(Bloomberg Opinion) -- Taylor Swift is, in a sense, immune to Covid-19.
Not literally, of course. But as an investment prospect, her work sits alongside assets whose values have stayed strong during the virus, but which won’t suffer if we get a working vaccine and consumers’ lives start to return to normal. Think Spotify shares rather than Zoom’s. If you’re in the market for steady returns, regardless of the coronavirus situation, there are worse places to look.
Just last year private equity giant Carlyle Group partnered with Scooter Braun, the manager of artists such as Justin Bieber and Ariana Grande, to acquire Big Machine Records, Taylor Swift’s label, for $300 million. That group has now sold Swift’s back catalog alone for the same amount, while retaining the rest of the label’s inventory, which includes acts like Rascal Flatts, Tim McGraw and Lady A (formerly known as Lady Antebellum). That’s pretty good going.
The value is partly a function of the Covid-19 induced lockdowns. On one side sits a pile of industries that have proven vulnerable to the outbreak’s vicissitudes, such as travel and hospitality. On the other side are those that have benefited hugely: video conferencing platforms and telehealth providers, for instance. But in the middle, there’s a third category of companies that have profited more modestly from the pandemic, and which are unlikely to see their business negatively affected when it’s over.
Investment in such firms has intensified as shareholders look for the best way to play the next stage of the pandemic. Take Spotify Technologies Inc., the biggest music streaming platform. Its stock has climbed 65% this year, even though subscriber numbers are growing at much the same pace as they did before stay-at-home orders were imposed. Doing more podcasts has helped.
The read across from Spotify is clearly good news for the recording industry, and entertainment properties more generally. Shamrock Capital, the Los Angeles-based private equity firm that has acquired the Swift master recordings from Carlyle and Braun, closed a $400 million fund in June dedicated to acquiring film, television, music and gaming content. It’s targeting annual returns of 8%. Given that the Swift deal, which comprises her first six albums, might reasonably generate $20 million a year in earnings, such returns seem achievable.
For all of the attractiveness of her portfolio of music, though, there is a risk: Taylor Swift seems to hate Scooter Braun. Indeed, she took to social media to complain about his role. Because he will continue to earn a percentage of royalties on her old recordings, she’s unwilling to work with Shamrock to promote them. That inevitably limits the catalog’s earnings potential.
It leaves Shamrock in a bind. It could try to pay Braun and Carlyle more upfront in return for scrapping their earn-out provisions (the thing that keeps Braun on the royalties payroll), and hope that might induce Swift to team up. But a higher deal price represents a financial risk, too — one Shamrock’s limited partners might not be willing to stomach.
For her part, Swift seems intent on rerecording the songs, whose publishing rights are managed by Vivendi SA’s Universal Music Group, which is also her record label these days. Swift would then be in the strange situation of competing with her own music for listeners, trying to convince fans to choose to stream the new interpretations instead of the originals.
The happy news for Shamrock is that music streaming audiences are steadily increasing, so there may be enough appetite for both. And with deals with good returns so hard to come by for private equity, even a diminished Taylor Swift catalog is attractive. The Braun spat is unhelpful, but Shamrock should manage to shake it off.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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