they had more leverage and bargaining power and could also make use of legal and management teams to negotiate for better terms for themselves in regards to royalties and rights ownership. In the current era, many legacy artists are putting a final financial cap on their long and storied careers by selling the rights to their master recordings and back catalogs for significant sums of money. As Bill Werde, former editor of Billboard magazine succinctly puts it, “[p]art of the power of being an owner of your assets is that you get to decide when to cash out and how to cash out.”³⁵

There are many advantages to selling back catalogs. One is clearly financial, especially for superstars who can command high prices for their music rights. Bruce Springsteen sold his publishing rights and master recording rights to Sony for about $550 million, setting a record for the highest price ever paid for the body of work of a single musician. Bob Dylan sold the publishing rights of his entire back catalog to Universal Music Publishing Group in 2020 for a price estimated to be between $300 and $400 million. The purchase included such classics like “Blowin’ in the Wind” and “The Times They Are A-Changin’.” Dylan’s back catalog is especially valuable, given his status as a cultural icon and Nobel Prize winner whose music has stood the test of time. In addition, many other artists have covered his songs. According to Universal, they have been covered more than 6000 times. Each of these covers generates royalties for the publishing rights holders. Dylan also sold the rights to all his master recordings in 2021 to Sony Music. This included all of Dylan’s recorded body of work, starting from his self-titled debut album released in 1962 to his 2020 album “Rough and Rowdy Ways,” and future releases as well. The value of this deal was not disclosed, but Billboard magazine estimates that the catalog of master recordings is worth an estimated $150–$200 million, based on the annual revenues of roughly $16 million it generates from sales and streaming.³⁶ Of course, not all musicians are of Dylan’s stature and cannot command the top prices he did.

Selling rights to back catalogs has become a popular way for musicians to reap financial benefits upfront, without having to wait for royalty payments to trickle in from streaming, digital sales, or physical sales of their music. The certainty of a sure payment today beats an uncertain income stream in the future. There are also significant tax benefits for musicians to sell the rights to their back catalogs as Graff 2022 noted. Annual royalties from music are taxed as ordinary income. But the sale of the back catalog is considered the sale of an asset and is taxed at the relevant capital gains rate. If Dylan’s deal with Universal was set at $400 million, he would be taxed at the capital gains rate of 20% for the sale, or $80 million. The capital gains tax rate was scheduled to increase to 37% in 2022 for high earners. Dylan’s sale of his back catalog came just in time to avoid paying that higher rate. In addition, the sale of his back catalog to Universal was a one-time deal. If Dylan held onto those rights and waited for royalty income to come in year after year, he would be facing yearly taxes in a high tax bracket as a high income earner. Making the sale of his back catalog all at once when he did seems to have been a prudent financial decision, tax-wise.

More instances of selling back catalogs may make the news as other musicians look to estate planning. It is no surprise that many of the musicians selling their back catalogs are legacy musicians with long and storied careers behind them. When it comes to dividing up assets among descendants, it may be easier to split up a lump sum amount of money from a back catalog sale, compared to dividing up a lifetime of rights ownership over publishing or master recordings and the associated royalty checks, all of which are subject to various taxes. Jim Kerr, the lead singer of the Scottish band Simple Minds sums it up this way: “We've got a lot of people around us. I could hold on another 20 years but, y'know, people need money now — the kids, the nephews, the nieces, and so on. (Selling) lets us do that without having them fighting about it.”³⁷ In addition to making decisions about estate planning, musicians also must consider the future longevity of their music catalogs. Superstars like Bob Dylan or Bruce Springsteen are guaranteed strong income streams, but the music business can be unpredictable. Another technological upheaval similar to the digital disruption may come in the future. Each musician’s internal calculation of whether and when to sell their back catalogs depends on all these factors.

With all this in mind, selling back catalogs is a popular way to generate revenue upfront, removing the uncertainty over the future from the equation. Legacy artists such as Stevie Nicks, Bob Marley, Neil Young, Def Leppard, Journey, ZZ Top, The Beach Boys, and Steven Tyler among others have sold their publishing rights recently. Younger artists and bands are also jumping on the back catalog sales bandwagon. The Killers, Imagine Dragons, Timbaland, Shakira, and DJ Calvin Harris are among the younger musicians who have sold their back catalog in recent years. Selling a back catalog means guaranteed income now, without the vagaries of royalty payments or live concert touring, which can be subject to forces outside the musicians’ control. Indeed, in the pandemic era, this was a surefire way to generate income, provided a musician could negotiate a price they were willing to accept in exchange for the ownership of their intellectual property.

The COVID pandemic triggered a wave of closures, restrictions, and layoffs in the music industry. While some sectors like streaming thrived, others like the live music economy suffered. Musicians had to come up with innovative ways to address this major economic shock and find alternate sources of income during pandemic shutdowns. Musicians relied on digital technology, giving virtual live performances, creating podcasts and content for TV or radio, selling NFTs, partnering with other online platforms to perform in VR-created venues, or using social media platforms to promote their music and encourage fans to create user-generated content of their own in order to more fully interact with music. Social media and online platforms are currently the most effective ways that musicians can reach and expand their audiences. In addition, selling back catalogs of publishing rights or master recording rights is yet another way to address the realities of the music business in the COVID era, and beyond. The pandemic ushered in the development of new business opportunities in untapped markets in the music business.