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The Rise of Investment in Music Royalties

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Before 2018, the idea that Shakira, Michael Bublé and Neil Young would have much in common was unlikely. But today, in a vastly different landscape of music ownership, most of their hits have become part of the growing portfolio of London-based Guernsey-registered fund known as: Hipgnosis. 

Created four years ago by Merck Mercuriadis and Nile Rodgers, Hipgnosis Songs Fund has transformed the lesser-known business side of music – publishing. Mercuriadis, a Canadian-born London-based fan of Arsenal Football Club and Veganism, is also a long-time music manager with past clients including Elton John and Guns N’ Roses. Together with Rodgers, singer-songwriter-guitarist and music producer, who is also a co-founder of Chic, they are using their connections in the music world to transform the old system. 

Founded on the premise that regardless of economic cycles, hit songs remain long-term predictable assets, Hipgnosis has already raised £1.052 billion to fund acquisitions of catalogs. Highlighting that constant nature, they have transformed the traditional music publishing model into that of ‘song management’ based off intellectual property rights. Mercuriadis detailed: “I compare songs to gold and oil. They’re predictable and reliable, but songs aren’t affected by politics or pandemics. If you’re living your best life, you’re doing it to a soundtrack of great songs. If you are experiencing challenges, you are taking comfort and escaping.” Since illegal downloading, described as technological disruption, decimated the music industry throughout the ‘noughties’, these ‘proven assets’ have become affordable investments. This opportunity, combined with the growth of streaming that will continually grow revenue, has attracted City investors such as Newton Investment Management and Quilter Investors, and advisors such as N+1 Singer. 

The fund’s portfolio now includes over 117 catalogs of artists such as Kobalt, as well as 57,000 titles, with Ed Sheeran’s ‘Shape Of You’ the most streamed song that they manage. With the aim to acquire as many as 150,000 songs, Mercuriadis plans to sustain them as assets whilst empowering songwriters at the expense of major music companies. Additionally, the music mogul syncs songs into movies and adverts to further their return value and encourage further interpolation. 

But, whilst other funds are involved in this dissembling of the traditional music publishing, Hipgnosis has sparked controversy for rarely revealing the prices of their large-scale transactions. In fact, Hipgnosis has only ever publicly named the price paid for its first ever catalog acquisition of The-Dream’s portfolio in July 2018 and its biggest-ever acquisition of Kobalt-managed fund’s copyrights in November 2020. Often compared to the more transparent business nature of rival Round Hill, this lack of disclosure often provokes scrutiny from UK media. Last month, in an article aimed to prove that Mercuriadis’s “spell is broken” The Times Chief Business Commentator Alistair Osborne compared Hipgnosis’s “iffy disclosure” to Round Hill’s transparent provisions. And, following a Round Hill acquisition of copyrights from ‘Fund One’, another private fund, last month, an Investec research note concluded: “We are impressed by the transparency provided by Round Hill on this acquisition…this is in stark contrast to Hipgnosis which provides little or no financial information for each acquisition.” 

However, shareholders have countered that Hipgnosis provide a satisfactory amount of disclosure through detailed interim reports that have disclosed their annual and six-monthly spending, revenue, profits and losses ever since the company’s foundations. For example, Hipgnosis’ interim report released in December 2020 disclosed it had spent £1.18bn on 117 catalogs between the point of its 2018 IPO and last September. 

Whilst media pressure has caused Mercuriadis to concede the fund’s efforts to minimise obscurity, he has stated that this is in place to protect artists from being forced to reveal their sale figures. Whilst some have criticised his ‘trust me guv’ approach, it is this protected fund-creator relationship that has drawn in artists such as Shakira, who wish their music to be protected and sustained. Nile Rodgers explained: “When Merck’s talking to artists and investors, they have to believe in a system that they’ve never encountered. They have to believe that he’s sincere, smart and has good instincts. The success of a business is basically because of the person running the business.” 

Whilst many people may not like their process, Hipgnosis’s rapid success has proved their model is here to stay. Having listed for £200 million in 2018, they are not a £1.3 billion pound market cap company on the FTSE 250 and have given shareholders a total return of almost 40% in under three years. And, having raised more capital than any other company on the London Stock Exchange in 2020, it is clear that their process is not only moral and legal but also extremely successful.  Mercuriadis told Forbes recently that: “There are plenty of people with my face on a dart board in their offices,” it is clear the 57-year-old isn’t stopping soon. Seeing as the company just poached Round Hill Music’s co-founder Richard Rowe to be its new Executive Vice President, it’s clear Hipgnosis have set themselves apart as the driving force in the new model of music investment.

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