Rumor: Michael Jackson owns the Beatles songs...

Claim: Michael Jackson owns the rights to the Beatles' songs.

This is one of those items which is primarily true, but the answer needs to be heavily qualified in order to avoid being misleading.

First off, when we talk about someone owning the "rights" to songs, what we're discussing are publishing rights. Typically, songwriters assign the publishing rights for their songs to music publishing companies, who perform a number of marketing and promotional services to generate revenue for the songwriters they represent:

Exploitation: One of the more important functions of song publishers is "plugging" songs getting artists interested in recording a songwriter's work. Your song doesn't make any money if nobody uses it, and song plugging was an especially important aspect of the publishing business prior to the 1960s, when many songwriters were not also performers and primarily supplied tunes for other singers.

Licensing: Music publishers also administer the granting and collection of royalties for various types of licenses:

Mechanical licenses: Songwriters receive royalties whenever someone sells recorded versions of their songs. If a songwriter records his own work, he receives royalties from his record label; if someone else records a cover version of his song, the songwriter receives royalties from that artist's record label.

Synchronization licenses: Songwriters receive royalties when their songs are sychronized to visual images, typically for use in films, television programs, and commercials.

Print licenses: Songwriters receive royalties for the sale of their songs in printed form, generally either as sheet music or entries in songbooks. Publishers who wish to quote or include song lyrics in a printed work must also obtain permission (and negotiate fees) with whoever holds the publishing rights to those songs.

Performing rights licenses: Songwriters receive royalties when their songs are performed live for profit or broadcast on the radio, although these licenses are usually administered by performing rights societies such as ASCAP or BMI rather than publishing companies themselves.

The key point here is that holding the publishing rights to songs doesn't really give the rightsholder much "power" over those songs. The rightsholder has some latitude in negotiating royalty rates and determining who may use a song in film or print its lyrics, but that's about it. The chief benefit to owning the publishing rights of songs is that standard publishing agreements call for royalties to be split 50-50 between the publisher and the songwriter(s), so owning the publishing rights to popular songs can be a lucrative form of income.

The Beatles assigned their publishing rights to Northern Songs, a company created by Beatles manager Brian Epstein and music publisher Dick James in 1963. The Beatles (particularly John Lennon and Paul McCartney) were soon earning so much money from songwriting royalties, record sales, concert performances, and merchandise licensing that they were losing over 90% of their income in taxes, and they were advised to find a way of receiving their revenue in the form of capital gains rather than income (the former being taxed at a much lower rate), such as selling their song rights or putting their money into a public company. The Beatles opted for the latter route, and Northern Songs went public on the London Stock Exchange in 1965. Initially, Lennon and McCartney each retained 15% of the shares, George Harrison and Ringo Starr held 1.6% between them, Brian Epstein's NEMS company was assigned 7.5%, and Dick James and Charles Silver (Northern Songs' chairman) retained a total of 37.5%. In 1969, however, the Beatles lost a buyout bid for control of Northern Songs when Dick James and Charles Silver sold their share of the company to Sir Lew Grade, head of Associated Television Corporation

In 1984, ATV's 4,000-song music catalog was put up for sale, and Michael Jackson (who had coincidentally been introduced to the benefits of song ownership by Paul McCartney himself) eventually outbid all other prospective buyers for it, including Paul McCartney, who wanted to buy back the rights to the Beatles' songs but was apparently unable or unwilling to raise enough money to pay for the thousands of other songs in the ATV catalog as well. So, for $47.5 million, Jackson acquired the publishing rights to most of the Beatles songs. (The four songs issued on the Beatles' first two singles "Love Me Do" b/w "P.S. I Love You" and "Please Please Me" b/w "Ask Me Why" were not part of the package since they were published before the formation of Northern Songs, and the rights to those songs are now controlled by McCartney's MPL Communications. ATV also did not own the rights to George Harrison songs published after Harrison's songwriting contract with Northern Songs expired in 1968, but they did hold the rights to various other Lennon-McCartney songs not recorded by the Beatles.)

Another key point here is that although Michael Jackson receives 50% of the royalties generated by Beatles songs by virtue of his ownership of the publishing rights, Paul McCartney and John Lennon (and Lennon's estate, now that he's dead) have always received their 50% songwriter's share of the royalties for all Lennon-McCartney songs. Neither ATV's nor Michael Jackson's acquisition of Northern Songs changed that, and Michael Jackson does not now receive royalties that would otherwise be going to the Beatles had he not acquired the publishing rights to their songs (except that, obviously, if Paul McCartney had managed to outbid Jackson for the publishing rights to the Beatles catalog, he and Lennon's estate would be splitting 100% of the royalties rather than 50%).

As a closing note, we should mention that Sony Corp. paid Michael Jackson $95 million in 1995 to merge ATV with Sony and form Sony/ATV Music Publishing, a 50-50 joint venture, so it's probably more correct to say that Jackson now owns half the rights to the Beatles catalog.

Michael Jackson to lose Beatles catalog?

The cash-strapped pop star on trial for child molestation finds some of his assets threatened.

June 8, 2005: 10:30 AM EDT

By Krysten Crawford, CNN/Money staff writer

Michael Jackson may lose his stake in the lucrative Beatles song catalog, as well as other assets.

NEW YORK (CNN/Money) - Guilty or not guilty, Michael Jackson appears to be sinking deeper and deeper into a financial hole that may cost him his lucrative stake in the Beatles music catalog as well as the rights to his own platinum-selling songs.

At Jackson's child-molestation trial in Central California, now in the hands of a jury, government witnesses testified that the legendary pop star is facing a severe cash crunch. Likely his most valuable asset: the Beatles song rights he bought in the 1980s for about $48 million, now estimated to be worth $400 million or more.

Bank of America, the nation's No. 2 bank, provided further evidence of a financial crisis when it recently sold two Jackson loans valued at $270 million to a private hedge fund, according to people familiar with the transaction.

To secure the Bank of America loans, Jackson offered as collateral his 50 percent stake in a Sony partnership that holds copyrights to more than 200 Beatles songs. The loans were also backed by Jackson's own music library and a partial deed on his Neverland Ranch near Santa Barbara, Calif.

Technically Jackson has defaulted on loan payments, one of the sources said.

Typically, when a debtor defaults or is about to default on a loan, terms are renegotiated. Another option is for the lender to sell the loan -- and the collateral that comes with it -- to another party. Bank of America chose to sell the loans to the hedge fund, New York-based Fortress Investment Group.

Depending on negotiations with Fortress, the risk that Jackson could lose the copyrights to the Beatles songs as well as his own hit recordings is real.

An accountant testifying at Jackson's child molestation trial in early May told jurors that the rock star is in financial straits. Forensic accountant John Duross O'Bryan said Jackson is spending about $20 million to $30 million a year more than he earns.

Jackson, Duross O'Bryan testified, has long-term liabilities of about $415 million. The result is "an ongoing cash crisis," Duross O'Bryan testified.

To fund his lavish lifestyle, Jackson has borrowed against his assets. Duross O'Bryan said that one of the loans that Bank of America sold to Fortress, valued at $200 million, is due to be paid in full in December 2005.

Bank of America declined comment.

Peter Briger, a principal at Fortress, did not return a call seeking comment. The company, according to its Web site, manages $15 billion in assets, a third of which is invested in distressed debts.
A $47.5 million bet pays off

Losing the Beatles rights could put into play one of the world's most valuable song portfolios.

Jackson, 46, acquired the Beatles song catalog in 1985 for $47.5 million, outbidding ex-Beatle Paul McCartney. Jackson then sold a piece of his stake to Sony (Research) a decade later, creating a joint venture called Sony/ATV Music Publishing. The venture is now believed to be worth more than $400 million.

Song catalogs have become hugely lucrative in the last two decades due to the compact disc boom, rising sales of Internet downloads, and movie studios and advertisers willing to pay royalties to use hit songs in film scores and commercials.

Jackson, through Sony/ATV, owns all but a small selection of the Fab Four's compositions, including megahits like "Yesterday," "Let It Be," and "Sgt. Pepper's Lonely Hearts Club Band." He does not, however, own the actual sound recordings; those rights are held by EMI's Capitol Records.

Royalty arrangements can be quite complicated. Basically, Jackson and Sony receive a fee each time one of the Beatles songs is played on the radio or a Beatles album is sold. Industry royalty rates for single-song plays can run under 10 cents, while rights holders typically earn a small percentage on each album sold.

It's hardly chump change: the small amounts add up to millions of dollars in revenues a year.

Another major revenue stream for Jackson is Mijac Music, the copyright holder on all of his hits and other artists' songs. Mijac is thought to be worth roughly $75 million, according to reports.

Despite Jackson's shaky finances, the long-term value of his $475 million worth of song libraries drew Fortress Investment's interest, speculated James Dunn, a vice president at InvestorForce, a Wayne, Penn.-based investment adviser to institutional investors.

"That's clearly the trade they're making" in placing a bet on Jackson's debts.

Hedge funds are increasingly popular, largely unregulated investment vehicles that are designed for wealthy investors looking for big returns on riskier bets. According to InvestorForce, there are more than 4,000 such funds with more than $800 billion in assets. HedgeWeek, an industry trade publication, reported last month that U.S. hedge fund assets recently $1 trillion in the first quarter of 2005.

A small fraction of hedge funds invest in what are known as distressed securities, such as debts like Jackson's.

Jackson was indicted last year on charges he molested a boy, then 13, providing him with alcohol, and then conspiring to hold him and his family hostage after a damaging TV documentary about Jackson and the boy aired.