The music publishing industry has changed dramatically in recent decades.
A business that once ran on pro forma contracts and handshake agreements — often to the detriment of artists — has evolved into a complex and valuable modern market. Lisa Alter witnessed the change.
"As a young lawyer, I was very involved in legislative reforms of the Copyright Act, particularly relating to issues impacting music rights owners. In addition, I represented songwriters and musical estates who were interested in terminating their historic and generally inequitable deals and getting their rights back," said Alter, a partner with Alter, Kendrick & Baron in New York City.
Today, that career path has put Alter at the center of a modern boom in music licensing that has seen artists and estates sell their catalogs for tens or hundreds of millions of dollars.
"The number of deals, the speed in which these deals are getting negotiated and closed, is really accelerating," Alter said.
In an interview, Alter explained this unprecedented upswing and shared practical advice for others who are negotiating complex deals in changing markets.
What's driving the music market?
Alter says there are several factors contributing to the music boom. Some are economywide: Capital gains tax rates remain favorable, so songwriters and artists are incentivized to sell; at the same time, low interest rates allow buyers to close big deals on favorable financial terms.
"The world of financing has recognized that music is a very reliable, steady income source. In good times and bad, music holds value," Alter said. "Traditional money that might have gone to build a new shopping center … is being directed to music."
In the music industry, specifically, the rise of streaming services is expected to drive the value of intellectual property even higher. Meanwhile, established songwriters and artists with expansive catalogs are finding the prospect of monetizing their creations is increasingly attractive.
A music deal might include not just publishing rights for songs but also ownership of master recordings, access to branding deals, and even participating in live productions with hologram likenesses of the artist.
"All of that has sort of come together to make this, if you will, a perfect storm for music," said Alter, who primarily works with buyers.
In earlier years, music licensing deals were often less sophisticated.
"In the old-school music industry, lawyers tended to start with an existing contract template and plunk in new language," Alter said. "That was never good practice and simply does not work now. That's what young lawyers learn at our firm: You can't just fill in the blanks. This is not Mad Libs."
Negotiators and lawyers are trying to protect their clients from unexpected risks, such as a third party "coming out of the woodwork" to claim a stake of a piece of art, Alter said. Other complications include defects in the copyright or contracted chain of title, and even competing claims from a former spouse or spouses of the songwriters and artists.
At the same time, negotiators and lawyers are working under increased time constraints because of the booming market, with inadequate time to get up to speed. In some cases, the lawyer for the seller may have met the client just a week earlier, Alter said. This imposes a greater burden on the buyer's representative in the diligence process, and there's little room for error.
In this high-pressure, short-on-time environment, a mistake could result in the buyer losing part of what they've purchased.
The buyers "are paying top dollar, and if it turns out that you've missed an issue that could have been discovered, that could be very problematic," Alter said. "Even though the time period between signature of a letter of intent and closing of the transaction has shortened, it's essential that you still do the work. You can't close a deal just looking at a few documents and not doing a deep dive on the due diligence."
What can others learn?
Alter works in a complex and niche business, but her experience is applicable for anyone facing high-stakes deals on short deadlines.
"Organization is key, and then forensic work is often required," she explained.
She likes to begin by understanding the story of the deal and the music itself.
"When a deal first begins," Alter said, "the first thing I do is try to get an overall perspective from the seller's representative: What's the story? What went on in the life of the catalog?"
Understanding that overall narrative helps her identify gaps in the chain of title and hone her diligence strategy. At the same time, her firm has developed standardized processes that enshrine years of experience.
"We have developed deal checklists that encompass every step that needs to be taken throughout the diligence, drafting, and closing process," Alter said.
Additionally, she advises clients and staff alike to carefully read the deal documents and understand the nuances of the deal.
"I think we've developed some really great basic transaction documents that are clear and understandable, but no two deals — and no two contracts — are the same," Alter said.
In a market that's hotter than ever, she added, an in-depth understanding of the deal at hand is critical.
— Andrew Kenney is a freelance writer based in Colorado. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA's editorial director, at Kenneth.Tysiac@aicpa-cima.com.