Profits from music back catalogues dry up for Hipgnosis
Making money from buying up music back catalogues looked attractive when interest rates were low. Now, not so much.
Under the swashbuckling leadership of its founder Merck Mercuriadis, Hipgnosis was one of the dazzling successes of the London stockmarket over the last decade, and proof, if you wished to look at it that way, that for all its current problems, the City was still good at financial innovation.
A hugely successful former music industry executive, Mercuriadis teamed up with songwriter and performer Nile Rodgers – one of the leaders of Chic, and a collaborator with David Bowie and Madonna – to raise a fund that would acquire the rights to song catalogues.
With an initial £300m, over the next few years, Hipgnosis raised more than £1bn from investors and used the money to buy the catalogues of Fleetwood Mac stars Mick Fleetwood and Christine McVie, Blondie, 10cc, the Red Hot Chilli Peppers and many more. Along the way, it created a whole new asset class, with several rival music funds competing with each other to snap up the most valuable catalogues. Bruce Springsteen seems to have called the top of the market when he sold his songs to Sony for a reported $500m. It seems they don’t call him “The Boss” for nothing.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So, why is Hipgnosis in trouble?
And yet right now Hipgnosis is imploding. A plan to sell a big chunk of its catalogue to Blackstone was blocked by shareholders. Its founder has now launched legal action against the fund. It is searching for new auditors after PwC refused to reapply for the role, a development that hardly inspires confidence in the state of its accounts. There are questions about the way that Hipgnosis royalties are calculated. The shares are down by 21% so far this year as investors steadily lose confidence in the entire market.
True, there are always individual businesses within any sector that run into trouble, and Hipgnosis may well be able to get itself back on track over the next year. And yet the very survival of the asset class is now open to question.
There were two big problems with the song funds. First, they relied on very low interest rates. When rates were at 0.5%, or even lower, as they were for most of the last decade, investors were desperate for income. Generating 5% or 6% on a collection of old songs looked pretty good. Now that you can get 5% just by parking your money in the bank, or buying government bonds, it looks a lot less attractive. Second, the funds depended critically on the idea that revenues would keep on growing. That turned out not to be the case. The music streaming market is now more or less saturated, and the likes of Spotify are finding it very hard to force through price rises, even with high rates of inflation. And there are only so many TV shows that want the rights to old Fleetwood Mac songs.
In a bull market, financial engineers are always looking for clever new ways to make money. In the 1980s and 1990s, it was junk bonds. In the 2000s it was subprime mortgages. We may well have seen it in the 2010s with the idea that old music catalogues were an asset that could be traded and monetised on an industrial scale.
There are never really any new ways of making lots of easy money. It always blows up eventually – it is just a question of when.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
- Merck Mercuriadis: the mogul shaking up the music business
- Music royalties fund Hipgnosis strikes a discordant note
- Artists demand a fair share of the music industry pie
- Grab a piece of art – or music – with fractional ownership
- How Taylor Swift is boosting the economy
-
Energy, healthcare and utilities: how to tap into AI in the real economyAI promises to add to the productivity and profitability of much of the economy beyond tech. Here’s two themes to tap into AI in the real economy.
-
How Junior ISAs could help with inheritance tax planningLooming inheritance tax changes will limit how much pension wealth can be passed on but more people may be maxing out their loved ones’ JISA allowance instead
-
Should you sell your Affirm stock?Affirm, a buy-now-pay-later lender, is vulnerable to a downturn. Investors are losing their enthusiasm, says Matthew Partridge
-
Why it might be time to switch your pension strategyYour pension strategy may need tweaking – with many pension experts now arguing that 75 should be the pivotal age in your retirement planning.
-
Beeks – building the infrastructure behind global marketsBeeks Financial Cloud has carved out a lucrative global niche in financial plumbing with smart strategies, says Jamie Ward
-
Saba Capital: the hedge fund doing wonders for shareholder democracyActivist hedge fund Saba Capital isn’t popular, but it has ignited a new age of shareholder engagement, says Rupert Hargreaves
-
Silver has seen a record streak – will it continue?Opinion The outlook for silver remains bullish despite recent huge price rises, says ByteTree’s Charlie Morris
-
Investing in space – finding profits at the final frontierGetting into space has never been cheaper thanks to private firms and reusable technology. That has sparked something of a gold rush in related industries, says Matthew Partridge
-
Star fund managers – an investing style that’s out of fashionStar fund managers such as Terry Smith and Nick Train are at the mercy of wider market trends, says Cris Sholto Heaton
-
Affordable Art Fair: The art fair for beginnersChris Carter talks to the Affordable Art Fair’s Hugo Barclay about how to start collecting art, the dos and don’ts, and more
