🔵 At Hipgnosis, the house always wins

But where does this leave the market for music catalogue?

Hi there,

Regular readers will recall my article (pre-Substack, so no online archive sadly) regard Hipgnosis and how curious the whole setup was across the businesses.

For those unfamiliar, let’s have a little recap. I’ll apologise now as you may well be rubbing your temples whilst taking it all in. I would also highly recommend reading

Jimmy Stone

’s excellent deep dive into Hipgnosis’ financial state, which summarises what’s gone on far more thoroughly than I’ve managed.

Hipgnosis is a name attributed to three entities. Hipgnosis Songs Management (HSM) is a management entity that oversees and advises on catalogue acquisitions for two other entities: Hipgnosis Songs Fund (HSF), a publicly-traded business and Hipgnosis Song Capital (HSC), a privately-owned business backed primarily by Blackstone.

Recently, it became clear that the performance of HSF was not going as expected. Performance was falling short of expectation, creating issues for shareholders with regards to the dividends they receive. To address this, HSF proposed selling some of its catalogue off, and was advocating a sale to HSC. By doing so, it would remove some of the poorer-performing catalogue and therefore, it was hoped, improve the efficiency of performance around HSF.

This, it would seem, is where issues have arisen, the culmination of which is a steep drop in HSF’s share price in recent days.

It is worth reiterating at this point is that HSM advises both of the other Hipgnosis businesses. For that reason, it always looked a little odd that when the publicly-traded company underperformed, the resolution as recommended by HSM was to sell to the other Hipgnosis company it advises.

I suspect you can see where I am going here, and it would appear shareholders have finally taken issue with this as well. Put simply, HSM was in a situation where it appeared to always win. If HSF underperforms, it sells catalogue to HSC, a move that I assume ensures management fees and presumably commissions too. So HSF failing is, in a roundabout way, still a win for HSM, and potentially for HSC too if it were to procure catalogue for “fire sale” rates.

What seems to have happened in the last fews days is a breakdown of trust in the advice that is being given to shareholders in HSF. It would appear they are now questioning the valuations which would have seen HSF selling catalogue including Kaiser Chiefs and Barry Manilow for some 24% lower than market value (according to The Guardian article linked below).

Alongside this, the performance of HSF has been so bad that dividend payouts to shareholders are now being cancelled completely, further ratcheting up the ire towards those managing the fund.

On the horizon (at the end of this month) is a vote from shareholders which would potentially move to liquidate the entire HSF business. It is quite a nuclear option, but I understand is usually undertaken when a business is performing so badly that it amounts to an exit rather than continuing to lose money.

The problem with such an exit, however, is that the most likely acquirer of the company would be… HSC, the privately owned arm of Hipgnosis. So once again, HSM, the management entity overseeing both businesses would still benefit.

The house always wins.

As The Guardian notes, one possible path forward would be to install a new board, potentially unseating Merck Mercuriadis as the main adviser - a role for which The Guardian reports him as having earned $12.5M in fees from last year alone.

The drama then, rumbles on. The board may be replaced, which in itself would amount to a PR disaster (well, another one anyway) for Mercuriadis and Hipgnosis. Another outcome would be a sale to HSC, though it feels unlikely given everyone has now gotten wise to the win-win position HSM is in here. With the vote deciding on liquidation (or not) of the business coming at the end of the month, the clock is ticking on how this mess can be resolved.

Against this all though, one wonders where this leaves the supposedly lucrative business of catalogue acquisition. I think we have to be mindful not to conflate Hipgnosis’ problems with that of the wider market; certainly a lot of the issues stem from the way in which Hipgnosis itself was set up. Nonetheless, Mercuriadis and Hipgnosis have been the poster children for the “music as asset class” movement. Artists sold to Hipgnosis referencing Merck’s talents and vision as a reason for selling up.

If HSF fails, one wonders where it will leave the wider market view on investing into song catalogue. If a chilling effect occurs, valuations might well plummet, and there’s an outside chance we will all reflect on the last 2-3 years as a bubble moment that has well and truly burst.

For now though, we continue watching from the sidelines, wondering how this will all turn out. If nothing else, it’s proving a gripping story to follow.

Have a great evening,

D.

🎶 listening to “Get Thy Bearings” by Donovan. I think most people think of Donovan in the folky, hippy sense - Hurdy Gurdy Man and all that. This track came to me via a Dusty Fingers comp, those being vinyl-only, almost-certainly-unlicensed comps of spectacularly breaks-heavy rock tracks. That, I think, indicates what kind of a song we have here. Granted, it’s a lazy loper of a track, but my word those drums…! Check it out - it’s a stone cold classic.

🤖 playing with Microtonic, a drum machine plugin that comes with one amazing additional feature: the Patternarium. In short: users upload killer beats, the masses then vote on which beats are best, and then machine learning attempts to create more beats based upon that. End result? Around 25,000 insane drum beats to take and use in your own productions. 😆

Stories from the Music Industry:

Dividend shocker shows need for some robust governance at Hipgnosis

What’s the best way out of the fix? Well, the vote on the deal is also likely to produce a rebellion on the parallel “continuation” poll over whether to wind up the fund. Yet winding-up would surely be self-defeating because the most likely buyer would be Blackstone, which has already demonstrated how hard-nosed it can be on price. So the next best answer is to get some robust governance in place on the Hipgnosis board.

👆🏻Hot take: per editorial above, it feels like investors are potentially getting wise to the failings of the Hipgnosis setup, along with its relationship to Blackstone.

The next League of Legends music group is a virtual boy band

Riot Games is announcing its next in-universe League of Legends band: a boy band called Heartsteel comprised of the in-game characters Ezreal, Kayn, Aphelios, Yone, K’Sante, and Sett. Riot will debut “Paranoia,” the first song from the virtual band (which features the real-life musicians Baekhyun, ØZI, Tobi Lou, and Cal Scruby), on October 23rd at 11AM ET.

👆🏻Hot take: curious to see how this might pan out. Virtual boy bands, driven by gaming platforms? Certainly an outside area for music.

Universal Music strikes ‘first-of-its-kind’ strategic AI partnership with BandLab Technologies

Together, UMG and BandLab Technologies say that their two companies will “pioneer market-led solutions with pro-creator standards to ensure new technologies serve the creator community effectively and ethically”.

👆🏻Hot take: a recurring thing I keep noticing in all Universal’s AI partnership announcements is any kind of direct, concrete specifics as to what these deals will mean. This is no exception. I simply don’t understand where the crossover point is between these two businesses, so would love for someone to enlighten me.

Patreon expands in livestreaming with acquisition of Moment

So what now under Patreon’s ownership? “In the coming months, we plan to integrate foundational elements of the Moment and Patreon platforms to enable creators and fans to have a seamless experience across our membership, digital commerce, and digital event products,” explained Patreon in its announcement blog post.

👆🏻Hot take: a logical move for Patreon, though it feels more like a timely exit for Moment, given the state of live streaming in general post-pandemic.

BMI will pay songwriters and publishers a smaller portion of its revenues as a for-profit company – while upping its own margin from 10% to 15% of collections. Will its members tolerate this change?

There is, though, one other big question sparked by Michael O’Neill’s new announcements: Will BMI stop at a 15% margin? Or will it – especially under the prospective ownership of private equity – look to crank this number further upwards in the years ahead? It’s worth noting that O’Neill’s new announcement on the switch from a 10% margin to a 15% margin isn’t definitive: He says, if you read his words carefully, that a 15% margin is BMI’s “goal”.

👆🏻Hot take: BMI is walking a tightrope here, and as we’re seeing with Bandcamp, it is easy for the negative narrative to dominate. Ergo I’m curious to see how this story plays out.

Stories from the Broader World of Tech

X, formerly Twitter, rolls out US$1 annual fee for new users in New Zealand and the Philippines | X (formerly known as Twitter)

“As of October 17th, 2023 we’ve started testing ‘Not A Bot’, a new subscription method for new users in two countries,” the company said in a post. “This new test was developed to bolster our already significant efforts to reduce spam, manipulation of our platform and bot activity.

👆🏻Hot take: I think my disdain for the treatment of Twitter/X is apparent by now if you’re a regular reader, but I’m curious to see whether this particular experiment might work. The money involved is tiny, so will it be sufficient to deter bots, or will it just drive away new users and stall growth?

Spotify, Publishers and (spare a thought for) Authors

To my eye, there are three curve balls that publishers need to straighten out with us authors.  What crystallises a royalty event? In music, it’s simple - stream 30 uninterrupted seconds of a song and a royalty is paid (hence why songwriters often put the chorus at the front). In books, the threshold is less clear. What happens if you only stream chapter five of my book? Would that qualify for a royalty?

👆🏻Hot take: some interesting thoughts here from Will Page, highlighting the grey area that appears to exist around how Spotify is remunerating authors.

YouTube rolling out stable volume, You tab, song search

YouTube is rolling out “three dozen new features and design updates,” like a You tab and stable volume, “over the coming weeks.” Starting on the video player, “Stable volume” in the mobile app will “reduce jarring differences in volume.” Enabled by default, tap the settings gear icon and then “Additional settings” for the new on/off toggle. This is rolling out starting today.

👆🏻Hot take: good to see YouTube continuing to bring new features.

Need something else to read? Here you go:

Unmasking Banksy – the street artist is not one man but a whole brand of people

The graffiti artist known as Banksy might be unmasked in an upcoming defamation case over his use of Instagram to invite shoplifters to go to a Guess store because it had used his imagery without permission.

👆🏻Hot take: a great look at how Banksy is less one person and more a collective now. It makes a lot of sense too; artists at that scale are businesses like any other.

51 Low-Lift 30-Minute Meals for Nights When You Just Can’t

Delicious ways to get dinner on the table, even when it feels impossible.

👆🏻Hot take: it might be the lack of sleep but this is feeling very relatable today 😆

The latest from Motive Unknown’s world:

IDLES are back with their ‘best album’ to date!

“TANGK. I needed love. So I made it. I gave love out to the world and it feels like magic. This is our album of gratitude and power. All love songs. All is love.”

We have the pleasure of managing the international digital spend and strategy for this release alongside Partisan Records. We kicked off the campaign by teasing the album using billboard creative to connect online with physical and serving anonymous TANGK ads to remarketing pools to create a digital breadcrumb. Check the first single “Dancer” above!