Universal Music Vault Fire Story May Change The Company's Valuation

Last week a bombshell of a story from New York Times contributor Jody Rosen revealed that a 2008 media storage vault fire on the Universal Studios Hollywood lot resulted in well over 100,000 music master tapes being lost forever. This included music from some of the greatest artists of all time across all modern eras, ranging from Duke Ellington and Count Basie to Chuck Berry and Ray Charles to Elton John, Steely Dan, Nirvana and hundreds, maybe even thousands, more. No on knows for sure what was lost, and that's a big problem as Universal Music tries to sell 50% of itself.

The numbers of lost tapes vary between 100,000 and 500,000 depending upon the news story that you read but the fact of the matter is that these are the original tapes of some of music's finest moments that we know of, and many that we don't. There's been a lot of value lost, perhaps more than has been revealed to this point, if you count the reaction of artists and managers as an indicator.

Valuation

For Universal Music, the story couldn't have come at a worse time. Figuring that music is ascendent thanks to the upsurge in streaming revenue, French parent Vivendi SA has decided to place 50% of the company up for sale with a valuation of around $30 billion. There have been fewer interested suitors than anticipated according to insider accounts, and the negotiations have gone slowly. You can pretty much figure that they've since ground to a halt thanks to the current uproar.

The problem for Universal that so much of its valuation comes not only from its music publishing, which remains unaffected, but from its music catalog. And that's where the lost master tapes come in.

What Is A Master?

There are actually three types of masters and they're all involved in this story. The first is the original one or two track masters either made live directly from an artist's performance (as in the early days of recording in the 1950s or a concert recording), or mixed down from the various tracks of a multitrack master. The original two track stereo masters are the highest quality of that recording that's available.

The 1 and 2 inch multitrack tapes contain anywhere from 3 track (think Frank Sinatra) to 4 track and 8 track (think The Beatles) to 16, 24 and 48 track (think Steely Dan). If these are lost, a huge potential opportunity goes with them, as new alternate mixes or remixes can't be done. Plus, future technologies may make use of the multitracks in ways that we can't yet conceive, as what happened in the case of the hugely popular Rock Band game a few years ago. In other words, there are revenue sources that present themselves down the road that aren't there when the music is originally made, but many of those opportunities are gone when the multitracks are gone.

Safety Is The Spin

The final type of master, and the one not talked about in most articles that I've read, is what's known as a safety master. These are copies of the original master made back in the days of vinyl and CDs mostly out of necessity.

If a record label wanted an affiliate in another country to sell an artist's product, it was impractical to make a million copies (for a hot artist) and ship them to that country. Instead a safety master copy was made and shipped to the distributor in the territory, who then pressed the vinyl albums or CDs locally. This was cheaper and faster.

It also means that there are dozens of safety masters out there for most of the big hits from the 60s through the 90s (everything went digital in the early 2000s - another potential horror story for another post). This has also been Universal's ace in the hole.

Back in 2008 shortly after the fire occurred and again this week after the New York Times story, Universal Music has issued statements about how there were backups for everything that was lost and how the company has been reissuing its back catalog for years like nothing bad ever happened. They're absolutely right in a way, but chances are those backups and rereleases they're referring to are coming from the safety masters and not the original master tapes.

You've probably been listening to the result of them for many years now and haven't taken any notice. That's because if the safety master was made with care, it sounds pretty close to the original, but there is still a natural sonic degradation that takes place with each successive copy.

How Much Value Do Outtakes Have?

It may be all well and good that at least some form of the original hit songs are available, but that doesn't tell the whole story.

Safety masters were only made of final mixes for a single or album, but not the outtakes, alternative mixes, different song versions, or recordings of a song in development. There's interest in all of these, especially in the case of a major artist, and they can result in releases decades beyond the career and even life of an artist - additional revenue down the road. The fact that we'll never hear these outtakes is the shame of losing those tapes in the fire. This is the lost opportunity cost, not only from an historical standpoint, but from a revenue one.

So how much of a hit will Universal Music's valuation take? Unknown, but it will take some just from the standpoint of the economic loss involved from the loss that's just come to light. The artist's lawsuits that will surely follow now, and will be partially assumed by the new co-owners, will also take a toll.

And even with the excellent and most in-depth article by Jody Rosen, there's still so much that hasn't been revealed yet. Is there a full accounting of exactly what was lost? What was backed up or has safety masters? What will we never hear again from Muddy Waters, Howlin’ Wolf, Willie Dixon, Bo Diddley, Etta James, John Lee Hooker, Buddy Guy, Little Walter, Muddy Waters, Howlin’ Wolf, Willie Dixon, Bo Diddley, Etta James, John Lee Hooker, Buddy Guy and Little Walter, Benny Goodman, Cab Calloway, the Andrews Sisters, the Ink Spots, the Mills Brothers, Lionel Hampton, Ray Charles, Sister Rosetta Tharpe, Clara Ward, Sammy Davis Jr., Les Paul, Fats Domino, Big Mama Thornton, Burl Ives, the Weavers, Kitty Wells, Ernest Tubb, Lefty Frizzell, Loretta Lynn, George Jones, Merle Haggard, Bobby (Blue) Bland, B.B. King, Ike Turner, the Four Tops, Quincy Jones, Burt Bacharach, Joan Baez, Neil Diamond, Sonny and Cher, the Mamas and the Papas, Joni Mitchell, Captain Beefheart, Cat Stevens, the Carpenters, Gladys Knight and the Pips, Al Green, the Flying Burrito Brothers, Elton John, Lynyrd Skynyrd, Eric Clapton, Jimmy Buffett, the Eagles, Don Henley, Aerosmith, Steely Dan, Iggy Pop, Rufus and Chaka Khan, Barry White, Patti LaBelle, Yoko Ono, Tom Petty and the Heartbreakers, the Police, Sting, George Strait, Steve Earle, R.E.M., Janet Jackson, Eric B. and Rakim, New Edition, Bobby Brown, Guns N’ Roses, Queen Latifah, Mary J. Blige, Sonic Youth, No Doubt, Nine Inch Nails, Snoop Dogg, Nirvana, Soundgarden, Hole, Beck, Sheryl Crow, Tupac Shakur, Eminem, 50 Cent and the Roots?

The first shame is in losing it all. The second is in not knowing the details.