Back catalogues the sound of music to investors' ears

Revenue from Jackson songs such as Thriller and Billie Jean will set 'royalty history', according to the British collection agency PRS for Music. Photo / Supplied

Michael Jackson, the Grateful Dead and The Sound of Music are finding new fans in pension funds, private equity and banks convinced old hits will play on as technology expands the way people use music.

Competition is increasing for music publishing catalogues and the income they generate from stores, radio and internet play, ads and movies. Unlike recorded music, publishing is buffered from falling CD sales by its more diverse revenue sources. Owners can earn cash returns of 7-20 per cent or more a year, depending on the songs and how they're marketed, investors and dealmakers say.

Jackson's death in June has heightened interest in his stake in a catalogue that includes Beatles tracks.

Publishers own rights to lyrics and melodies. The biggest owners continue to be record labels, such as Universal Music and EMI, but recent buyers include private-equity firms such as KKR, Dutch pension fund Stichting Pensioenfonds and Credit Suisse Group.

"I view it as a very conservative investment," says Rodney Cohen, co-managing partner at Pegasus Capital, a US$2 billion ($2.97 billion) fund with offices in New York. Pegasus bought Spirit Music Group in April, gaining songs from the Grateful Dead, Elvis Presley, Frank Sinatra and Billie Holiday.

Beverly Hills entertainment lawyer Donald Passman says the health of the music industry, falling retail sales and smaller ad budgets contributed to a 40-50 per cent drop in the value of publishers in the past five years. Those falling values are attracting investors, Passman says.

Jackson's death has spurred interest in his stake in Sony/ATV Music Publishing, according to Rob Wiesenthal, chief financial officer of Sony's US unit.

"They're inquiring," Wiesenthal said last month, "But it's not for sale."

The late singer began building his portfolio in 1985 with the US$47.5 million purchase of Beatles tracks. His half-stake in Sony/ATV is worth at least US$750 million, Billboard magazine says. The estate also controls MiJac Publishing, comprising much of Jackson's solo work.

New York-based Primary Wave, which holds rights to songs by Nirvana's Kurt Cobain and Aerosmith's Steven Tyler, has marketed Cobain's songs to shoemaker Converse, and Aerosmith's to a lottery company. In the biggest deal to date, Universal Music paid US$2.1 billion for Bertelsmann BMG's catalogue in 2006. The catalogue includes songs from Coldplay and Barry Manilow.

Revenue from Jackson songs such as Thriller and Billie Jean will set "royalty history", according to the British collection agency PRS for Music.

"For tragic or joyful reasons, in this case tragic, songs can do well," says Ronald Wuijster, a managing director of APG Asset Management.

"Music is so important it will always be used."

- BLOOMBERG