Publishing
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Songwriters have something to celebrate this holiday season. Though it seemed rulings on royalty rates for the period of 2018-2022 (Phonorecords III) and 2023-2027 (Phonorecords IV) would not receive final judgement by the Copyright Royalty Board in time for Christmas, there is finally clarity about at least one type of royalty. The board on Friday (Dec. 16) accepted a proposed settlement to hike the royalty rate for U.S. mechanicals for physical products (like vinyl records, CDs, cassettes), permanent downloads, ringtones and music bundles.
Taking effect on Jan. 1, 2023, as part of Phonorecords IV, songwriters will earn 12 cents per track or 2.31 cents per minute of playing time or fraction thereof, whichever amount is larger for physical products and permanent downloads. This will also include inflation-based adjustments for subsequent years of the rate period, a major change for composers who have historically been locked into stagnant penny rates for sales, despite the increasing cost of living. Ringtones will remain at the same rate as they were previously, and the money earned for each element of a music bundle will be decided according to the rates for that element.
The new ruling today approves what is known as “Settlement 2,” which was formed by the National Music Publishers’ Association (NMPA), Nashville Songwriters Association International (NSAI), as well as the major music companies: Universal Music Group, Sony Music Entertainment and Warner Music Group earlier this year.
As the name of the settlement implies, there was one that preceded it. In 2021, the same parties proposed “Settlement 1” which would have upheld the long-standing 9.1 cent penny rate for physical goods and permanent downloads. That proposed settlement was sent to the Copyright Royalty Board judges for approval last year, but it triggered backlash among some in the independent writer community.
The 9.1 cent rate has been in effect since 2006 and has not risen with inflation. George Johnson, an independent songwriter who often pushes back against settlements at the Copyright Royalty Board in favor of higher rates, and other interested parties objected to continuing this 9.1 cent rate for another five year period. They also noted other issues with Settlement 1, like the lack of adjustments for inflation, and questioned a memorandum of understanding (MOU) between the major labels and the NMPA, which could have provided waivers on late fees the U.S. Copyright law allows when payment deadlines are missed.
In response to concerns, The CRB judges concluded the proposed settlement did not provide a reasonable basis for setting statutory rates and terms as stated in proposed settlement 1.
For many years, the CRB rate proceedings have primarily focused on achieving fair compensation for streaming rates. In 2021, audio digital services paid out about $1.3 billion to publishers and songwriters, according to data from the Mechanical Licensing Collective.
While sales formats comprise roughly 15% of the recorded music market, the NMPA estimates those formats produce just 5% of U.S. publishing royalties. If streaming continues to grow at its current pace, some say that within three years these sales formats that are covered by the subpart B configurations might only account for 1% of publishing royalties.
The NMPA has also pointed out in the past that rate litigation is expensive — often in the tens of millions of dollars — as a reason why they have focused on fighting for high streaming rates rather than what formats are covered by subpart B, noting that the cost of litigation could end up equaling or outweighing whatever additional money a higher subpart B hike could achieve.
In Friday’s ruling, however, the court notes that the royalties generated by vinyl, CDs, downloads and other formats covered in subpart B “should not be treated as de minimis, or as a ‘throw away’ negotiating chip to encourage better terms for streaming configurations.” They also noted the improvements to Settlement 2 as “distinguishable” from the first proposed settlement.
The event marks the biggest rate increase for songwriters for physical goods and permanent downloads in almost two decades.
Now, just one final step remains: the register of copyrights has to check and make sure this is compliant with the copyright statute, and if approved — which is typical — this will go into effect at the top of the year. However, participating parties also have 30 days to file an appeal to the CRB’s determination.
Nearly a year after Ultra Records founder Patrick Moxey sold his 50% share of the lauded dance imprint to Sony Music, the executive is being sued by the major label over his continued use of the “Ultra” trademark.
When Moxey sold his remaining stake in Ultra Records this past January, it marked a turning point in dance music history — giving Sony full control of the label it had previously held a 50% stake in. While Moxey parted ways with the imprint he founded in 1995, he held on to his other company, Ultra International Music Publishing, LLC. But in a complaint filed last month in New York, Sony Music argues he has no legal rights to use the “Ultra” name following the sale.
“Notwithstanding that Moxey received a substantial payment as part of the buyout, after which he ceased to have any involvement in the business of Ultra Records, he has sought to perpetuate the falsehood that he remains involved with Ultra Records by wrongfully continuing to use Ultra Records’ ULTRA trademark as part of his music publishing business,” reads the complaint, which was filed Nov. 11.
The complaint continues that under the terms of a 2012 agreement that marked Sony’s acquisition of 50% of Ultra Records, “Ultra International Music Publishing and its affiliates were only permitted to use the word ‘Ultra; under license from Ultra Records. That license was terminated by Ultra Records following the buyout, effective March 29, 2022.”
The complaint goes on to state that Ultra Publishing’s continued use of the name is in violation of the Ultra Records trademark, noting that “No written license agreement was ever executed between Ultra Records and Ultra International Music Publishing concerning the latter’s use of the ULTRA trademark.”
In a statement provided to Billboard, Sony Music states that “Patrick Moxey sold Ultra Records and the Ultra brand to Sony Music Entertainment in exchange for a substantial buyout payment, and now is perpetuating the falsehood that he remains affiliated with his former company by continuing to use the Ultra name in connection with the publishing operations he controls. These actions knowingly misrepresent his involvement with Ultra and are in clear violation of the trademark rights SME acquired in a mutually agreed upon transaction.”
While a representative for Moxey did not immediately return a request for comment, in a statement given to Music Business Worldwide, he claimed that Sony has “done nothing but bully me from the day I sold them my record company. Ultra International Music Publishing has been an independent standalone business for over 20 years, which publishes songs co-written with Drake, Post Malone, Ed Sheeran, 21 Savage, Rihanna, Future, Kygo and many more.
“The vast majority of our songs are not on Ultra Records or Sony [Music],” Moxey continued. “I have made it abundantly clear on numerous occasions in media interviews that Ultra International Music Publishing is completely separate from Ultra Records, and always has been. I have every right to use the name ‘Ultra’ in connection with Ultra International Music Publishing, and won’t be intimidated by a massive global corporation.”
After leaving Ultra Records, Moxey announced a new dance label venture, Helix Records, which has since released music from Snakehips, Willy William and Two Friends. The imprint is a division of Moxey’s longstanding hip-hop label, Payday Records. Both labels are distributed by Warner Recorded Music’s indie services arm ADA Worldwide.
Keith Urban has sold his master recordings to Litmus Music.
The acquisition marks the first deal for the Carlyle Global Credit-backed Litmus since the company’s founding earlier this year. The purchase, for an undisclosed sum, includes 10 studio albums and a greatest hits compilation from the multiple-Grammy winner, as well as a collaboration agreement on future recordings.
Urban’s most recent full-length set, 2020’s The Speed of Now, Part 1, was his seventh No. 1 on Billboard’s Top Country Albums chart, where he’s notched 10 top 10s. He’s also landed 21 No. 1s on Billboard’s Country Airplay chart, including “Somebody Like You,” “Days Go By” and “Long Hot Summer,” as well as 16 No. 1s on the Hot Country Songs chart. On the all-genre Billboard 200 albums chart, Urban has logged eight top 10-charting sets, including two No. 1s.
Urban has earned 20.7 million equivalent album units for his catalog of albums in the U.S., according to Luminate. Of that sum, 14.9 million are in traditional album sales. His songs — those billed to him as the primary artist in Luminate’s database — have sold 26.1 million downloads in the U.S. and have generated 4.76 billion on-demand official streams in the U.S.
“I have the deepest respect for Keith, his incredible talent and his passion for making great music. He’s a musically insatiable musician, record maker, performer and songwriter,” Dan McCarroll, co-founder and chief creative officer of Litmus Music, said in a statement.
“It is an honor to partner with Keith and represent songs that reflect his integrity, character and musicianship,” added Litmus’ co-founder/CEO Hank Forsyth. “Dan and I and the entire Litmus team are so grateful Keith has trusted us to care for what he has given so much to create.”
Urban, who is managed by Borman Entertainment, said, “What makes this such a great fit for me is the genuine passion and respect Dan, Hank and the team at Litmus have for this music. In working with them, I feel that same collaborative spirit that’s always inspired me as an artist.”
Litmus launched in August with a $500 million backing from Carlyle Global Credit, with plans to rely on Forsyth and McCarroll’s deep industry ties after decades in the music business. Forsyth previously held positions as executive vp at Warner Chappell and GM of Blue Note, while McCarroll served as president of both Warner Brothers Records and Capitol Records.
Urban is the latest country superstar to sell his master recordings this year. In January, Hipgnosis Song Management acquired 80% of Kenny Chesney’s recorded music catalog spanning from 1994-2017. In October, Blake Shelton sold ownership of his master recordings released from 2001-2019 to Influence Media Partners, though that deal includes a joint venture whereby the singer will earn a share of the profit generated by his catalog going forward.
Set to kick off a residency at Las Vegas’ Planet Hollywood next year, Urban told Billboard in November that he and producer Dann Huff were “feverishly working away to try and finish [the new album], which I hope will come out early mid next year.”
LONDON — Hipgnosis Songs Funds reported a 7.5% year-on-year rise in gross revenue to $91.7 million for the six months ended Sept. 30, up from $85.3 million in the same period the previous year, at the company’s bi-annual presentation to investors, held in London Thursday (Dec. 8).
Net revenue — gross revenue minus royalties paid to songwriters under contract and administered catalogs — grew 5.8% to $78.4 million during the same period, while earnings before interest, taxes, depreciation and amortization (EBITDA) increased 16.9% year-on-year to $63.8 million.
Hipgnosis’ portfolio of over 65,000 songs, which includes hits by Dave Stewart, Timbaland, Journey, Mark Ronson and Barry Manilow, and includes the writer’s and/or publisher’s share of 13 of YouTube’s top 30 most viewed videos, has a net asset value (NAV) of $1.52 billion, down from $1.58 billion on March 31, according to the company’s mid-year financial results.
They report its “operative” net asset value as $2.22 billion, down from $2.24 billion six months prior. The aggregate fair value of Hipgnosis’ extensive portfolio was calculated by independent valuer Citrin Cooperman at $2.67 billion.
Speaking at the investor presentation, held at London’s Savoy Place, Hipgnosis’ founder and chief executive Merck Mercuriadis said he shared investors’ concern over the Guernsey-registered company’s share price, which has fallen by nearly 30% on the London Stock Exchange over the past six months as investor interest in music stocks has cooled. The share price at the close of trading on Monday was £0.81.5, down from £1.26.0 at the start of the year.
“I’m not going to pretend that the current share price is anything other than disappointing,” said Mercuriadis at the start of an almost three-hour presentation, which also included talks by Hipgnosis Songs Fund chief financial officer Chris Helm, Hipgnosis Song Management president and COO Ben Katovsky and chief music officer Ted Cockle, as well as a brief live music performance by rock guitarist Richie Sambora.
(Hipgnosis Songs Fund is the acquirer of music publishing and recording rights, while Hipgnosis Songs Management manages the publicly traded company’s catalog. There is also Hipgnosis Songs Capital ICAV, an investment vehicle established in partnership with Blackstone that earlier this year acquired Justin Timberlake’s back catalog, but is separate from the London-listed Hipgnosis Songs Fund.)
Mercuriadis said that Hipgnosis’ current share price “fundamentally undervalues the company” and he was confident the company’s extensive portfolio and proactive drive to grow revenues from its 146 catalogs, coupled with the continued growth of the global music industry, “supports our longer-term expectations for substantial revenue growth” and “will deliver superior shareholder returns over the medium term.”
Despite what Mercuriadis said was a “very challenging environment,” Hipgnosis operative net asset value per share remained steady at $1.8312 in the six months ended Sept. 30, which, when translated into pound sterling (at a sterling to dollar exchange rate of $1.2223), gave an equivalent net asset value of 149.82p as of Dec. 6.
Like-for-like pro forma (PFAR) revenues in the first half of the calendar year was $58.5 million, a 7.8% increase on the comparative period in 2021.
Rock and blues singer-songwriter Chris Rea has sold his “music interests” to BMG. The deal includes the royalty shares of his 17 studio albums, including hits like “Driving Home for Christmas,” “On The Beach,” “Road to Hell,” and “Fool (If You Think Its Over).”
Electric Feel Entertainment has signed singer-songwriter Xplicit to a management deal, and Sony Music Publishing has signed the artist for publishing. Xplicit is known for penning some of pop’s stickiest hits of the last decade, including cuts like Justin Bieber’s “Anyone,” Fifth Harmony’s “Work From Home,” and Lil Dirk/Morgan Wallen’s “Broadway Girls.”
Liz Rose has renewed her publishing deal with Warner Chappell Music. Rose is regarded as one of the most essential songwriters in Nashville today and is particularly known for her collaborations with Taylor Swift. She has also worked with Maren Morris, Miranda Lambert, Ingrid Andress, Little Big Town, and more.
BMG has acquired the royalty interests of Haddaway‘s recordings. A multi-platinum Eurodance act, Haddaway is best know for their songs “What is Love,” “Life” and “Rock My Heart.”
Concord Music Publishing has partnered with Chromatic Music to sign producer and songwriter Aaron Chafin to a co-publishing agreement. The deal entails both his back catalog and future works made under the term of the deal. It marks the second-ever signing for the Toger Brown-founded Chromatic Music, following their deal with Nashville-based talent Lauren Hungate.
Jesse Murphy has signed an exclusive publishing deal with peermusic Nashville. Son of country singer David Lee Murphy, Jesse is part of crossover band House Whiskey. This marks the first signing under the tenure of Michael Knox, president of peermusic Nashville.
The Songwriters Hall of Fame recently hosted a documentary film screening and panel of “Killing Me Softly With His Songs,” a tribute to composer Charles Fox that chronicles his life and work. The hitmaker behind classic cuts like “Killing Me Softly With His Song,” “I Got A Name,” and “Ready To Take A Chance Again,” as well as iconic television show themes for Happy Days, Laverne & Shirley, The Love Boat, Wonder Woman and more, Fox is one of the most defining songwriters of his generation.
Big Yellow Dog Music has inked a publishing and label deal with Kyle Coulahan. The protege of legendary producer Chips Moman (Waylon Jennings, Elvis Presley, Willie Nelson), Coulahan is an up and coming country act that also writes for other artists across Nashville.
AJ Smith has signed a new exclusive publishing deal with Wise Music Group. Born in Denver and now based out of New York City, Smith is a pop artist on the rise, with songs “We’re All Gonna Die,” “Confetti” and “Grammy.”
Centricity Publishing has renewed their publishing deal with songwriter, singer and multi-instrumentalist, Kyle Williams. A recent winner of ABC’s Songland, Williams is one of Christian’s most talented writers, and he has built a career out of writing for other Christian artists as well as working on his solo projects and band We Are the Messengers.
Warner Chappell Music has linked with the company Group Projects to launch a joint publishing venture. Group Projects’ new publishing outfit, founded by Anthony Manker and Cooper Anstett, has already found a first signee, Sam Martinez. Born and raised in Virginia, Martinez moved to Nashville to pursue music. He’s worked closely with collaborators like Zack Dyer, Ben Stoll, Jared Scott, and more.
Bucks Music Group has inked an exclusive publishing agreement with Yahael Camara-Onono. The musician is best known for his work as both the band leader and creator of West African collective Balimaya Project.
BMG has acquired the catalog of Peter Frampton, the company announced today (Dec. 7). The deal includes his publishing, songwriter, artist and session work revenue streams, as well as his neighboring rights, for the entirety of his career, including massive hits like “Baby I Love Your Way” and “Show Me the Way,” as well as his work with Humble Pie. Terms of the deal were not disclosed.
In a statement, Frampton said he was “pleased to join the BMG family. As an artist-first company, I trust BMG will care for my legacy and that my songs are in good hands.”
It’s the latest acquisition deal for BMG, which has also picked up the rights to catalogs of Harry Nilsson, Jean-Michel Jarre, John Lee Hooker and John Legend (in partnership with KKR) in the past year. This deal extends as far back to works by Frampton’s first band, The Herd, and includes his latest album, 2019’s All Blues.
“From his incredible early rise of success to Humble Pie, his countless collaborations to achieving global stardom as a solo artist, Peter Frampton is one of the most inspirational and tireless musicians of his time,” BMG’s president repertoire & marketing for New York and Los Angeles Thomas Scherer said in a statement. “We are proud a legendary artist of his caliber entrusts BMG as the custodians of his most treasured works. A revered musical catalog of this magnitude, paid tribute to by countless artists, will continue to live on for generations.”
In the latest example of a stellar synch bringing in a surprise windfall, The Cramps‘ 1981 psychobilly classic “Goo Goo Muck” has become a breakout hit over the past couple of weeks.
Since Netflix’s new Addams Family spinoff Wednesday debuted on Nov. 23, including the series’ titular heroine performing dance sequence set to “Goo Goo Muck”, the track has taken off on streaming services.
In the week following the show’s release, from Nov. 25 to Dec. 1, The Cramps’ “Goo Goo Muck” was streamed on-demand over 2 million times in the U.S. — a more than 8,650% increase from the average 47 weeks before this year. That adds up to $11,089.85 in a single week for the Capitol Records master recording and $2,492.33 in publishing, according to Billboard estimates.
Those numbers dwarf the rest of the song’s 2022 activity — until the Wednesday dance sequence came out, “Goo Goo Muck” this year had generated a total of $130.21 per week for the master and $32.28 for the publisher. Thanks to the Wednesday synch, The Cramps’ “Goo Goo Muck” earned in total almost 78% more money in a single week than it had for the entire year.
“It’s a really amazing, fun little bonanza,” Jim Shaw, a member of the late country legend Buck Owens‘ Buckaroos, who happens to own the publishing, told Billboard last week.
Early streaming activity suggests “Goo Goo Muck,” a cover of a 1962 single by Ronnie Cook and the Gaylads, could potentially follow Kate Bush‘s renaissance when her minor 1985 hit “Running Up That Hill” landed in Stranger Things and turned into a smash. “Goo Goo Muck” had 2,500 daily on-demand streams as of Nov. 22; by Dec. 1, the track jumped to more than 209,000 daily streams, according to Luminate.
The streaming boost for “Goo Goo Muck” is a bonus on top of the upfront synch fee — the amount of which is unknown — that would have been paid on both the master recording and the publishing for the song.
Capitol reps did not respond to an interview request, but Shaw, who runs the Buck Owens Foundation, said he scored the publishing rights after the original publisher, Dave Bell, felt guilty about owing his friend Shaw “a couple thousand dollars” and offered the song instead. (Bell, who died in 2013, owned a recording studio, label and publishing company in his hometown of Bakersfield, Calif., and put out Cook’s original version of “Goo Goo Muck.”)
“It hasn’t really done much until recently,” Shaw says. “That’s what every songwriter, and publisher, hopes will happen. Anything they put on YouTube, they hope something goes viral.” If “Goo Goo Muck” goes full Kate Bush? “Well,” Shaw says. “[It] wouldn’t break my heart.”
Mexican singer-songwriter Danna Paola has signed an exclusive go-forward and full catalog publishing deal with Warner Chappell Music Mexico, Billboard has learned.
“I’ve been waiting for a music partner like this for a while now and couldn’t be happier,” the “XT4S1S” singer said in a statement. “As a songwriter, I’m glad to be part of a company that supports and respects their artists’ creativity, and I’m pretty sure we’re going to create magic together!”
Since releasing her album K.O. in 2021 — which peaked at No. 9 on Billboard‘s Latin Pop Albums chart (dated Jan. 30, 2021) — the 27-year-old artist has released a handful of singles including her latest “XT4S1S,” a euphoric and liberating track. Her 2020 project, SIE7E+, also entered the charts. It peaked at No. 16 on that same tally.
About the deal, Carlos Ruíz, Warner Chappell Music Mexico managing director, added: “Danna is an artist in every sense of the word. Her talent, professionalism, and dedication are the basis of her solid career and why she has become an icon of her generation — not only in Mexico but in many parts of the world. She provokes a unique connection with her fans through her music, and we are delighted that she has entrusted us to accompany her in all the successes that are to come.”
With more than 10 million listeners on Spotify and collabs with artists such as Sebastián Yatra, David Bisbal, Mau y Ricky, among others, Paola — who also starred in Netflix’s popular series Élite — is currently on the XT4S1S Tour in Mexico.
Over the years, Jim Shaw had loaned his friend Dave Bell, a longtime producer, publisher and label owner in Bakersfield, California, a couple of thousand dollars for various ventures — bits and pieces at a time. “He was one of the guys who kept rolling the dice,” Shaw recalls. “He’d make a million, then lose a million. Very interesting guy.”
By 2002, Bell was starting to feel guilty about how much money he owed to Shaw, a veteran member of Buck Owens‘ Buckaroos who now runs the late country legend’s foundation. Bell proposed a unique deal: In lieu of cash, he gave Shaw publishing rights to the rockabilly song “The Goo Goo Muck,” co-written and recorded by local country singer Ronnie Cook and his band, the Gaylads, in 1962. “At the time, it was like magic beans,” Shaw says. “[Bell] had a lot of gospel songs. He’d become very religious, and that song didn’t fit into what he wanted to do.”
Shaw knew, of course, that The Cramps had released a classic new-wave psychobilly-punk version of “Goo Goo Muck” in 1981, but since then the band’s popularity had faded and he never expected it to amount to much of anything. In fall 2021, though, the producers for Netflix’s Wednesday series called to license the Cramps’ version for a synch. When the Addams Family revival came out Nov. 23, the series saw record-breaking viewership and the track took off, much like Kate Bush‘s “Running Up That Hill” last spring in Stranger Things, shooting from 2,500 streams the day before the premiere to 134,000 five days later. “It’s a really amazing, fun little bonanza,” says Shaw, 76. “I wasn’t familiar with the show, but I was happy to make the deal, and caught by surprise on all this.”
Bell, who died in 2013, was a U.S. Navy veteran who evolved from directing a church choir to recording artists, including local symphonies and a pre-stardom Merle Haggard, for his Bakersfield-area studio and his Audan Records label. He also owned a couple of publishing companies, including Damosi, named after his wife and daughters. Not much is known about Cook, who wrote “Goo Goo Muck” with Ed James. “I really thought it was a fun little song — the Duane Eddy guitar and that sound,” Shaw says. “I don’t know what this leads to. I was thinking of Pulp Fiction. Remember some of the really cool songs that got dusted off?”
Shaw, who is on the board of directors for the Buck Owens Foundation and has written songs of his own for Garth Brooks and Tom Jones, among others, recalls the late Bell as a character who was both religious and “had a potty-mouth.” Says Shaw, with a laugh: “He said, ‘The problem in this world is that people don’t pay attention to the fucking Ten Commandments.’”
Although Bell had done “very well in his life” as a label and studio owner and song publisher, Shaw says, he hit a rough period in the early 2000s and his friend started loaning him $100 or $200 at a time. “It kind of accumulated, and he was telling me how badly he felt about it. He says, ‘I want you to have this song.’ I said, ‘OK, sure,’” Shaw recalls. “It’s really cool. That’s what every songwriter and publisher hopes will happen. It’s what everybody dreams.”
Over the last six weeks, Hipgnosis Songs Fund Ltd., the trailblazing acquirer of music publishing and recording rights, has been buying up a different kind of asset. Over seven transactions since Oct. 18, the company has been repurchasing its own stock, 250,000 shares at a time, to help support its slumping share price. So far, it has spent 1.5 million pounds ($1.8 million) to buy back 1.75 million of its shares. And while that accounts for just 0.14% of the roughly 1.21 billion issued shares, it underscores a crucial conundrum for the publicly traded company.
While, like much of the music business, Hipgnosis’ business has been steadily growing thanks mostly to booming music streaming revenues, its shares have lost 34% of their value year-to-date through Nov. 29. That decline is about six times worse than the 5.7% drop suffered by the FTSE 350 Media Index, representing 10 media companies on the London Stock Exchange. It’s more than triple the New York Stock Exchange composite index’s 10.1% deficit.
Normally, buying back shares lifts a company’s stock by both providing demand (which supports the stock price) and reducing the number of shares outstanding (which increases the per-share equity value). But since Hipgnosis began repurchasing its shares on Oct. 18, its share price has fallen 3.5% while the stock market has solidly improved: Over that time, the FTSE 350 Media index rose 6.8% and the New York Stock Exchange composite index rose 9.5%.
The share repurchases to date have been too few to move the needle. At the Sept. 21 annual general meeting, Hipgnosis’ shareholders approved a repurchase program that can buy up to 14.99% of its issued share capital through Dec. 8. So far, less than 1% of that allowable number has been bought back. And with less than 10 days left until the deadline, Hipgnosis is unlikely to make a much more meaningful dent. As of March 31, the date of Hipgnosis’ latest financial statement, the company had only $30 million in cash and about $100 million of borrowing capacity under its $700 million revolving credit facility. To buy back that full 14.99% stake at the current price and exchange rate would cost the company another $180 million.
But buying enough shares to directly impact the price isn’t necessarily the goal. The repurchase program can still act as a signal to investors that the company believes its stock is undervalued and is taking measures to address the matter. If all goes well, the decision to return cash to shareholders will end up boosting investor confidence in the music fund. That could ultimately help its share price, which is currently trading at a 46.7% discount to the company’s operative net asset value per ordinary share, according to the company’s July 13 mid-year earnings results. (Operative NAV is the fair market value of the catalog with amortization added back.) Even after considering its $570 million of debt (as of March 31), Hipgnosis shares are still trading 27.7% below the catalog’s value.
On paper, Hipgnosis should be a safe bet for investors: It buys dependable, recession-proof music intellectual property that churns out predictable royalties that are uncorrelated with the marketplace. The face of the company, founder Merck Mercuriadis, reshaped music investing by bucking the tradition of using debt to fund catalog acquisitions and launching the first publicly traded, equity-backed royalty fund that focused solely on music assets. Mercuriadis runs an investment advisory, Hipgnosis Songs Management, that collects a fee for managing the publicly traded company’s catalog. Mercuriadis declined to comment for this article.
From 2018 to 2021, Hipgnosis raised almost 1.3 billion pounds ($1.55 billion) through eight offerings on the London Stock Exchange, spending the money, and some debt, on established, proven songs — music publishing, recorded music catalogs and creator royalty streams — by the likes of Neil Young, Journey and Red Hot Chili Peppers. Mercuriadis and his team recommend catalogs for Hipgnosis Songs Fund to purchase and try to generate more revenue from its portfolio. Hipgnosis Songs Fund itself is a lean organization – it has a board of directors and a team of outside accountants, attorneys and other specialists – that collects royalties, pay dividends and operates with minimal overhead. Investors shouldn’t expect the triple-digit returns of a fast-growing tech company, but they shouldn’t face much downside risk, either. Decades-old popular music in a growing industry is a stable investment.
Hipgnosis’ pitch became particularly attractive as low interest rates encouraged investors to pour money into alternative assets like music as central banks cut rates to encourage borrowing to help combat a recession caused by the COVID-19 pandemic. But central banks have hiked interest rates in 2022 to ward off rising inflation, and Hipgnosis and companies like it have seen their share prices fall sharply. An Oct. 27 report by Trust Intelligence posits that Hipgnosis, along with other alternative asset funds, “has seen a significant share price de-rating as investors worry about the potential for valuations to fall in a rising interest rate environment.” Shares of alternative asset managers Blackstone Group – an investor in Hipgnosis Songs Management – and Franklin Resources are down 31.8% and 21.5%, respectively, this year despite the companies’ earnings beating expectations last quarter. Other music companies are having a tough year, too. Shares of Round Hill Royalty Fund Ltd., another music-backed investment trust that trades on the London Stock Exchange, are down 24.9% year to date.
The underlying business underpinning the Hipgnosis catalog and others like it, however, seems as healthy as ever. Global publishing and label revenues climbed 18% to $39.6 billion in 2021 on the strength of streaming services such as Spotify, Apple Music and YouTube. In the U.S., music publishers will enjoy a slightly larger share of subscription revenue from 2023 to 2027. Music subscription prices are rising, too – Apple Music hiked its monthly fees in October and Spotify appears ready to follow in 2023. Social media and short-form video apps such as TikTok are increasingly valuable revenue streams for both publishers and labels. Hipgnosis’s pro-forma revenue – which compares catalogs on a like-for-like basis and ignores recent acquisitions – in the second half of 2021 rose 11.6% from the first half, which was impacted by COVID-19 restrictions that hurt physical sales and performance royalties. In its latest fiscal year ended March 31, catalog additions helped gross revenue grow 24.7% to $200.4 million.
With its stock trading at a large discount to the value of its catalog, though, the company is unable to raise additional equity to expand its catalog. It certainly had plans to do so: In January 2021, Hipgnosis shareholders voted 98.6% in favor of a plan to sell 1.5 billion new shares. At the planned price of $1.68 per share, those additional shares would have raised $2.52 billion. Since then, however, Hipgnosis has sold only 199.6 million shares at an average of 1.21 pounds per share ($1.46), for a total of 241.4 million pounds ($330 million). Money has continued to pour into other funds for music acquisitions: Primary Wave took a $1.7 billion investment from Brookfield Asset Management in October; Influence Media Partners teamed up with Warner Music Group and BlackRock Alternative Investors in July; and last year, KKR partnered with BMG and Apollo Global Management backed upstart HarbourView Equity Partners to the tune of $1 billion.
The share repurchase program could have tangible results: the repurchase of 1% of shares would add 0.5% to the net asset value per share, reduce the dividend payment and “be accretive to annual income by $57,000,” according to JP Morgan Cazenove analysts. Investors could also look elsewhere to gain some confidence. In September, Hipgnosis reiterated its target annual dividend of 5.25 pence (6.34 cents) per share and announced an interim dividend of 1.3125 pence ($1.59) per share. It has also made moves to save money. In July, it reached a deal with French collection society Sacem for reduced administration expenses and collection fees. In October it procured a new revolving credit facility with a lower cost of debt and completed interest rate swaps that provide a hedge against rising rates.
More dramatic steps are available to raise cash, too. JP Morgan Cazenove analysts suggested in an Oct. 24 report that the company could sell “non-core assets” such as the Kobalt fund — 42 catalogs of more than 33,000 songs — it bought in Nov. 2020 for $323 million. The analysts also suggest Hipgnosis could sell part of its catalog to Blackstone, which took an ownership stake in Mercuriadis’ song management operation in Oct. 2021 and provided $1 billion for catalog acquisitions. That would allow Hipgnosis to reduce its debt and free up capital to repurchase shares or invest in new catalogs. Or Hipgnosis Songs Management could seek funding from Blackstone to acquire the entire Hipgnosis Songs Fund portfolio. Another option not mentioned in the report is to sell Big Deal Music, the independent music publisher that Hipgnosis Songs Fund acquired in 2020 and rebranded as Hipgnosis Songs Group, and focus solely on managing its catalog instead of signing and developing songwriters.
Following years of headline-grabbing moves, this has been a relatively quiet one for the publicly traded Hipgnsosis Songs Fund — there have been no acquisitions and no capital raised through stock offerings in 2022. In contrast, the other side of the business, Hipgnosis Songs Management, purchased the catalogs of Kenny Chesney, Justin Timberlake and Leonard Cohen through its venture with Blackstone, Hipgnosis Songs Capital ICAV. In addition, in August Hipgnosis Songs Management raised $222 million from a securitization backed by the royalties of 950 songs from Timberlake, Cohen and others.
Glimpses of what comes next, and how else Mercuriadis plans to address the stock price, could come soon. Dec. 8, the final day of the share repurchase program, is also the day Hipgnosis will release mid-year financial results and host a Capital Markets Day.