Wanna Know Why Hova Really is the GOD MC....
In the latest issue of Forbes, we argue that Jay-Z will earn a spot on the Forbes 400— list of the country’s wealthiest citizens—by 2015. To...
The property in question is Jay-Z’s set of master recordings, also known as mechanical rights or simply masters. When most artists sign record deals, they give up these rights in exchange for an advance payment, a smaller royalty of 10-15% on music sales and the prestige of recording an album for a major record label. The label either keeps these rights and profits from every radio play, every digital download, every album sold—or sells the masters to a third party who reaps the benefits instead.
When Jay-Z signed on to become Def Jam’s president in 2004, he shrewdly negotiated the return of his masters in addition to an annual salary approaching eight figures. Though he left Def Jam in 2007 and a year later launched Roc Nation, a joint-venture label with concert promoter Live Nation, his Def Jam masters are scheduled to revert to him in 2014. As part of a separate deal with EMI, his publishing rights—which cover the use of songs in television commercials, sampling by other artists and more—will return to him in 2013, combining to form an incredible asset.
“It’s a valuable catalog,” says Ryan Schinman, chief of Platinum Rye, the world’s largest buyer of music and talent for corporations. “Jay-Z was obviously a very smart negotiator to get the rights back. Now he can keep them or sell them again.”
The catalog’s precise value is difficult to pinpoint because, as Schinman says, any catalog is worth only as much as someone will pay for it. But it’s possible to come up with a ballpark figure. Jay-Z himself has gone on record saying that his first album, Reasonable Doubt, throws off $100,000 per year in catalog. The album sold a little over 1 million copies and doesn’t contain any of the smash hits that helped push subsequent efforts as high as 5 million. Still, this offers a conservative rule of thumb to use in evaluating expected residual revenues from an album: ten cents per year per album copy sold.
Apply that logic to Jay-Z’s entire catalog—he’s sold nearly 50 million albums worldwide—and you come up with a figure of $5 million per year, which is what he’ll be earning from his master recordings and publishing rights as soon as they revert to him in 2013-2014. According to Schinman, catalogs tend to sell for a 6x-10x multiple of annual revenues. Thus, the assets set to return to Jay-Z should be worth about $50 million. Add the music made after his departure from Def Jam and the songs he’ll record over the next few years, as well as appreciation of his musical portfolio over time, and the value of his catalog could approach $100 million within the next five years.
Jay-Z already sits atop our list of Hip-Hop’s Cash Kings. With numbers like that on the horizon, it’s a good bet Jay-Z will join likes of Warren Buffett and Bill Gates on the Forbes 400 by 2015. In the meantime, check back here for more thoughts on the business of music
