Posted on March 18, 2016 by Anthony Jerdine

Sony Acquires Major Music Catalog for $750 Million
By Anthony Jerdine| March 18, 2016

Sony (NYSE: SNE) has purchased the remaining half of a music catalog owned by the estate of Michael Jackson.

The deal to buy the 50% of Sony/ATV Music Publishing that Sony did not already own will give the company full rights to classic songs by The Beatles, Bob Dylan, The Rolling Stones, Marvin Gaye, and many other artists. However, it will not include rights to Jackson’s own work, which his estate will retain.

Sony will pay the Jackson estate $750 million for its stake in the catalog under the terms of a process that began in September 2015, when Sony exercised a right that has existed since the joint venture was formed by Michael Jackson and Sony in 1995, the company explained in a press release. That previous agreement allowed for one partner to purchase the other partner’s interest pursuant to a procedure outlined in the Sony/ATV operating agreement.

“The entertainment businesses have long been a core part of Sony and are a key driver of our future growth,” said Kazuo Hirai, president and CEO of Sony Corporation. “This agreement further demonstrates Sony’s commitment to the entertainment businesses and our firm belief that these businesses will continue to contribute to our success for years to come.”

What does this mean?
While Hirai’s statement makes the deal sound like a typical business transaction, it’s actually the culmination of a piece of Jackson’s legacy that rivals his music career. The singer purchased what would become Sony/ATV in what is now considered one of the best business deals in entertainment history.

“This transaction further allows us to continue our efforts of maximizing the value of Michael’s Estate for the benefit of his children,” said John Branca and John McClain, Co-Executors of the Estate.

It also further validates Michael’s foresight and genius in investing in music publishing. His ATV catalogue, purchased in 1985 for a net acquisition cost of $41.5 million, was the cornerstone of the joint venture and, as evidenced by the value of this transaction, is considered one of the smartest investments in music history.

The deal makes Sony undisputedly the largest music publisher in the world. In addition to the many classic artists’ copyrights the company either controls or administers, it also manages work from current stars, including Alicia Keys, Lady Gaga, Pink, Shakira, Ed Sheeran, Sam Smith, Taylor Swift, and Kanye West, among many others.

Publishing matters more than ever
With the transition to digital downloads and subscription services like Pandora and Spotify, publishing rights remain an important element in how songwriters get paid. As the publishing company, Sony either outright owns or administers songs on behalf of the songwriter.

When Pandora streams music, the publishing company collects a mechanical royalty (money owed for a song being reproduced either physically or digitally) and a performance royalty (money owed when a particular song is streamed, played on the radio, or performed in public). In some cases, Sony/ATV owns a song outright (and pockets whatever Pandora, Spotify, or any other company pays), but in most cases, it shares the revenue with the songwriter.

Given that physical music now only sells a fraction of what it once did, owning publishing rights is the key to making money in this industry. Locking up this catalog for $750 million may prove to be a bargain in the long-term given the number of timeless songs — everything from New York, New York to All You Need Is Love — that Sony now fully owns.

Sony Acquires Major Music Catalog for $750 Million