In 2010, former hedge fund manager Josh Gruss founded the music publishing company Round Hill Music in New York City together with Neil Gillis and Richard Rowe with the aim of acquiring and commercially exploiting music copyrights. How Round Hill Music has become a major player in the music rights market that has raised hundreds of millions of dollars over the past decade through investment funds to acquire music rights is now presented in more detail in this blog entry of the series “Music as an Investment”.
Music as an Investment – part 4: Round Hill Music
Round Hill’s first deal was a traditional acquisition of a music publisher. In January 2011, Round Hill bought the publishing house ADAGE V, which owned song rights of Wilson Pickett, Tina Turner, Cannonball Adderley and Joe Zawinul, among others.[1] In the same year, Round Hill acquired shares in the songs of composer Gerald Marks, recorded by Frank Sinatra, Ella Fitzgerald and Louis Armstrong,[2] the publishing catalogue of songwriter and music producer Charlie Midnight, who wrote hits for Britney Spears, Christina Aguilera, James Brown and Joe Cocker, among others, and the publishing catalogue of Swedish songwriter Andreas Carlsson.[3]
Round Hill entered the music rights investment business with the establishment of the Music Royalty Fund I, in which private and institutional investors could invest in music rights catalogues. The fund successfully collected US$ 200 million.[4] At the end of 2011, the fund acquired the GIL Music and George Pincus & Sons catalogues, which also include the North American rights to six early Beatles songs.[5]
From 2012 to 2016, Round Hill acquired other catalogues, including Arthouse Entertainment, which featured hits by Bruno Mars, Flo Rida, Carrie Underwood, Snoop Dogg, Wiz Khalifa and Kelly Clarkson,[6] and the song catalogue of Marti Frederiksen, who co-authored songs by Aerosmith, Foreigner, Mötley Crüe and the Rascal Flatts, among others.[7] Round Hill landed , however, the biggest fish in October 2016 when it bought into the publishing catalogue of songwriter Dallas Davidson, who has penned more than twenty Billboard Number 1 hits for country & western acts including Luke Bryan, Lady Antebellum and Jason Aldean. With this, Round Hill also bought into the artist’s music publishing company, Play It Again Publishing, for a long-term collaboration.[8]
Figure 1: Catalogue acquisitions by Round Hill Music, 2012 to 2016
Source: Press releases from Round Hill Music, 2011-2016 (accessed 26.06.2023.)
Round Hill became a big player in the music rights business in 2017, when it bought the music publisher Carlin America for US $250 million. With this acquisition, the publishing catalogue grew by more than 100,000 copyrights, including songs made famous by Elvis Presley, AC/DC, James Brown and Billie Holliday.[9] Months earlier, Round Hill had entered the master rights business by acquiring the entire recording catalogue of the Canadian rock band Triumph, as well as some of the master rights of the band TESLA, whose music publishing rights Round Hill had already acquired in 2014.[10] The acquisition of the music production company Zync Music, which licenses music for TV and cinema films, commercials, trailers and games, rounded off the round of acquisitions in 2017.[11]
These investments were partly financed by the Music Royalty Fund I, which was exhausted by the end of 2017. Round Hill therefore had to launch a second fund in December 2017, which raised US $263 million in additional venture capital in a very short time.[12] With fresh capital, it was possible to finance earlier investments on the one hand, but also to make new acquisitions on the other. For example, the publishing catalogue of country & western songwriter Ashley Gorley and the song catalogue of singer/songwriter Ronnie James Dio, who wrote hits for Black Sabbath, were purchased.[13] In August 2018, the fund also acquired the publishing catalogue of singer/songwriter Eric Carmen, whose songs have been recorded by Frank Sinatra, Celine Dion, Diana Ross and Mötley Crüe, among others.[14]
In autumn 2020, Round Hill made headlines by announcing its intention to float on the London Stock Exchange on 13 November 2020 with the Guernsey-registered Round Hill Music Royalty Fund Ltd. The aim of the IPO was to raise capital for the buyback of the rights from the Music Royalty Fund I, which had been launched in 2012. The music rights catalogue of around 120,000 songs was originally acquired for a total of US $202 million, which has now been valued at US $365 million. This was to pay off the private fund investors. However, the IPO on 13 November 2020 fell far short of the target value of US $375 million stated in the investor prospectus, as only shares worth the equivalent of US $282 million were subscribed.[15] Although the company succeeded in placing additional shares with an value of US $46.6 million on the stock exchange in December, a financing gap remained.[16] This is all the more remarkable as Round Hill founder and CEO, Josh Gruss, subscribed for a total of 10 million shares at a value of US $1 per share and bought additional ordinary shares for US $2 million at the beginning of June 2021 (Round Hill 2022: 2). Nevertheless, it was necessary for Round Hill Music Royalty Fund Ltd. to issue preference shares (C-shares) in July 2021 in a volume of US $86.5 million, which were converted into ordinary shares in April 2022 (ibid.: 3).
In addition, Round Hill launched a third private investment fund – Music Royalty Fund III – at the end of 2020, which raised US $291 million, of which US $200 million had already been allocated for rights acquisitions from Black Sabbath, Craig David, KISS, Limp Bizkit and Bruno Mars, among others.[17]
Therefore, sufficient liquid funds were available to buy back the music rights catalogue of the Music Royalty Fund I, whereby shares of the music publisher Carlin America, acquired in 2017, were excluded from the buyback. Round Hill Music Royalty Fund Ltd. paid US $281.9 million for the rights from Fund I early in February 2021 and was able to acquire a 29.14 per cent share in Carlin America in April of the same year (ibid.). However, the majority share in Carlin of 70.86 per cent remained in the private Music Royalty Fund II (ibid.: 19). In addition to the capital increase, Round Hill’s listed company was also granted a credit line of US $82 million, which was increased to US $110 million in 2022 (ibid.: 30). At the end of 2021, Round Hill Ltd. had cash and cash equivalents of US $82 million, which was offset by debts of US $60 million (ibid.).
With these funds, Round Hill Music Royalty Fund Ltd. was able to acquire a share in the publishing catalogue of the YES guitarist and songwriter, Trevor Rabin, but mainly bought master rights e.g. recordings by the O’Jays, the rock band Foreigner, the reggae band Rebelution and the producers Jack and Garth Richardson. This expanded the portfolio to 48 music catalogues with 122,000 songs (ibid.: 13). At the beginning of 2022, Round Hill purchased the publishing rights to 94 compositions and the master rights to 159 recordings by the US rock band Alice in Chains as well as the publishing and master catalogue of the British-American rock singer and songwriter David Coverdale (ibid.: 3). A total of US $400 million was spent on rights acquisition by Round Hill Music Royalty Fund Ltd in 2021 and a further US $94.6 million by the 2022 reporting date (ibid.: 6).
This does not include the private funds – Music Royalty Fund I & II – which are not part of the listed company. If all private funds and the public company are added up, Round Hill has been able to raise around US $1.08 billion in capital for the purchase of music rights since 2021 (fig. 2), whereby the capital investments in Music Royalty Fund I were refunded via the IPO at the end of 2020.
Figure 2: Round Hill Music fund capital for the acquisition of music rights, 2012 to 2020
As there is no publicly available data on the financial performance of the two private funds, a conclusive economic analysis can only be made for the listed Round Hill Music Royalty Fund Ltd. The 2022 Annual Report indicates that the music catalogue (excluding Carlin America) had a net book value of US $381.3 at the end of the financial year, which was estimated to have a current fair value of US $531.2 million (Round Hill Music Royalty Fund Ltd. 2023: 86). Based on this market value, the catalogue consists of 56 per cent rock music, 18 per cent pop music, 11 per cent country music, 5 per cent R&B music and 10 per cent other genres (ibid.: 18).
Since the company’s value is based almost exclusively on the value of the music catalogue, income and expenses depend on the economic exploitation of the catalogue. In the financial year 2022 Round Hill Music Royalty Fund Ltd. (2023: 89) earned an operative income of US $36.7 million, which is an increase of 23 per cent compared to 2021. 68.9 per cent of the operative income is attributable to the music publishing segment and 31.1 per cent to the label business (ibid.: 16). In the music publishing segment a revenue of US $10.6 million (44 per cent) was collected from the exploitation of performing rights. Further US $6.5 million (27 per cent) came from the exploitation of sychronisation rights. US $4.6 million (19 per cent) was streaming income. US $2.2 million (9 per cent) was mechanical revenue and the rest of US $0.2 million (1 per cent) was other income (ibid.: 17). In the label segment, Round Hill Music earned US $11.1 million (88 per cent) with physical and digital sales, US $1.4 million (11 per cent) from the exploitation of neighbouring rights and US $0.1 million (1 per cent) from other income sources (ibid.).
Figure 3: Music publishing and label segment revenue by income type, 2021 and 2022
Source: Annual reports of Round Hill Music Royalty Fund Ltd. for 2021 and 2022
It is striking that across all rights, by far the most revenue (69 per cent) was generated with songs written before 2000, with the 1960s once again standing out with a share of 24 per cent. Younger repertoire generated less revenue because, on the one hand, it is also underrepresented in the catalogue and, on the other hand, it is not in such high demand. Songs from the 2010s are the most likely to be marketed, accounting for an income share of 19 per cent in 2021 (fig. 3).
Figure 4: Revenue split by age of repertoire
Source: Annual report of Round Hill Music Royalty Fund Ltd. 2022, p 20
In addition, the listed Round Hill company received around US $4.5 million in payments from the music publisher Carlin (RH Carlin Holdings LLC), in which it has a stake of around 29 per cent. The rest of 71 per cent owns the private Round Hill Music Royalty Fund II (ibid.: 33). If you deduct royalty expenses and investment expenses and if you add fair value gains, this results in a net income of US $34.9 million (ibid.: 72).
Round Hill Music Royalty Fund Ltd. had at the same time expenses of US $29.7 milllion, which comprises of US $17.7 million (60 per cent) in amortisation of the music catalogues (ibid.). In addition, the investment manager, which is the Round Hill founder Josh Gruss, received US $6.8 million (23 per cent) for the selection, acquisition and administration of the music catalogues. The rest of 17 per cent of the expenses were administrative, legal and auditing fees (ibid.). A comparison of revenues and expenses resulted in an operating profit before finance and tax of US $5.2 million.
Conclusion
Round Hill Music is one of those companies that have turned music into an asset that can be invested in with corresponding return expectations. Round Hill founder and CEO Josh Gruss makes no secret of this fact, as can be read in an interview with Tim Ingham from Music Business Worldwide on 22 October 2020.: “Our investors want predictable cash flow, and that means proven music catalog.”[18] In order to generate the expected returns of investment, it needs hit repertoire and there is little room for artist development, as Gruss explains in the same interview: ” (…) the amount of capital that we’ve invested in [frontline signings] has never exceeded more than 5% of any of our funds. Do the math on that, and you can work out that we’ve not spent more than $10m or $20m of investment from each fund on [frontline signings]. That’s compared to the hundreds of millions spent by the majors on their A&R budgets.”[19]
The emphasis on spending no more than 5 per cent of the available fund capital on A&R is mainly to reassure investors that the risk of signings not paying off is limited. In this way, Round Hill differs from a classical music publisher, which also has the task of discovering new artists and developing new repertoire. Seen in this light, Round Hill is a music publisher, but it acts like an investment fund speculating with music rights.
This was particularly visible in the IPO of Round Hill Music Royalty Fund Ltd, whose aim was to buy back the music catalogue of Hill Music Royalty Fund I to pay off investors. This goal could only be achieved with delay and then not completely. Instead of the expected US $375 million, the share issue only raised US $282 million. A second issue then raised an additional US $46.1 million, which is still US $36.9 million below the estimated catalogue value. This financial gap had to be filled by issuing preference shares (C-shares) and by a credit line. Assuming the original investment of US $202 million in 2012, a repayment to investors of US $282 million results in a return of just under 5 percent. If the stock market environment had been worse or if the value of the catalogue had not developed so well, the return would have quickly vanished into thin air.
As successful as Round Hill has been in raising capital to buy music rights over the past decade, the company’s rocky IPO should make us think. In the current times of multiple crises with a poor stock market environment and high inflation, it is no longer so easy to get enough investor capital to buy music rights if the returns are not satisfying. Then a boom can very quickly turn into a bubble that threatens to burst, especially when one considers that the risk capital of the two private investment funds – Music Royalty Fund I & II – must also be paid back at some point with a corresponding return.
Other blog posts on “Music as an Investment”
Sources
Round Hill Music Royalty Fund Ltd., 2021, Annual Report 2021 for the period from 5 August 2020 to 31 December 2021.
Round Hill Music Royalty Fund Ltd., 2022, Annual Report 2022 for the financial year ending December 31, 2022.
Endnotes
[1] Round Hill Music press release, “RHM Acquires The Adage V Catalog“, January 28, 2011, accessed 26.06.2023.
[2] Round Hill Music press release, “RHM Acquires the Catalog of the American Songbook Writer Gerald Marks“, May 23, 2011, accessed 26.06.2023.
[3] Round Hill Music press release, “RHM Acquires The Catalog of the Hit Maker Andreas Carlsson“, September 22, 2011, accessed 26.06.2023.
[4] Music Business Worldwide, “Round Hill Music“, n.d., accessed 26.06.2023.
[5] Round Hill Music press release, “RHM Acquires Rights In Six Early Beatles Songs Along With The Entire GIL Music and George Pincus and Sons Music Catalogs“, December 31, 2011, accessed 26.06.2023.
[6] Round Hill Music press release, “RHM Acquires the Hits of Arthouse Entertainment“, September 18, 2012, accessed 26.06.2023.
[7] Round Hill Music press release, “RHM Acquires the Songs of Marti Frederiksen“, December 30, 2012, accessed 26.06.2023.
[8] Music Business Worldwide, “Round Hill Music acquires chunk of Dallas Davidson’s hit-filled catalogue“, October 21, 2016, accessed 26.06.2023.
[9] Music Business Worldwide, “Carlin America to be sold in near-$250m deal to Round Hill Music“, September 23, 2017, accessed 26.06.2023.
[10] Music Business Worldwide, “Round Hill Music acquires Triumph, Warrant and Tesla copyrights“, June 12, 2017, accessed 26.06.2023.
[11] Music Business Worldwide, “Round Hill buys chunk of sync agency Zync Music, launches partnership“, November 9, 2017, accessed 26.06.2023.
[12] Music Business Worldwide, “Round Hill raises $263m for more acquisitions“, January 16, 2018, accessed 26.06.2023.
[13] Music Business Worldwide, “After spending nearly $250m on Carlin, Round Hill Music is hungry for more“, March 21, 2018, accessed 26.06.2023.
[14] Music Business Worldwide, “Round Hill acquires Eric Carmen catalog, including ‘All By Myself’“, August 22, 2018, accessed 26.06.2023.
[15] Music Business Worldwide, “Round Hill fund raises $282m ahead of London IPO this Friday“, November 11, 2020, accessed 26.06.2023.
[16] Music Business Worldwide, “Round Hill’s public fund raises another $46.1m, enabling it to acquire earmarked investments“, December 16, 2020, accessed 26.06.2023.
[17] Music Business Worldwide, “Round Hill raises another $291m in third royalty fund (and has already spent most of it)“, November 18, 2020, accessed 26.06.2023.
[18] Music Business Worldwide, “Round Hill: Our $375m IPO will be good news for songwriters“, October 22, 2020, accessed 26.06.2023.
[19] Ibid.
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