Bruce Springsteen Sells Catalog to Sony Music
January 11, 2022
In December 2021, Bruce Springsteen sold his music catalog to Sony Music for $500 million, following other musicians such as Bob Dylan, David Bowie and Stevie Nicks who have previously sold all or parts of their catalogs.
These catalog acquisitions are a result of the COVID-19 pandemic, which has drastically impacted live performances where many of these artists generate concert income and ancillary revenue. Furthermore, because of the increasing usage of music streaming, the valuation of catalogs has increased significantly. In 2019, streaming revenue surpassed $10 billion, a 21% increase from the previous year. Music catalogs are trading at 10 to 19 times their annual values, with older songs typically benefiting from their longevity as well as boosts from viral hits. Licensing also plays a role in valuation. For a song to be used on a syndicated television show or in a movie, a license must be acquired and as income-consistent shows expand to multiple channels and online platforms, the value of a catalog increases.
For the artist, selling their catalog is not only a financial gain but big business. Buyers, such as Sony Music, will ensure that the artists’ names live forever, allowing them to extend the impact of their creations. However, despite both financial and artistic benefits, artists should carefully consider before selling their catalogs because taxes can play a major role in the decision to sell this asset.
A recent change in the tax code has designated the sale of music catalogs to be taxed at the lower capital gains rate of 20%. However, certain self-created property is not treated as a capital asset and, instead, taxed at the higher ordinary income tax rate of 37%. Artists should be conscious of a potential increase in tax rates, including for capital gains, in the near future.
In fact, under a current proposal, taxpayers will be imposed with a surcharge of 5% of modified annual gross income (“AGI”) when exceeding $10 million ($5 million for a married individual filing separately, and $200,000 for estates or trusts). Moreover, an additional 3% surcharge— bringing the total to 8%—will be imposed on modified AGI of more than $25 million ($12.5 million for married filing separately, and $500,000 for estates or trusts). For these individuals, their federal income tax rate will increase to 45%, a change very likely to impact artists like Springsteen.
Finally, it is possible that Springsteen or other artists may have considered alternative non-taxing jurisdictions in advance of a possible sale, such as Florida. This is where the professional counsel of tax advisors come into play.