Hipgnosis Is Buying Music Libraries — and Plans to Spend $1 Billion More

Music Libraries Under Hipgnosis Illustration by Jiaqi Wang
Illustration by Jiaqi Wang

A former music manager’s company has acquired more than 100 publishing catalogs, including a 50 percent stake in Neil Young’s, as well as hits performed by Rihanna and Shakira, and is eyeing a $1 billion-plus deal pipeline.

What do Shakira, Michael Bublé, Metallica and Neil Young have in common? Some or all of their hits have recently become part of the growing portfolio of the Notting Hill, London-based Hipgnosis Songs Fund.

The company was founded in 2018 by Merck Mercuriadis, a well-connected former music manager for the likes of Elton John, Beyoncé and Guns N’ Roses. Artists selling catalogs have been a theme of the pandemic, and Hipgnosis started 2021 with a flurry of acquisition news, including deals with Bublé, Fleetwood Mac’s Lindsey Buckingham and magnate Jimmy Iovine.

Financial terms of individual deals are typically not revealed, but in all, Hipgnosis has spent a whopping $1.75 billion on 129 catalogs, accumulating 60,836 songs, as of the end of January. Among them are modern hits, such as Ed Sheeran’s “Shape of You” and Rihanna’s “Umbrella,” and evergreens like “Sweet Dreams (Are Made of This)” by Eurythmics.

The company, which employs 78 people, has raised money via its IPO and share placements, and also has a debt facility. To keep up its shopping spree, Hipgnosis unveiled plans to raise more funds, and on Feb. 5 started with about $100 million via new shares issued, to work through a pipeline of more than 1 billion pounds ($1.37 billion) in potential deals.

It is betting on revenue gains from the continued growth of music streaming, which has done well amid the novel coronavirus pandemic (accounting for 18.2 million pounds, or $24.9 million, in company revenue for the six months ended Sept. 30), even though another key part of the business, performance royalties from concerts, bars and other sources ($19 million in six-month revenue), has taken a hit industry-wide amid lockdowns.

Hipgposis is also focusing on what it calls better “song management” to grow its synchronization business ($9.4 million in six-month revenue), which puts tracks into movies, commercials and video games. It sees time and attention as the key here. While music giants often have one executive managing 20,000 songs, “we’ll have 500 to 1,000 songs per person,” Mercuriadis tells THR.

Hipgnosis pays creatives an up-front fee for their catalogs and then collects money from streaming, song placements and other uses of the music. Mercuriadis says musicians “may receive contingent bonuses based on revenue growth” of their titles. Where Hipgnosis doesn’t own 100 percent, as in the case of Young, “the artist continues to receive their pro rata share” of revenue.

Hipgnosis’ stock, which has traded near its 52-week high, has attracted big institutional investors who want to avoid market volatility. “Most Hipgnosis investors are looking for predictable income,” explains Liberum analyst Conor Finn.

Says Mercuriadis, “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.”

The music library space has experienced a broader gold rush. Recent deals have included Bob Dylan selling his catalog to Universal Music and Primary Wave buying the catalog of Dan Wilson, who has written songs for the likes of Adele. Experts cite artists’ estate planning and the growth in streaming as key drivers. The pandemic, Mercuriadis adds, “has accelerated that process because a lot of artists couldn’t tour.”

Jordan Bromley, partner with Manatt, Phelps & Phillips and leader of the firm’s entertainment transactions and finance practice, explains: "This is a bit of a perfect storm of a lot of factors," with "interest rates being at an all-time low, investors in music beginning to accept a lower rate of return on investments, IP showing resilience, folks having a lot of time on their hands to think about things other than playing shows, and folks hearing stories about their friends selling for big chunks of money."

Hipgnosis’ acquisitions have become more expensive over time in terms of the multiple of a catalog's annual earnings paid, but Mercuriadis doesn’t worry that he could be overpaying. “Songs are still available at attractive prices because we had 16 years of technological disruption,” he says. “These are very valuable assets.”

And Mercuriadis has a “secret sauce,” argues Mark Mulligan, music industry analyst at MIDiA Research. “Because he is so well connected, he can often get deal flow before anybody else, or can even persuade people to bring their catalogs to market.”

Maybe that’s why Young, usually shy about commercial considerations, sold Hipgnosis a 50 percent stake in his catalog of 1,180 songs. Respect is also key. “I’m never going to go to Neil and say, ‘Here’s $2 million to do a McDonald’s commercial'," explains Mercuriadis. "Because he would lose total confidence, and it would cheapen his songs.”

Mulligan says investors’ view on Hipgnosis’ stock depends on their trust in its catalog valuation by an independent firm and the upside in streaming.

Mercuriadis is bullish: "What’s the most valuable real estate on Monopoly? It’s Boardwalk and Park Place. We keep buying Boardwalk and Park Place."

This story appeared in the Feb. 17 issue of The Hollywood Reporter magazine. Click here to subscribe.