Sony is betting on love for the Beatles lasting in a new $750 million deal

March 16, 2016 3:30 AM PT

For a 2012 episode of the popular TV show “Mad Men,” Lionsgate paid an estimated $250,000 for the sound recording and publishing rights to use “Tomorrow Never Knows.”

Money may not buy love, but the steep price for a single Beatles song helps explain why Sony Corp. would be willing to make a hefty investment — $750 million — to take control of the world’s largest music publishing company.

In the deal announced late Monday, the Japanese electronics and entertainment giant agreed to buy out the Michael Jackson estate’s half of their joint venture Sony/ATV Music Publishing. The company owns 3 million copyrights and represents artists such as Leonard Cohen, Bob Dylan, Taylor Swift and the Beatles.

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The 250 songs from the world’s most storied rock band are considered the prized assets in the musical collection.

“The crown jewel, really, is the Beatles catalog,” said Stephen Ma, a music industry lawyer at the Los Angeles firm Early Sullivan Wright Gizer & McRae. “It’s a big number, but it’s one of the most prized catalogs in the world.”

The transaction, subject to regulatory approval, would bring the publishing venture under the same roof as Sony’s record label, which represents artists such as Adele and Beyonce.

The purchase could simplify a labyrinthine management structure at Sony/ATV, making it easier for Sony to capitalize on its deep library of hits by licensing the songs to filmmakers, TV producers and other partners.

Confronted by falling record sales, Sony and other music companies are under pressure to find new sources of revenue by licensing more songs for use in films, TV shows and video games, as well as streaming.

The amount Sony is paying to buy out the Jackson estate’s share of Sony/ATV is 16 times what the estate paid for Beatles publisher ATV Music in 1985, underscoring the lasting appeal of songs from the Beatles and other acts. Beatles music, in particular, has continued to provide profits in the decades since the band’s breakup.

“What this deal tells us is that music that stands the test of time, that is always going to be played on the radio and synced into film and television, has enduring value,” said Larry Miller, a music business professor at NYU Steinhardt. “This better positions Sony to compete for artists and writers, and for advantageous deals with the digital service providers.”

Sony and the Jackson estate have entered a memorandum of understanding, with a definitive agreement anticipated by the end of this month. The deal is expected to close in late 2016 or early 2017.

Representatives from Sony Corp. and the Jackson estate declined to comment.

The impending changes come at an uncertain time for Sony/ATV and its rivals, which are trying to get higher royalties from services such as Spotify, Rhapsody and Pandora. Music publishers and record labels alike are trying to figure out how to best deal with consumers’ shift from owning music to streaming it on computers, smartphones and tablets. On-demand music streams increased 93% in 2015, according to Nielsen. Industry analysts said owning all of Sony/ATV could give the company more leverage in negotiations with streaming services.

“They’re betting on the future of the music industry,” said William Hochberg, a music industry lawyer at Greenberg Glusker Fields Claman & Machtinger. “It may have been a good time for this Sony acquisition, if you believe that streaming is going to be profitable in the future.”

Sony’s overall music revenues, including publishing and recorded music, were $4.5 billion in the company’s most recent fiscal year, essentially flat on a constant currency basis. Publishing accounted for $591 million.

The pact is the culmination of a long saga for the estate of Michael Jackson, who died in 2009. Enticed by the prospect of owning one of the world’s most famous music catalogs, Jackson paid $47.5 million in 1985 for ATV Music, which owned most of the Beatles songs including “Hey Jude” and “Yesterday.”

His purchase of the catalog led to a rift with Paul McCartney, who had collaborated with Jackson on songs such as “The Girl Is Mine” and “Say Say Say.”

The Beatles’ songs have long been attractive but expensive to license, with their recordings used sparingly in advertising, film and television. Historically Sony/ATV executives have respected the wishes of McCartney and John Lennon’s widow, Yoko Ono, in licensing uses of the songs they wrote half a century ago.

The first time a Beatles song was used in a commercial was in a 1987 Nike ad. Cirque du Soleil debuted its hit “The Beatles Love” show in Las Vegas in 2006. The songs even formed the basis of the video game “The Beatles: Rock Band.”

The most popular Beatles songs can each generate $300,000 to $400,000 a year in publishing revenue, according to a person with knowledge of the matter.

The Beatles were one of the major holdouts in streaming. Their albums have been available only on Spotify and other services since Christmas Eve.

The proposed Sony/ATV deal is the result of the process that began last fall when Sony triggered a clause in its contract with the Jackson heirs to allow either Sony or the estate to buy out the other partner’s 50% stake. That move led to wide speculation about the future of the joint venture.

The estate of Jackson, run by John Branca and John McClain, had initially hoped to reach a deal to buy out Sony’s stake and had spoken with potential partners, according to people familiar with the negotiations who were not authorized to comment publicly. Warner Music Group approached Sony about the possibility of a deal, and private equity firms attempted to assemble bids.

Ultimately, however, Sony wanted full control, and its offer proved attractive to the estate.

“It is a lot of money,” NYU’s Miller said. “But it’s not like there are assets like this sitting all over the place.”

Times staff writer Randy Lewis contributed to this report.

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