- It was quite disheartening to hear famous Gospel musician Reuben Kigame point out his frustrations with the Music Copyright Society of Kenya (MCSK) over his below-par earnings (read royalties).
- With April being the month that artists receive their first royalty check of the year (the second and final arrives in October), today’s article highlights the possibilities of a working collection system.
It was quite disheartening to hear famous Gospel musician Reuben Kigame point out his frustrations with the Music Copyright Society of Kenya (MCSK) over his below-par earnings (read royalties).
But reading his note, I couldn’t help but notice the year he says he started in music; 1987. The reason being that just two years ago, Michael Jackson had just completed the purchase of ATV Music, a 4,000 Beatles song catalog, for 500 million shillings.
Jackson made the investment knowing he would guarantee over 30 years of reliable cash flow. My point; same artistic expression, two different royalty collection systems, one working, the other broken, chaotic and very inefficient. The result; the artist suffers.
With April being the month in which artists receive their first royalty check of the year (the second and final arrives in October), today’s article highlights the possibilities of a working collection system.
One area with latent potential is that of securities backed by intellectual property assets (ABS) or, in this case, securitizations of intellectual property of music. Simply put, securitized assets are the cash flows generated by ownership interests in the copyrights relating to a catalog of songs.
Property interests can be those shared by a songwriter, performer, or publisher. In a typical music royalty transaction, the music-related ABS is packaged in the form of a debt served for a term such as 10 or 20 years.
In essence, securitization investors have two sources of repayment: cash flow generated by copyright and liquidation proceeds from the sale of copyright. In other words, cash flow cannot come from “one-time wonders” that will drop after just a few years. Additionally, if the annual cash flow is insufficient to repay the bonds, investors will turn to the music catalog liquidation clawback proceeds.
Alas, this wonderful scenario remains a “distant dream”. Collective management organizations (CMOs) in the country; MCSK, PRiSK (Kenya Artists Rights Society) and Kamp (Kenya Association of Music Producers) have yet to bring significant gains to artists.
Although total spending on entertainment and media amounts to 2 billion shillings (2017) according to a PwC survey titled Entertainment and Media Outlook 2018-2022: An Africa perspective, royalties remain meager at best.
Worse yet, the expressions of “local music” on the radio are not so encouraging compared to neighboring countries. In addition, broadcasters do not pay much for artist royalties. (Note: The radio ad was valued at 9 billion shillings in the same PwC report).
Despite this, positive change can still be catalyzed. Also, there are enough charts to follow since the successful release of the first music-related ABS in 1997 by British rock star the late David Bowie. The so-called “Bowie Bonds” suffered no defaults despite falling sales of music records.
The bonds brought in 6 billion shillings in exchange for an interest of 7.9% for 10 years. Notable artists who have titled their catalogs include; Marshall Mathers (Eminem), James Brown and the Motown Holland-Dozier-Holland trio.
Overall, music royalties are very expensive. If all the infrastructure is in place and functioning, as an asset class, music could revolutionize our financial markets.
Mr. Mwanyasi is the Managing Director of Canaan Capital