Buying neighbouring rights: asset or burden?

More and more, investors in music rights are including royalty streams in their acquisitions, a tendency not exactly embraced by record companies and music publishers. Earlier this year Universal said it is no longer accepting Letters of Direction redirecting artist and writer royalties to investors. Definitely a bummer for music investment funds.

When it comes to the acquisition of neighboring rights royalties there are some additional elements to consider. Most jurisdictions outside the US do not accept an outright sale of neighbouring rights royalties, let alone a sale of the underlying rights. In most countries artists’ neighboring rights are seen as unalienable, unwaivable rights personal to the artist.

Now, in practice catalog buyers deal with this by simply leaving the artist’s existing membership(s) in place and imposing a continuous obligation for the artist to sign certain forms (such as a letter of direction) as and when needed. However, the situation changes once the artist dies, because then the relevant collecting society will want to ascertain who the rightful heirs are.

Artist’s neighbouring rights

In some jurisdictions the verdict will be that the sale of an artist’s neighbouring rights must be considered null and void, and as a consequence such rights will fall into the artist’s estate. In that case the relevant collecting society will want to see the artist’s last will and testament or (if s/he died intestate) a probate outlining who should represent the estate towards the collecting society.

Although in most cases this can still be fixed, anyone having dealt with an estate’s neighboring rights vis-à-vis a collecting society knows it’s a big, big hassle.