Larry Mestel, founder and CEO of Primary Wave Music: “Most of our competitors are only interested in a strategy of buying and then quickly reselling”

Eamonn Forde meets… – Every month, the experienced music journalist talks to a high-ranking personality in the industry about the topics that really matter – and seek the opinions of the people who make the decisions.

June 2024: Larry Mestel, founder and CEO of Primary Wave Music. He discusses why buying a catalog is the easy part, what's behind the decline in value of second and third tier catalogs, why buying music rights alone is a non-starter, and what patient investment in underserved rights can really bring.

“The Home Of Legends” – that is how Primary Wave Music, founded in 2006, wants to be understood. It uses the word “iconic” a lot – not about itself, but about the caliber of artists it works with. It is involved in the works of artists such as Bob Marley, Smokey Robinson, Burt Bacharach, Prince, James Brown and Whitney Houston.

The Whitney Houston estate deal is perhaps the best example of how Primary Wave sees itself in a competitive rights-ownership market. In 2019, the company paid $7 million to acquire a 50 percent stake in Whitney Houston's estate, which includes not only her music licenses but also, crucially, her name, image and likeness rights. There has already been a hologram tour and the 2022 biopic I want to dance with someonea Las Vegas slot machine deal is expected to follow later this year.

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According to Larry Mestel, the value of the Houston property rose from $14 million to over $100 million within four years.

“What would you rather do?” he asks someone selling rights at a time of land grabs and exploding multipliers. “Sell to a financial institution at a slightly higher price? Or keep a large portion of the equity and work with us to then achieve an astronomically higher value in the long run?”

Investors miss a trick

Mestel has very precise requirements when he gets involved in catalogues and rights packages. And he has a clear opinion about where other rights investors make mistakes, miss a trick, or both.

Larry Mestel

What he calls “legendary catalogs,” he says, have always been overvalued in terms of valuation because they form their own financial focus. These top catalogs exist outside the vagaries of interest rates and macroeconomic forces. But he thinks less legendary catalogs are currently losing their luster quickly.

“B and C level copyrights have certainly gone down a bit,” he says, believing this is because it is much harder to exploit their full potential. “From a marketing, digital, advertising and branding perspective, you can't do much with lower value songs or copyrights,” he stresses. “They are of course more vulnerable to market changes, interest rates and various other factors.”

Buying rights wholesale is a mistake

For Mestel, buying up rights wholesale is a mistake. He says Primary Wave usually buys 50 or 60 percent of a catalog because they want to work with the actual artist (or their estate) on their plans. “We want the artists as partners,” he says. “That's why it's easier for us to buy than, say, someone like Hipgnosis or Blackstone, who have to overpay because they don't have the infrastructure.”

He says Primary Wave has 95 employees “focused almost exclusively on creating new revenue streams for our artists.” Buying recording or publishing rights should be the starting point here, not the end goal. Primary Wave will want to buy more than just music copyrights so they can use the rights in new ways and across multiple platforms.

“We are one of the few companies that understands what it means to acquire name, image and likeness rights and how to use those rights to actually positively market and exploit the artist’s music and brand as a whole,” he argues.

He lists all the things they were able to do with Whitney Houston's estate – the hologram, the biopic, a Mac Cosmetics line – that were only possible because they invested in all the rights beyond her actual music.

We know how to double assets in a short period of time and quadruple them over a longer period of time.

Larry Mestel

“These are important additions to the property's revenue stream,” he says. “Our competitors have dubbing teams, just like we have a dubbing team, but that's not marketing. Most of the industry handles calls that come in with their dubbing team. Marketing is launching a Mac cosmetics line, or creating a Waterford Crystal line like we did with Luther Vandross, or creating a holiday for Smokey Robinson with American Greetings. That's marketing.”

The biggest problem for catalog buyers who aggressively seek catalogs, Mestel says, is that due diligence happens after the checkbook war, not before. As a result, deals stall, take too long to close, or fail due to inertia.

“We have fulfilled 100% of all the binding letters of intent we have signed,” he says. “Unlike our competitors, whose names I won't mention here, most of them start negotiating price when they sign a letter of intent. We do due diligence up front, so the artist and the lawyers know that when we sign a letter of intent, we close the deal. And we always close. That's the difference.”

Buy older music that lasts

True to its mantra of “The Home Of Legends,” Primary Wave isn't interested in new music. It only wants music that's 20 years old or older (“That's usually our sweet spot”) because it has a proven record of staying power. Within that framework, the company is looking for a high-quality catalog that has been undervalued or left to decay by its owners.

“I'll give you a perfect example,” says Mestel. “We just closed the catalog of Neil Sedaka. One of the greatest songwriters of all time – 'Laughter In The Rain' and 'Love Will Keep Us Together' and all these great, great songs. But he hasn't gotten the attention he deserves in the last few decades. So he's the perfect type of artist for us.”

He also cites the Sun Records catalog, which Primary Wave purchased in early 2021. He says the open target was the fact that around 40% of the label's catalog had never been digitized.

“We were able to look at different platforms – technology platforms, social media platforms,” ​​he says. “Digital to me doesn't just mean streaming. Digital is the whole universe of possibilities, from social media to technology platforms that use music.”

His other major criticism of aggressive rights appropriation is that, in his view, it is wrongly designed for the short term.

“Most of our competitors are interested in generating management fees, and they're interested in a buy-and-sell strategy,” he says. “We're in the long-term management and long-term brand building of these assets. When you're in the long-term business, you have to build an infrastructure to support it. […] I don’t think many of our competitors have the resources to get into the marketing, branding and digital strategy business because they simply lack the long-term horizon.”

There is an impatience and reluctance to invest among competitors that prevents them from taking advantage of the assets they are actually buying. He says it took four years to bring the Whitney Houston biopic to the screen and five years to open the Bob Marley Hope Road experience in Las Vegas.

“These are not the right assets to invest in in the short term,” he explains. “Our partners know that it takes years to develop these things and generate these phenomenal additional revenue streams. […] We pay a very high price for these assets. We just know how to double these assets in a short period of time and then triple or quadruple them over a longer period of time.”

Truly iconic catalogues are becoming increasingly difficult to obtain: most have already been sold, while the rest will probably never be. However, undervalued and underused catalogues are everywhere. Whether they can be revived is another question entirely. Lazarus doesn't come back to life every time.