For several years, Hipgnosis made headlines with spectacular acquisitions of music rights catalogues worth hundreds of millions of dollars. It bought the music catalogues of Shakira, Leonard Cohen, Neil Young and other superstars, and in 2018 went public as Hipgnosis Songs Fund Ltd. in the largest IPO on the London Stock Exchange. The weakening economic environment due to high inflation and rising interest rates has also had a negative impact on Hipgnosis, which has suffered from high financial costs over the past two years. It seems that the success story of the former stock market darling has come to an end and the following blog post tells the story of the rise and fall of the Hipgnosis Songs Fund Ltd.
Music as an Investment – part 5: The rise and fall of the Hipgnosis SongS Fund
Hipgnosis is a Guernsey-registered company founded by veteran music manager Merck Mercuriadis, who has managed the likes of Beyoncé, Elton John, Iron Maiden, Morrissey and Nile Rodgers. Mercuriadis was also previously CEO of the Sanctuary Group, which was sold to Universal Music Group in 2007 for £44.5 million.[1]
Hipgnosis’ business model is to acquire catalogues of music rights to monetise them through a variety of uses. Hipgnosis Song Management Ltd, originally founded by Merck Mercuriadis as Family (Music) Ltd, is responsible for selecting the catalogues to be acquired. Hipgnosis Song Management Ltd, originally founded by Merck Mercuriadis as Family (Music) Ltd, is responsible for the selection of the catalogues and acts as an investment advisor to the board, which includes founder Mercuriadis, songwriters and producers Nile Rodgers, The-Dream, David A. Stewart, Starrah, Giorgio Tuinfort, Poo Bear and Rodney Jerkins, as well as legal experts Bill Leibowitz and Ian Montone.[2]
Hipgnosis describes its investment strategy in the 2020/21 annual report as “[f]ocuses on proven Songs and Artists of great cultural importance”. Hipgnosis does not see itself as a traditional music publisher, but as “Song Manager, (…) who can protect the meaning and secure the financial future of the creator’s songs”. Therefore, Hipgnosis aims to identify undervalued songs and increase revenues by intensifying the different ways in which rights can be exploited.[3]
On 11 July 2018, Hipgnosis Songs Fund Ltd. floated on the London Stock Exchange in the largest IPO of the year, raising £202 million.[4] This provided the financial means to acquire music rights. On the day of the IPO, Hipgosis purchased 75 per cent of the 302-track song catalogue of Terius Y. Nash, better known as The-Dream, for $23.3 million.[5] Nash penned several chat toppers for Rihanna (“Umbrella”), Beyoncé (“Single Ladies (Put a Ring on It)” und “Partition”), Mariah Carey (“Touch My Body”) and Justin Bieber (“Baby”), but also songs for Usher, Ciara, Brandy, Diddy, Mary J. Blige, B2K, Jay-Z und Kanye West.[6] Until the end of the first financial year, Hipgnosis bought further 2,794 Songs from twelve songwriters[7] and therefore increased the total value of acquired music catalogues to $156.4 million.[8]
In the following first full financial year, Hipgnosis[9] raised an additional £423.6 million of investor capital through the issue of preference shares (Class C shares)[10], which was used to acquire further music catalogues. Further 42 catalogues comprising 10,180 songs were acquired in 2019/20, including the Chainsmokers’ song catalogue (42 songs, including ‘Closer’)[11], Timbaland (108 songs, albums and songs by Justin Timberlake, Nelly Furtado, Jay Z, Rihanna and Drake)[12] and a 70 per cent stake in Mark Ronson’s catalogue (315 songs, including ‘Upton Funk!’ and ‘Shallow’)[13]. In total, the Hipgnosis Songs Fund spent £560 million on around 10,000 songs in the 2019/20 financial year, bringing the total value of rights acquired to £680 million at the end of the financial year.[14]
In 2020/21, Hipgnosis acquired a further 84 catalogues with 50,807 songs for the equivalent of $1.1 billion,[15] of which 3,738 were number 1 hits in various countries.[16] The purchase of a 50 per cent share of Neil Young’s 590-song publishing catalogue for an estimated $150 million[17] caused a particular stir. And this year Hipgnosis bought Shakira’s 145-song publishing catalogue. More specifically, the company acquired shares in both publishing and author royalties from million-selling albums such as “Laundry Service” (2001), ‘Hips Don’t Lie’ (2005), ‘She Wolf’ (2009) and the official song for the 2010 FIFA World Cup in South Africa, ‘Waka, Waka’.[18]
However, the largest acquisition of the year was the purchase of 33,000 songs from Kobalt Music Copyrights, an investment fund of the Swedish music publisher Kobalt, for $322.9 million, giving Hipgnosis control of the revenue streams from 42 music catalogues from 1,800 songwriters, including Steve Winwood (215 songs), Enrique Iglesias (157 songs), Skrillex (153 songs), George Benson (107 songs), 50 Cents (388 songs) and 213 songs by Walter Afanasieff, co-writer of Mariah Carey’s blockbuster Christmas hit ‘All I Want For Christmas Is You’.[19] The package also included the 25,339 songs of the Nettwerk Music Group,[20] which sold its publishing catalogue to Kobalt in 2016.[21]
However, Hipgnosis has already entered the publishing business on a massive scale, having acquired Los Angeles-based music publisher Big Deal Music in early September 2020, with its catalogue of 4,400 songs, including hits such as Shawn Mendes’ ‘Stitches’ and ‘Treat You Better’ and One Direction’s ‘Story of My Life’. As a result of the acquisition, Big Deal has been renamed Hipgnosis Songs Group, with founder Kenny MacPherson remaining as CEO.[22] This means that almost three quarters of the growth of around 51,000 songs in the 2020/21 financial year is attributable to two acquisitions – Kobalt Music Copyrights and Big Deal Music.
These substantial purchases were financed by further share capital issuances of $269.3 million in September 2020 and $103.6 million in February 2021, as well as the issuance of Class C preferred shares in July 2020, which were converted into $304 million of common shares in December 2021, and a $600 million credit facility provided by a syndicate of investors led by JP Morgan Chase.[23] In the 2020/21 financial year, the value of the entire music catalogue increased by $1.09 billion from $882.9 million to a total of $1.97 billion.[24]
In the 2021/22 financial year, the Hipgnosis Songs Fund purchased remarkably few additional catalogues, increasing the total catalogue by only 1,315 songs to 65,413 titles. Furthermore, all purchases were made by August 2021. There is not a single purchase documented for the period thereafter.[25] The purchase of the publishing rights to 230 songs of US band Red Hot Chili Peppers has hit the headlines. The purchase price is rumoured to be in the region of $140 million,[26] which is more than half of the total amount spent on music rights in 2021/22.
The reason for this reluctance could be that the Blackstone Group, one of the world’s largest private equity firms, acquired a stake in Hipgnosis Song Management Ltd (HSM) on 21 October 2021. Blackstone then made around $1.0 billion available for the purchase of further song rights, which will be processed via the private Hipgnosis Songs Capital Fund.[27] However, the listed Hipgnosis Songs Fund was granted the right to acquire a 20 per cent stake in all acquisitions made by the Hipgnosis Songs Capital Fund financed by Blackstone.[28]
Figure 1: The Hipgnosis conglomerate
Although the Hipgnosis Songs Fund has suspended its acquisitions for the time being in favour of the Blackstone Fund, the catalogue value has increased by $140 million even without acquisitions, as shown by the comparison of the catalogue value at the end of September 2021 and the end of March 2022.[29] Overall, the value of the music catalogue increased by 8.4 per cent to $2.04 billion after amortisation and other impairments. However, the value of the catalogue declined slightly to approximately $1.9 billion in the financial year 2022/23.
Figure 2: Net book value of Hipgnosis Songs Fund’s music catalogue, 2019/20 to 2022/23
Source: After Annual reports of Hipgnosis Songs Fund Ltd. 2019-2023
Due to rising interest rates, the Hipgnosis Songs Fund 2023 was struggling with economic difficulties and announced to its shareholders in September that it would sell a total of 29 song catalogues – including those of Barry Manilow, Shakira, LA Reid and the Kaiser Chiefs – to the Blackstone-financed Hipgnosis Songs Capital Fund for $440 million. In an internal email to his employees, Hipgnosis mastermind Merck Mercuriadis justifies the sale with the current poor macroeconomic environment and explains that $250 million can be used to partially repay the increasingly expensive revolving credit facility and $180 million for share buybacks.[30] However, the shareholders’ meeting on 26 October 2023 rejected this proposal by a large majority and appointed a new board to either completely restructure or dissolve the listed company within six months.[31] Instead, it was announced in December 2023 that Hipgnosis had sold 20,000 selected songs to an undisclosed buyer for $23.1 million.[32]
In any case, it looks as if the former stock market star’s days are numbered. However, Hipgnosis Songs Management, which is directly owned by Mercuriadis, has an option to buy the Hipgnosis Songs Fund if the latter wishes to terminate its relationship with Hipgnosis Songs Management.[33] In the future, only Hipgnosis Songs Management and the private Hipgnosis Songs Capital could continue to exist.
The latter has been on a shopping spree for some time. In March 2022, the Blackstone fund purchased the author’s share of Leonard Cohen’s Stranger Music catalogue (127 songs, including ‘Hallelujah’) as well as all publishing and author rights to a further 151 musical works by the artist from his heirs,[34] having already acquired 80 per cent of the master rights to the recordings of US country music star Kenny Chesney in January 2022.[35] This was followed in May 2022 by the purchase of all publishing and author rights to Justin Timberlake’s songs from both his time as a member of the boy band *NSYNC and his subsequent solo career in a rumoured $100 million deal.[36] Hipgnosis Songs Capital landed its biggest coup to date when it bought all publishing rights including the author’s share of 290 songs from Justin Bieber for $200 million in January 2023.[37] In addition to other music rights acquisitions, Hipgnosis Song Management 2023 also bought the virtual music marketplace Beatclub from US rapper Timbaland on behalf of the Blackstone Fund.[38] However, not all deals have gone to plan for Hipgnosis. After two years of tough negotiations, British rock star Rod Stewart announced that he would not be selling the publishing rights to his songs to the Blackstone-funded Hipgnosis Songs Capital Fund. He is quoted as saying: “[T]his catalog represents my life’s work. And it’s become abundantly clear after much time and due diligence that this was not the right company to manage my song catalog, career or legacy.”[39] We can only speculate as to whether the purchase price offered was too low, or whether other contractual issues played a role in the breakdown of negotiations, but the musician’s statement conveys a sense of unease about selling his life’s work to a company financed by a multi-billion dollar investment firm.
Other blog posts on “Music as an Investment”
Endnotes
[1] Music Business Worldwide, “Hipgnosis Songs Fund“, n.d., accessed: 2024-01-16.
[2] Annual report Hipgnosis Songs Fund Ltd. 2023, pp 32-33.
[3] Annual report Hipgnosis Songs Fund Ltd. 2021, p 23.
[4] Music Business Worldwide, “Merck Mercuriadis fund successfully raises $260m+ to buy music copyrights“, June 29, 2018, accessed: 2024-01-16.
[5] Music Business Worldwide, “Merck Mercuriadis fund pays $23m to buy 75% stake in The-Dream catalog“, July 11, 2018, accessed: 2024-01-16.
[7] Annual report Hipgnosis Songs Fund Ltd. For the period from June 8, 2018 to March, 31 2019, p 5.
[8] Annual report Hipgnosis Songs Fund Ltd. 2021, p 141.
[9] Annual report Hipgnosis Songs Fund Ltd. 2020, p 10.
[10] Class C shares are a temporary class of shares which are issued at a fixed price determined by the company. They are subsequently converted into ordinary shares at net asset value once the proceeds of the issue of C shares have been invested in accordance with the investment guidelines. See: Investopia “Class C Shares Definition and Pros & Cons of Investing in Them”, June 30, 2021, accessed: 2024-01-16.
[11] Wikipedia, “The Chainsmokers“, n.d., accessed: 2024-01-16.
[12] Music Business Worldwide, “Timbaland catalog acquired by Hipgnosis Songs Fund“, October 16, 2019, accessed: 2024-01-16.
[13] Music Business Worldwide, “Hipgnosis acquires majority stake in Mark Ronson catalog, including Uptown Funk and Shallow“, April 23, 2020, accessed: 2024-01-16.
[14] Annual report Hipgnosis Songs Fund Ltd. 2020, p 100.
[15] Due to new legal requirements, the reporting currency has been changed from British pounds to US dollars for the 2020/21 financial year. (Annual report Hipgnosis Songs Fund Ltd. 2021, p 10).
[16] Annual report Hipgnosis Songs Fund Ltd. 2021, p 8.
[17] Music Business Worldwide, “Hipgnosis acquires 50% of Neil Young’s song catalog for around $150m“, January 6, 2021, accessed: 2024-01-16.
[18] Music Business Worldwide, “Hipgnosis buys 100% of Shakira’s publishing catalog, spanning 145 songs“, January 13, 2021, accessed: 2024-01-16.
[19] Music Business Worldwide, “Hipgnosis Songs Fund buys huge catalog from Kobalt in $322.9m acquisition“, November 2, 2020, accessed: 2024-01-16.
[20] Annual report Hipgnosis Songs Fund Ltd. 2021, p 6.
[21] Music Business Worldwide, “Nettwerk sells 30-year-old publishing catalogue to Kobalt investment fund“, July 24, 2016, accessed: 2024-01-16.
[22] Music Business Worldwide, “Hipgnosis becomes a fully-fledged publisher, buying Big Deal Music to form Hipgnosis Songs Group“, September 10, 2020, accessed: 2024-01-16.
[23] Annual report Hipgnosis Songs Fund Ltd. 2021, pp 144-147.
[24] Annual report Hipgnosis Songs Fund Ltd. 2021, p 141.
[25] Annual report Hipgnosis Songs Fund Ltd. 2022, p 9.
[26] The Guardian, “Red Hot Chili Peppers sell rights to catalogue of hits to Hipgnosis“, May 4, 2021, accessed: 2024-01-16.
[27] Blackstone press release, “Blackstone and Hipgnosis Song Management launch $1 billion partnership to invest in songs, recorded music, music IP and royalties“, October 12, 2022, accessed: 2024-01-16.
[28] Annual report Hipgnosis Songs Fund Ltd. 2022, p 11.
[29] Music Business Worldwide, “Hipgnosis Songs Fund didn’t buy a single catalog in the 6 months to end of March. It still grew in value by $140m“, July 14, 2022, accessed: 2024-01-16.
[30] Music Business Worldwide, “Hipgnosis’ Blackstone fund set to spend $440m buying 29 catalogs from Hipgnosis’ UK-listed fund; competitors have 40 days to try and outbid its offer”, September 14, 2023, accessed: 2024-01-16.
[31] Reuters, “Hipgnosis shareholders reject $440 mln music catalogues sale”, October 26, 2023, accessed: 2024-01-16.
[32] Music Business Worldwide, “Hipgnosis Songs Fund sells 20,000 songs for $23.1m”, December 11, 2023, accessed: 2024-01-16.
[33] Music Business Worldwide, “Hipgnosis Songs Fund confirms that Merck Mercuriadis has an option to buy all of its rights if his investment advisory company is terminated”, October 19, 2023, accessed: 2024-01-16.
[34] Music Business Worldwide, “Hipgnosis buys Leonard Cohen catalog via Blackstone-backed fund“, March 6, 2022, accessed: 2024-01-16.
[35] Music Business Worldwide, “Hipgnosis and Blackstone acquire 80% of Kenny Chesney’s recorded music royalties“, January 19, 2022, accessed: 2024-01-16.
[36] Music Business Worldwide, “Justin Timberlake sells song catalog to Hipgnosis and its $1bn-backed Blackstone fund“, May 26, 2022, accessed: 2024-01-16.
[37] Variety, “Justin Bieber Sells Music Rights to Hipgnosis Songs for $200 Million-Plus”, January 24, 2023, accessed: 2024-01-16.
[38] Billboard, “Hipgnosis and Timbaland’s Beatclub Synch Up to Boost Catalog for Sampling”, February 14, 2023, accessed: 2024-01-16.
[39] Billboard, “Rod Stewart Calls Off Potential Hipgnosis Sale: ‘This Was Not the Right Company'”, May 30, 2023, accessed: 2024-01-16.
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