Earlier this month, UK-listed Hipgnosis Songs Fund (HSF) printed its latest fiscal results, and so they had been speckled with up-pointing inexperienced arrows.
Working example: HSF’s gross revenues had been up 7.5% YoY within the six months to finish of September 2022, whereas web income was up 5.8% YoY.
Following the publication of these outcomes on December 8, the corporate held a Capital Markets Day on the Maxwell Library in Savoy Place, London.
Shows on the day got here from numerous senior members of Hipgnosis Tune Administration – that’s HSF’s funding advisor – together with Ben Katovsky (President/Chief Working Officer), Ted Cockle (Chief Music Officer) and, in fact, Merck Mercuridadis, CEO & founding father of the Hipgnosis group of firms.
Bon Jovi’s Richie Sambora even appeared to carry out an intimate acoustic rendition of Livin’ On A Prayer.
For MBW’s eyes and ears, maybe probably the most attention-grabbing a part of the morning’s occasions got here when Mercuriadis and his staff had been grilled by numerous funding analysts about HSF’s half-year outcomes, and its future.
Listed below are 4 feedback from Mercuriadis that stood out…
1) “I’m all the time going to be the supervisor of those catalogs…”
The primary query confronted by Mercuriadis touched on HSF’s standing in comparison with its sister $1 billion private fund – Hipgnosis Songs Capital – whose investments are additionally managed by Hipgnosis Tune Administration (HSM).
The identical query additionally touched on the present share value of HSF, which continues to commerce at a major low cost versus the corporate’s printed ‘Operative NAV (Internet Asset Worth)’, which most not too long ago got here in at $2.2 billion (based mostly on a good worth of $2.67 billion).
Stated Mercuriadis: “I feel as most buyers will know, I’ve a ‘put’ in my settlement, the IA [investment advisor’s] settlement with [Hipgnosis Songs Fund] that if the fund had been ever to be offered or somebody had been to ever take it over, I’d have the primary alternative to [acquire it].”
“It’s essential to me once I have a look at these songwriters within the eye and successfully purchase their metaphorical kids, that I’ve integrity and credibility [to oversee] the success of the corporate.
“I’ve made certain, maybe at industrial sacrifice to myself and to the IA [investment advisor], that each on the [HSF] aspect of issues and even with my personal fund with Blackstone, that I’m all the time going to be the supervisor of those catalogs.”
“I’ve made certain, maybe at industrial sacrifice to myself and to the IA, that each on the [HSF] aspect of issues and even with my personal fund with Blackstone, that I’m all the time going to be the supervisor of those catalogs.”
Mercuriadis has this month already touched on his disappointment in HSF’s present share value, which has dropped by round 32% YTD..
He noted when asserting HSF’s outcomes on December 8: “I share the frustration of Shareholders that the true worth of our iconic Songs isn’t mirrored in at this time’s share value. As Songs are a brand new asset class, we perceive that the market has issues about each valuation and low cost fee, notably when our NAV is steady in a macroeconomic atmosphere through which the worth of many different property are declining.”
Mercuriadis additionally famous his optimism sooner or later worth development of Hipgnosis Songs Fund, nonetheless, commenting that the agency’s present share value in his eyes represented an “unimaginable funding alternative”.
On the Capital Markets Day in London, Mercuriadis continued on this theme, stating: “[T]right here’s unimaginable worth right here, and that unimaginable worth is one thing I’m decided goes to be mirrored within the share value.
“I’ll work tirelessly together with our folks – [Hipgnosis Song Management] is now greater than 50 folks sturdy within the UK, with further folks in America – to [insure] that the share value displays the actual asset worth of this firm as quick as we presumably can, by all the time telling the reality, working arduous, and including worth.”
2) Persons are nonetheless writing “very vital checks” in music’s M&A world…
There’s little doubt about it: with macroeconomic pressures swirling, acquisitive exercise in music rights in 2022 has been far slower than in 2021, when over $5 billion was spent on copyrights.
Nevertheless, that doesn’t imply issues have floor to a halt.
“We’re seeing multiples being paid which might be considerably above the place [Hipgnosis Songs Fund’s] NAV is.”
At HSF’s Capital Markets Day, Mercuriadis pointed to a Genesis and Phil Collins catalog not too long ago being offered to Concord for a nine-figure sum, in addition to Primary Wave hanging a $2 billion deal with Brookfield – $700 million of which was instantly deployed to purchase present Major Wave-managed property.
Continued Mercuriadis: “However loads of the those who have come alongside within the final couple of years which have competed in opposition to us are on the market [today] writing very vital cheques.
“I can’t touch upon the person catalogs. However what I can inform you is that we’re seeing multiples being paid [in 2022] which might be considerably above the place [Hipgnosis Songs Fund’s] NAV is. I’m not speaking about the place our share value is, however the place our NAV is.”
3) Youthful songs are making up a smaller proportion of HSF’s portfolio – however have a singular benefit
Hipgnosis Tune Administration’s staff had been requested on the Captial Markets Day concerning the common age of songs in HSF’s portfolio which might be lower than 10 years outdated. Such songs, versus these over a decade outdated, are sometimes anticipated to see a decline in annual earnings – a ‘decay curve’ – till they hit an annual income plateau.
Chris Helm, the CFO, of Hipgnosis Tune Administration, revealed that, of the songs owned/part-owned by HSF which might be lower than 10 years outdated, the typical launch date was 2016 (i.e. six years in the past).
Merck Mercuriadis famous that youthful songs “proceed to make up a smaller a part of [HSF’s] portfolio”. Nevertheless, he then acknowledged that these under-10-year songs include distinctive benefits: Specifically, you’ll be able to usually purchase them cheaper than the ‘classics’… and so they would possibly simply find yourself making a living for longer.
“It’s no secret to anybody that the Pink Floyd [recorded music] catalog was on the market not too way back, and ultimately that catalog received’t commerce.”
“[We] solely purchase songs which might be terribly profitable and have what we imagine is cultural significance,” mentioned Mercuriadis, pointing to Senorita, carried out by Camila Cabello and Shaun Mendes. Launched in 2019, that tune has over a billion streams on Spotify; Hipgnosis owns a slice in its by way of its acquisition of Andrew Watt’s catalog in 2021.
Stated Mercuriadis of shopping for sub-10-year songs: “These are songs we purchase on low multiples relative to the remainder of the portfolio, generally single digit [multiples]. We all know they’re going to decay. However on the identical time we all know we’re additionally going to get better than the baseline [figure used for an acquisition multiple] for a few years past what we’ve purchased them at. Then they’ll trough and degree off.”
Added Mercuriadis: “It’s no secret to anybody that the Pink Floyd [recorded music] catalog was on the market not too way back, and ultimately that catalog received’t commerce. [With] a catalog as iconic as that, on the floor it appears to be like wonderful, however beneath the floor, you’ve acquired unimaginable information which might be going to enter public area – as a result of it’s a catalog that’s over 50 years, hitting 60 years, outdated.”
Mercuriadis then mentioned to a JP Morgan analyst within the room: “You’ve additionally acquired an viewers [for Pink Floyd] that features me and also you; Want You Have been Right here is my favorite report of all time. However [in investment terms] it’s an viewers with a restricted life left to it. Whereas in the event you’re the 14-year-old woman that was listening to Senorita three summers in the past, you’ve hopefully acquired one other 70 years of life left in entrance of you, and one other 70 years of consuming these unimaginable songs that turn out to be a material of your life and a part of the material of society.”
4) “The sync division of Sony, Universal, or Warner… will inform you we’re the easiest”
One of many highlights inside Hipgnosis Songs Fund’s current half-year numbers (to finish of September ’22) was its lead to sync revenues, which had been up 32.0% YoY to $9.78 million.
Whereas answering a query about when HSF catalogs will finish their administration agreements with the three main music publishers, Mercuriadis gave a nod to what he believes is his firm’s distinctive standing in sync – and the working relationship it enjoys with the majors for syncs on copyrights HSF owns or part-owns, however the ‘Huge Three’ administer.
“Now we have vital catalogs [administered by] Common, Sony, Warner, Kobalt and many others,” he mentioned. “All of them have their strengths, all of them have their weaknesses, and we all know these most likely higher than anybody. Our chief concern is so as to add worth for our shareholders; on the identical time we’re typically including worth for Common, Sony, and Warner as nicely.”
“The sync folks [at major music companies] love us, as a result of we’ve created a degree of effectivity amongst these iconic catalogs they’ve by no means [seen] earlier than.”
He added: “On the advocacy entrance, I’m very essential of these firms as a result of [Mercuriadis believes] they maintain again how songwriters are being paid. However in the end in the event you get previous the senior management of these firms and also you get to the sync folks… they love us, as a result of we’ve created a degree of effectivity amongst these iconic catalogs they’ve by no means [seen] earlier than.
“On the identical time that we’re working aggressively to actively handle our songs and add worth, [the major music companies are] sending us [sync] requests on a regular basis. In most arms these passive requests hardly ever get answered and acted on in a well timed style as a result of there’s a lot forms [in music rights]. However once they ship us one thing they’ve solutions in seconds.
“You can go to the sync division of Sony, Common, or Warners and I assure you that they’ll inform you we’re the easiest [partner] there’s as a result of they’ve been in a position to make more cash on the identical time we’re making more cash.”Music Enterprise Worldwide
