Taylor Swift, intellectual property law, and due dilligence disasters

In 2005, 13-year-old aspiring country singer Taylor Swift signed a record deal with 0-year-old aspiring label Big Machine Records.

Under this 2005 agreement, Swift conveyed the ownership rights for the recordings of her (yet-to-be-produced) first six albums to Big Machine.

Swift produced these six albums between 2006 and 2017. The albums were wildly successful; Swift and Big Machine prospered together.

At the conclusion of this six-album deal, Swift and Big Machine negotiated briefly but failed to establish a new deal for additional records.

A rumored stumbling point in negotiations: Swift wanted to reacquire ownership of her six-album back catalog.

In 2019, Swift signed a new deal to release her future albums through Republic Records, leaving Big Machine in her rear view mirror.

Big Machine was a small label. Swift had been a v big fish in their small pond.

Big Machine still owned Swift's first six album recordings in perpetuity, but without an ongoing deal with Swift, Big Machine was a small firm with a yuge mostly-passive asset on its balance sheet.

In 2019, Big Machine Records was acquired by Ithaca Holdings, which is helmed by Scooter Braun, a music industry businessman.

Financial backing for this transaction was provided by the Carlyle Group, a private equity firm. The acquisition price was a reported $300 million.

I'm not sure how much of this $300 million valuation can be attributed to the recording rights for Swift's first six albums. I've seen estimates in the $100m-$200m range; this seems plausible.

(for comparison, the Beatles' recording rights are valued in the low ten figures.)

I'd love to know how the Carlyle Group thought about this transaction. What was their due diligence process? What risks did they identify w/r/t the value of the recordings of Swift's back catalog?

Whatever their dd was, I suspect they were surprised by what happened next.

Swift immediately condemned the deal, suggesting that Big Machine's management had cruelly denied her the opportunity to reacquire her own back catalog.

I think unhappy words from the artist are par for the course in a situation like this. But Swift ventured further and began doing real damage: She began to block all use of her back catalog in films and commercials.

But wait - if she doesn't own her old records, how can she block their use? Here's how:

In order to use a recorded song in a film, a filmmaker must acquire two different kinds of licenses.

First, a filmmaker must obtain a license to synchronize the song with visual imagery in the film - a "sync license".

A sync license is not for a particular recording, but for the abstract idea of the song itself.

A filmmaker needs a sync license even if the film isn't using a preexisting recording. A character in the film picks up a guitar and plays and sings a song themselves? Gotta get a sync license to put that song in the film.

Second, if a filmmaker wishes to use an existing recording of the song for which they have obtained sync rights, the filmmaker must obtain a "master use license" from the owner of the master/recording.

Master use rights originate with recording artists. Big Machine acquired Swift's rights as a recording artist, so they can grant master use licenses.

However, sync rights originate with songwriters, NOT recording artists.

So here's the big uh-oh for the Carlyle Group:

Who is a songwriter on every song in Swift's first six albums?

Yep, that's right: Taylor Swift. She doesn't own her old recordings, but she owns the abstract songs. And she has adopted a policy of saying "no" to all requests for sync licenses.

So - Swift has already inflicted notable economic damage on the owners of her old records.

But she's going even further:

Today, she released a completely new re-recording of her 2008 album "Fearless". https://open.spotify.com/album/4hDok0OAJd57SGIT8xuWJH

She can do this without Big Machine's consent b/c she owns the rights to the abstract songs. And the new recordings of the old songs are being released by Republic Records under a deal in which she retains ultimate ownership of the new recordings.

(As a sidenote, the new version of the album is excellent. It preserves the spirit of the original, but offers a more mature and refined vocal performance by Swift. And the post-loudness-war mastering of the new version is MUCH improved.)

Now Swift owns a recording of the Fearless album. When licensors come calling, she can offer both a sync license and a master use license for her new recording, cutting Big Machine out of the deal completely.

I can't help but ask myself - would someone *really* pay nine figures for a top tier artist's back catalog without wargaming this stuff out?

But wait -- it might get even worse.

We've talked about how two licenses are required for use of a recording in a film. It's true elsewhere, too.

When a song is made available on iTunes or Spotify, rights must be obtained (and royalties must flow) for both the songwriter and the record owner.

(a song license for film is called a "sync license", but a song license for vinyl, CD, or for spotify is called a "mechanical license", because reasons)

Now that Taylor has released a new version of Fearless, might she start refusing mechanical license rights for the public sale of the old version of the album, effectively removing it from the market completely?

I see no reason she *can't* do this.

If Swift re-records all her old albums and exercises her songwriter rights to effectively remove the old versions from the market, that means someone's 9-figure investment in her back catalog is completely fucked.

And I just wanna know - what the hell happened here?

It looks like the buyers failed to realize that their financial asset existed only at Swift's pleasure, so now she's exploiting their miscalculation, destroying the asset for fun and profit.

I can't help but root for her.

@ByrneHobart