MUSIC COMPANIES PROVE TO
BE LUCRATIVE INVESTMENTS

MBI
By Paul Gorman
August 1999

The maverick  nature of pure music companies and the peoplw ho run them has traditionally led to their being regarded with scepticism by financiers and fund managers alike.  There are exceptions, such as the relatively sedate EMI, listed on the London Stock Exchange, but stock markets have generally viewed the music business as too risky --- until now.

The wave of mergers and takeovers which began in the late Eighties among music publishers also spilled over into the record company arena.  The sale of long-established labels such as Motown, A&M and Chrysalis reached a climax with Seagram's recent acquisition of PolyGram and has led to a reassessment of this increasingly corporatised sector by investors worldwide.

A better grasp of the potential value of once intangible and incalculable assets such as back catagloues has taken some of the risk out of the record business.  As a result, finance-raising exercises ranging from public flotations to securitisation have become an integral part of the business.  This has been underlined by the willingness of artists such as David Bowie and Iron Maiden to participate in the well-publicised bond issue schemes devised by David Pullman.  The US financial wizard emerged from Wall Street in the mid-nineties to corner the market in this new form of cash-raising with securitisation of catalogues including James Brown, Holand Dozier, Holland and Ashford & Simpson.

Similarly, companies can securitise their assets by selling all or part of the cash flow from these assets on a three- to five-year basis from, for example, a library of recordings from, for example, a library of recordings or publishing catalogue.  A recent example is Elton John Management, the company which controls the business affairs of the knighted world superstar.  The singer's team, lead by business manager Frank Presland, started negotiations earlier this year with the Samuel Montague Bank to secure a loan estimated in some circiles to be worth £25m ($39.4).  As security for the loan, the singer is putting up future earnings from his royalty streams for a set period.

"This is not a securitisation," stresses a member of John's inner circle.  "It's just the same as getting an overdraft --- you basically put up some of your assets in return for a loan."  The move is not related to the singer's legendarily extravagant lifestyle, according to Presland, but more connected to John's plans to acquire the masters to his first six albums.  "Far from trying to get cash we are trying to get back the rights," says Presland.