Taylor Swift’s asset restructuring

The biggest risks in financial markets are often not the largest, but the ones lurking where investors never expected to find them. 

Which brings us to some pop-related news from Wednesday night, via Pitchfork:

Taylor Swift has revealed plans to re-record her first six albums following a deal that left the master rights to her catalog in the hands of Scooter Braun, as The Hollywood Reporter notes. According to THR, during an interview on “CBS Sunday Morning,” Tracy Smith asks Swift if she will re-record her music in response to the deal. “Oh yeah,” Swift reportedly answers. When Smith follows up to ask whether it’s a plan, Swift responds, “Absolutely.”

Swift’s decision follows news early July that her back catalogue, up to 2017’s Reputation, had been purchased as part of a $300m deal for Big Machine Label Group, the singer’s former record label. The buyer was Scooter Braun, a celebrity manager who Swift had disliked since a spat which involved Kanye West (don’t ask).

At the time, Alphaville noted the $300m deal reflected a shifting landscape in investor attitudes to music royalty-backed assets. Partly down to the streaming revolution and partly down to a global thirst for alternative -- and uncorrelated -- sources of yield, song royalties had become attractive financial assets with properties not dissimilar from other alternative fixed income instruments, such as catastrophe bonds.

The risks associated with song royalties should be pretty clear. For instance, music tends to follow trends -- think disco in the ‘70s, hair metal in the ‘80s* or nu-rave in the ‘00s -- which can easily dissipate over a few months when the new thing arrives. Therefore royalty cash flows from less established artists will be riskier than canonised artists, and vice versa.

But Swift’s decision to re-record her oeuvre presents a new risk to those purchasing mechanical song royalties: the assets are open to being reproduced in a different form. In effect, splitting the potential cash flows from a song in two, or three, or four.

For those who are not familiar with how music royalties work there are in effect two royalty streams from any given piece of music. The publishing rights, which reflect the ownership of the underlying song -- the chord structure, the lyrics and the melody -- and the mechanical rights, which dictate who owns the rights to a unique recording of a song.

In Swift’s case, her mechanical rights were sold to Scooter Braun, but not the publishing rights. Those still reside with her original publisher Sony/ATV, allowing her to in effect reproduce her back catalogue ad infinitum.

Although it doesn’t quite match Hollywood’s proclivity for the practice, re-recording a hit song is not without precedent. Alphaville favourite Guided By Voices, as one example, updated cult classic “Game of Pricks” to be a studio quality song in the early 00s. The new version, at pixel time, has garnered more streaming hits than the lo-fi original on Spotify:

Even if Taylor Swift’s re-recordings garner half as much mind share as the originals -- and we don’t see why not, given the amount of press this move has generated -- then the $300m which Scooter Braun paid might begin to suddenly look very expensive indeed.

*This article has been amended after we got confused between glam rock and hair metal.

Related Links:
Taylor Swift and the triumph of capital — FT Alphaville
Comrade Swift's special dividend — FT Alphaville
Money for nothing: copyright law, YouTube, and the future of music [Pt. I] — FT Alphaville
Money for nothing: copyright law, YouTube, and the future of music [Pt. II] — FT Alphaville
Exit music for a streaming service — FT Alphaville
Canvassing Spotify's valuation — FT Alphaville