Private equity's Taylor Swift problem

Some musical artists are following Taylor Swift's lead and re-recording their own songs when the masters are owned by someone else, as reported yesterday by The Ringer.

The big question: Private equity funds have begun paying big bucks to buy up song catalogs, but what protects these investments from being devalued by future re-recordings?

Backstory: Swift got upset when masters for her first six albums got acquired in 2019 by a PE-backed group fronted by music manager Scooter Braun, and decided to re-record them. Her masters were then resold to another private equity firm, Shamrock Capital Group.

• But private equity's musical interests are far bigger and broader than Taylor Swift, with entire funds dedicated to buying legacy catalogs.
• Sometimes the sellers are record labels, like in Swift's case, but often now they're the artists themselves.

The big picture: There are two broad categories of music rights — the publishing rights, which include lyrics and score, and the recording rights, which include the original masters.

• Sometimes both are held by the same record company or artist, although often they're split up between multiple parties.
• Original recording contracts typically say that an artist cannot rerecord their music for a certain number of years after original release, often more than a decade, which may be why Swift is releasing her new versions gradually.

Inside the deals: Most private equity music purchases are for publishing rights, which aren't impacted by re-recordings, but there have been plenty of big recording rights deals too (plus deals with both rights).

• On those recording rights deals, many include a blanket prohibition on re-recordings (i.e., going well beyond the original record deals). For example, a source says that Blackstone-backed Hipgnosis includes such a provision in all of its agreements that include master recordings income.
• Round Hill Music, which does around 30% of its business on the recording side, usually includes re-record prohibitions but not always. CEO Josh Gruss says that he "wouldn't lose a minute of sleep" if such a clause was absent, because re-recordings are very difficult to execute — particularly for pre-digitization songs — and because most consumers still want to stream the original.

• "If someone sees a song with 50 million streams and one with 50,000 streams, which one are they going to pick?" He acknowledges that Swift's re-records are outperforming her originals, but believes her situation is unique — partially because of her massive marketing muscle.
• Another music rights investor adds: "There are certainly transactions where buyers have sought protections against re-recording ... but ... the strength of these provisions hasn't really been tested."