Legal Matters: Interest Heightens For Music Publishing Assets

There's been a major shift recently in the types of buyers interested in music companies.

"We are seeing increased interest from nontraditional players, especially private equity firms and investment banks," says Michael Poster, an attorney in the Music Law Group of KMZ Rosenman in New York.

While these buyers have expressed interest in various facets of the music industry, the focus appears to be on music publishing companies and catalogs.

Interest in music publishing has spiked because that industry hasn't experienced the volatility that the recorded music business has suffered, industry insiders explain.

Music publishers with a broad catalog of songs that span generations often have predictable revenue streams. This revenue can lead to greater ease in financing the acquisition, often through borrowing against the value of the assets.

"In the aftermath of the burst of the tech bubble, it makes sense for private equity firms to consider assets such as music publishing catalogs, which generate predictable, steady revenue and present prospects for growth," says attorney Marc Reisler, also with KMZ Rosenman.

Music publishing acquisitions are priced based on a multiple of net publisher's share of revenue generated by the catalog—that is, the publisher's share of revenue, after deduction of administration fees, payment to writers and customary expenses—but the multiples can vary significantly.

In some recent deals, multiples have skyrocketed to as high as 20 times net publisher's share.

But why would anyone pay such a high multiple? In many cases, it's because the buyer believes that the catalog will generate greater revenue as a result of new revenue sources—for example, licenses to videogame developers—and more active exploitation of the catalog. To achieve these goals, many private equity firms and investment banks are partnering with music industry veterans.

"With several companies being in play at once, this has opened the door to many nontraditional investors considering making offers, often in conjunction with noted former industry leaders," says Jeff Liebenson, a partner with KMZ Rosenman.

For music industry veterans who ally themselves with these kinds of buyers, a successful transaction offers them a golden opportunity to run a major music industry venture.



ARRESTING DEVELOPMENT: Atlanta-based hip-hop group Arrested Development is suing Fox Broadcasting for alleged trademark infringement for using the band's name as the title for a new Fox-TV series called "Arrested Development."

The band says the use of its name by Fox confuses the public and could "significantly dilute" what the name means to its fans.

"Fox has no more right to use 'Arrested Development' for its show than a band would have to name itself after one of Fox's sitcoms," band member Todd Thomas says.

Also named as defendants are Twentieth-Century Fox Film, Imagine Films Entertainment and New World Communications of Atlanta.

Arrested Development is seeking an injunction and damages. The damage amount hasn't yet been determined, because it's unclear how much money Fox has made from the show, which began airing Nov. 2.

The defendants have moved to dismiss the case, citing jurisdictional and First Amendment issues.

Fox is no stranger to this type of controversy. In the early 1990s, the band Living Colour sued and ultimately settled its case against Fox regarding the use of its name for the show "In Living Color."

And earlier this year, Fox sued Al Franken for his use of the phrase "fair and balanced" in the title of his book that criticized certain Fox on-air personalities.

The latest suit was filed Oct. 16 in Dekalb County (Ga.) Superior Court. Attorney R. Charles Henn Jr. of Kilpatrick Stockton is representing the band.



MP3 SHAKEOUT: Nashville-based songwriter Paul Overstreet and his Scarlet Moon Music publishing catalog have filed a class action against Sony Music, Warner Music Group and BMG, seeking a share of a settlement from the majors' copyright-infringement suit against MP3.com.

The complaint, filed Oct. 16 in Los Angeles Superior Court, claims that Scarlet Moon is a co-owner with the defendants' publishing arms of several copyrights.

Scarlet Moon and others are seeking a pro-rata portion of the $100 million settlement reached by the majors with MP3.com (Billboard Bulletin, June 8, 2000).

"The money paid by MP3.com to obtain releases of claims of infringement of musical compositions was a profit earned by defendants as a result of licensing or other use of copyrights," the complaint states.

Scarlet Moon last year sued the Harry Fox Agency over its $30 million settlement with MP3.com.