The Sale Of Bob Dylan’s Music Catalogue Is “A Striking Representation” Of The Impact Of COVID-19 On The Economy

By Bas van Geffen, quantitative analyst at Rabobank

It isn’t often the case that news is interesting to both financial media and music-related magazines, but the recent news that Bob Dylan sold his music catalogue to Universal Music managed to bridge both of these worlds. And Mr. Dylan isn’t the exception. Several artists and bands have recently sold the rights to their works. There are plenty of interesting questions that follow from this new phenomenon, like how to value a collection of songs and which collections will hold their value better than others? The Wall Street Journal reported that recent sale prices equated to 10-18 times the annual royalties; how does that stack up to, say, the S&P 500’s P/E ratio of nearly 29?

But such questions about the intrinsic value of music is not why I’m referring to these record (pun intended) deals. This trend is a telling parallel of the broader dynamics in the pandemic-stricken world. On part of the artists, motivation can perhaps be found in the lack of other income streams this year, as Covid-19 has eliminated the possibility of filling up arenas and playing festivals. And the low interest rate environment (aside from a low discount rate implying high NPV) is arguably fuelling this from the side of investors, who are hunting for some return in an environment of persistently low interest rates, and where prices of other assets have already been bid up – equities are near their highs, credit spreads are compressed and even Bitcoin is back at record highs, all helped by central bank liquidity. Gold has been the most obvious laggard in recent months, as a result of the positive news about various vaccines – but at least the metal can always still be used to award singers with new gold records.

It is also a striking representation of the uneven impact of Covid-19 on the economy. While the popular artists and those that have been around for decades are able to command high prices for their royalties, bands and artists that are just starting off do not have that same luxury. Similar disparities are clearly present when looking across the entire value chain: the artists are still making and selling music, but such substitution of income is much harder for anyone else working in a business related to the organization of live shows.

A similar dichotomy between sectors has been visible for some months now, with services –and particularly hospitality-related trades– faring much worse under the virus containment measures than manufacturing, where work has largely been able to cope with social distancing. Like a broken record, that message of diverging fortunes will probably be repeated once more in today’s preliminary Eurozone PMI results. The extent to which especially the fortunes of the services sector remain tied to social distancing requirements was clearly visible in the French PMI release, where services recovered 49.2 from November’s 38.8, when services were hit hard by new containment measures. Although these restrictions remain in place, they haven’t worsened and businesses are now trying to look ahead to 2021. But clearly, a gap between services –still in contraction– and manufacturing remains.

That picture was only stronger in the German PMIs released just now. While the services PMI (47.7) remains below the neutral level, manufacturing rose to 58.6. Crucially, though, these data were collected between 4 and 15 December, and therefore do not yet include the full impact of the new restrictions that were announced in Germany earlier this week. Again, this will probably hit services the hardest, but it could also put a dent in the manufacturing index when the final numbers for December are released.

The Markit PMIs for the US will probably signal that the US recovery is also losing traction. Yesterday’s Empire State Manufacturing Survey was still modestly positive, at 4.9, but the optimism of manufacturer’s in the state of New York about the general business conditions has been getting less pronounced with every survey conducted since the start of Q3. And that was, again, before New York also warned of a potential new lockdown or other containment measures, which undoubtedly would further stifle the recovery.