What is the limit of private equity’s ambitions in the music industry?
The world’s largest alternative investment management firm is dancing to a new tune.
On Oct. 12, Blackstone finalized a $1 billion deal with Hipgnosis Song Management (HSM) for acquiring music rights and managing catalogs. Blackstone is also taking an undisclosed ownership stake in UK’s largest music investor.
Hipgnosis founder and CEO Merck Mercuriadis, former manager to artists like Elton John, Beyoncé, Guns ‘n’ Roses, and Iron Maiden says he established the firm to give musicians more bang for their buck when it came to licensing and royalties. The London-based company splurged $2 billion scooping up over 60,800 songs since its IPO in 2018, and now boasts $2.2 billion in gross assets.
Billboard earlier reported that Mercuriadis had been considering turning to private equity for months, with fundraising from the stock market falling short of expectations. As part of the partnership, Blackstone “will support the expansion of its infrastructure and business functions, including the development of new song management expertise, data science capabilities and technology solutions,” the companies said.
This is not Blackstone’s first investment in music, and it’s not the only big-name investor to park its money in this space. Back from its early-internet deathbed, the music rights business is having its moment in the sun thanks to a boom in streaming.
Music as an asset
Streaming already accounts for over 62% of global recorded music sales, and it’s only going to grow. The industry will more than double to nearly $46 billion in 2025, analysts at Morgan Stanley estimate.
Moreover, TikTok and at-home fitness platform Peloton are also buying tracks. The latter even got sued for violating copyright laws because its licensing deals weren’t in order—the industry is becoming more structured, and in turn generating even more revenues.
Investors also believe music is insulated from politics and other market forces. Mercuriadis would even argue it is the most predictable commodity.
“In fact, music is better than gold and oil because when something crazy happens in the marketplace, or Donald Trump does something stupid or Boris Johnson does something stupid, the price of gold and oil are affected,” he told Complex. “Great songs are always being consumed.” Especially since Hipgnosis focuses on managing classic songs, not new unproven ones.
Of course, unlike physical art or real estate, managing music is a game of meticulous balancing—pitching, repackaging, and finding just enough new opportunities to raise a track’s value while avoiding saturation.
And while experts understand Hipgnosis’ investments in established stars, they are skeptical about the firm buying songs from newer artists like the Chainsmokers. Plus, critics worry about the opacity of song valuations.
Still, it seems like artists and their estates are finding it lucrative to relinquish rights.
Why do musicians sell?
Technically, singers and songwriters should worry about underselling—much like Beach Boys did one of the ban member’s fathers sold the group’s songwriting catalog in 1969 for a paltry $700,000—but the draw is big. Firms like Hipgnosis are paying 10 to 20 times what a given catalog earns annually. Often, artists perceive the deal amount is peak value.
Universal Music Publishing bough Bob Dylan’s entire back catalog of over 600 songs for upwards of $300 million, and Stevie Nicks sold her songs and other intellectual property to Primary Wave—the company that also holds some of Prince’s catalog—for $100 million. The Killers, Tina Turner, Neil Young, Journey, Fleetwood Mac, Mariah Carey, Shakira, and others have sold off either all or parts of their catalogs. Are catalogs as valuable as Michael Jackson’s or the Beatles’ next?
Often, though, it’s a matter of compulsion, not choice. With streaming services paying a pittance and the pandemic bringing the industry to its knees by shelving all tours and concerts, many have seen little other alternative to selling.
I am selling mine also …I can’t work …and streaming stole my record money …I have a family and a mortgage and I have to take care of them so it’s my only option ..I’m sure the others feel the same https://t.co/EXWHR2v6iq
— David Crosby (@thedavidcrosby) December 7, 2020
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