Michael Jackson’s Estate: Saved by the Beatles

Michael Jacksons Estate: Saved by the Beatles

Will Michael Jacksons’ three children, Michael Joseph Jr., Paris
Michael and Prince Michael II, end up paupers? The answer rests on the value
of the performer’s largest asset: his 50% stake of a music publishing
company called Sony/ATV Music Publishing.

Jackson, who died on June 25, left behind as much as $500 million
of debts. That includes a $315 million loan owed to British bank Barclays,
as well as millions of dollars of bills. “Jackson never paid his bills,”
says a lawyer who did work for Jackson over the years. “Countless
professionals who worked for him are still waiting to get paid.” In May, the
singer’s long-time publicist Raymone Bain sued Jackson for $44 million in
unpaid fees. See the last photos of Michael Jackson.
But whether those debts will mean Jackson died bankrupt depends heavily on
the worth of Sony/ATV. Jackson had other assets, including rights to many of
his own songs, as well as about 1,000 hours of rehearsal footage leading up
to this summer’s London concert tour and possibly about a hundred unreleased
songs. But none of those assets are likely to be nearly as valuable as his
stake in Sony/ATV, which has been valued at anywhere from $390 million to $1
Jackson’s 1985 purchase of ATV Music, which included in its catalog
about 250 Beatles tunes, for $47.5 million formed the basis of his stake in
the music publishing business, and was by far his shrewdest music deal. Yoko
Ono, John Lennon’s widow, and Paul McCartney had considered bidding a
combined $20 million for the collection, but Ono decided that was more than
the collection was worth. Jackson’s purchase price of more than double that
is still far less than what the songs would sell for now.
In 1995, Jackson agreed to merge ATV with Sony’s music publishing business.
The Japanese corporation paid Jackson $150 million to complete the deal, and
split the ownership of the new company with the performer 50-50. In March
2007, an audit of Jackson’s finances valued his half of Sony/ATV at $390
But, just two years later, it is likely that Jackson’s stake in Sony/ATV is
worth much more than that. First of all, music publishing has not been hit
nearly as bad by the shift to music downloads and away from compact discs as
much as the rest of the industry. Unlike a record label, a music publisher
does not only get paid when an album or other original recording of a song
is sold. Publishers retain the rights to a song and get paid every time it
is performed or appears in a movie or advertisement by the original artist
or any other. “I have talked to a number of music publishers who tell me
last year was their best year in a while,” says Susan Butler, a former music
industry lawyer who now writes a newsletter Music Confidential. “Guitar Hero
and other games have created a lot of opportunity for the publishers.”
What’s more, in early 2007, Sony recruited industry veteran Martin Bandier,
who turned rival EMI into a publishing powerhouse, to lead the unit. The
hire seems to have paid off. Bandier has reenergized Sony’s publishing
company, completing a number of acquisitions and landing some popular new
acts, including former American Idol contestant Elliott Yamin and rising
music star Lady Gaga. Along with the Beatles, Neil Diamond and Bob Dylan,
the company’s 750,000-song catalog now includes the Jonas Brothers, Ruben
Studdard and Taylor Swift. In the first quarter of this year, Sony/ATV
ranked as the second largest music publisher in the U.S., with just under 20%
of the market, up from a rank of fifth three years ago. Its Lady Gaga hit
“Just Dance” was the best selling song in the first three months of the year.
The result: Industry sources estimate Sony/ATV’s revenue has grown more than
60% in the past two years to an annual $500 million. Net publisher’s share,
a closely watched figure in the industry, which is sales minus payments to
artists, has doubled to an estimated $200 million. “The music publishing
business is ripe with opportunities, and we are continuing to grow our
business,” says Bandier.
What does that mean Sony/ATV is worth In a recent financial filing, Sony
said the division had $1.3 billion in assets, and $479 million in debt. That
would give the division a net value of about $850 million. But it would be
likely to fetch much more than that in a sale. When Universal Music bought
BMG Music Publishing in September 2006, Universal paid $2.1 billion or
nearly 12 times BMG’s estimated net publisher’s share. Sony/ATV probably
wouldn’t get the same multiple in today’s market. But even at 10 times its
current publisher’s earnings the company would be worth $2 billion.
Jackson, though, might not be able to sell his interest in Sony/ATV for its
full $1 billion value. In 2006, as part of a deal to restructure his
mounting debts, he gave Sony/ATV an option to buy half of his holdings in
the company at a later date. Sony will not disclose the terms of that deal,
but it probably limits what the Japanese company would have to pay Jackson
for half of his Sony/ATV stake.
Still, the quarter of the publishing business that Jackson does own outright
would be enough to clear out his debts. And Sony would still have to pay
many millions for the rest, even with the option. The bottom line: Michael
Jackson’s estate is probably more than solvent. “People are focused on the
amount of money Michael owed, but you have to look at the assets, too,” says
Ivan Thornton, who worked as financial advisor to Jackson on and off for the
past decade. “He’s in debt, but he is certainly not bankrupt.”

See the top 10 Michael Jackson moments.

See the top 10 Michael Jackson songs.