A 257-year-old asset manager profited from Ariana Grande's hit single '7 rings,' and it's a business Wall Street's getting excited about
- Barings' private equity arm owns a music publishing division that recently negotiated with Ariana Grande for her hit song "7 rings."
- Grammy-nominated Grande sampled the 1959 song "My Favorite Things," which was sung by Julie Andrews in "The Sound of Music."
- Music licensing has become a more popular target for private equity seeking dependable revenue. In 2017, for example, private equity giant Blackstone bought SESAC Holdings using long-term private equity money.
Ariana Grande wanted it. She got it. And a private equity firm owned by a major asset manager benefitted.
In the fall, the Grammy-nominated pop star went on a champagne-fueled New York City shopping spree at Tiffany's, buying rings for her friends, including her song-writer, who told her they needed to turn the experience into a musical number. Grande's single "7 rings" starts by detailing that day and borrows from the 1959 song "My Favorite Things," sung by Julie Andrews in "The Sound of Music."
Tiffany's wasn't the only company to benefit from the song, which spent multiple weeks atop Billboard's Hot 100 chart. Grande's managers worked with Beverly Hills-based Concord Music Group to license the rights to "My Favorite Things," one of nearly 400,000 copyrights the group owns.
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Concord is backed by Barings' alternative investments arm, a $48.5 billion platform that invests in real estate, private equity, energy, and other strategies. Private equity has increasingly set its sights on music licensing, as investors seek strong, dependable revenue streams: no matter the economic climate, advertisers, movie producers, songwriters and a host of other groups still need to license songs for their works.
"For us, what was most attractive initially was that a music publishing copyright is effectively a government-sanctioned monopoly over a piece of intellectual property that gives you, the owner, a very long-term opportunity to earn cash flows," Barings managing director Alex Thomson told Business Insider.
70-year copyright
Thomson's private equity business, Wood Creek Capital Management, entered the music business in 2006, when there were a handful of similar buyers. Now, there are a dozen private equity players, including industry behemoth Blackstone, which bought SESAC Holdings in 2017.
In 2013, Wood Creek bought Concord, reportedly for about $115 million, and built up the business through subsequent acquisitions. Now one of the largest independent music labels, Concord oversees eight record labels and licensing for songs including "Here Comes the Sun" and shows like "The Wizard of Oz." Wood Creek later became a subsidiary of insurance company MassMutual, which merged the private equity firm with other businesses under the 257-year-old Barings umbrella.
Both Blackstone and Wood Creek bought their respective music businesses with longer-term capital, from investors like public pension funds, than the shorter-term focus of typical private equity funds. That means the firms can keep the businesses longer instead of selling or taking them public after 10-12 years.
A long-term focus fits copyright's long life. In the US, a song's copyright lasts for 70 years after the death of the last living composer. After those 70 years, the song enters the public domain and is no longer protected by copyright laws.
"You can own songs that were written in the 1950s up to the current day, and by executing on a successful licensing strategy, you can generate long-duration cash flows," Thomson said.
Concord, for example, owns the collection of duo Richard Rodgers and Oscar Hammerstein, who created a number of popular musicals that went on to win 34 Tony Awards, 15 Academy Awards, the Pulitzer Prize and two Grammy Awards. Among their works is "The Sound of Music," including the song "My Favorite Things."
"That song continues to be a very important song in our catalogue, even though it was written in 1959," Thomson said. "We've had a lot of success as advertisers, music supervisors and other folks who want to use that song have come to us and licensed it."
Careful stewardship
Thomson, who declined to talk about Concord's financials, said Grande's team approached Concord about the song. Typically, deals take two to three months to arrange. During negotiations, the artist's team works with the music licenser to change the original song's lyrics or melody in ways the licenser deems appropriate.
"One of the things you have to do when you think about how you take care of these great catalogs and these great artists' legacies is you have to be a steward of their works," Thomson said. "If somebody comes and says 'I want to license your song and rewrite the lyrics and make them deeply offensive,' we're not going to do that. With '7 rings,' they had a clever interpretation."
Grande's song was released in mid-January as the second single for her February "thank u, next" album.
"A song written in 1959 is now a number one hit in multiple global markets because of her brilliance," Thomson said. "We just get to piggyback off of and enjoy her success as she hopefully creates another generation of Rodgers & Hammerstein fans."
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