Earlier this month, UK-listed Hipgnosis Songs Fund (HSF) printed its newest fiscal outcomes, 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 internet 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.
Displays on the day got here from numerous senior members of Hipgnosis Track Administration – that’s HSF’s funding advisor – together with Ben Katovsky (President/Chief Working Officer), Ted Cockle (Chief Music Officer) and, after all, Merck Mercuridadis, CEO & founding father of the Hipgnosis group of corporations.
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 essentially the most fascinating a part of the morning’s occasions got here when Mercuriadis and his crew had been grilled by numerous funding analysts about HSF’s half-year outcomes, and its future.
Listed here 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 non-public fund – Hipgnosis Songs Capital – whose investments are additionally managed by Hipgnosis Track 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 (Web Asset Worth)’, which most just lately got here in at $2.2 billion (primarily based on a good worth of $2.67 billion).
Mentioned Mercuriadis: “I feel as most traders 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 bought or somebody had been to ever take it over, I might have the primary alternative to [acquire it].”
“It’s crucial to me once I have a look at these songwriters within the eye and successfully purchase their metaphorical youngsters, that I’ve integrity and credibility [to oversee] the success of the corporate.
“I’ve made positive, maybe at industrial sacrifice to myself and to the IA [investment advisor], that each on the [HSF] aspect of issues and even with my non-public fund with Blackstone, that I’m all the time going to be the supervisor of those catalogs.”
“I’ve made positive, maybe at industrial sacrifice to myself and to the IA, that each on the [HSF] aspect of issues and even with my non-public 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 famous 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 present’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 surroundings wherein the worth of many different property are declining.”
Mercuriadis additionally famous his optimism sooner or later worth progress of Hipgnosis Songs Fund, nevertheless, 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 true asset worth of this firm as quick as we presumably can, by all the time telling the reality, working arduous, and including worth.”
2) Individuals are nonetheless writing “very important checks” in music’s M&A world…
There’s little question 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.
Nonetheless, that doesn’t imply issues have floor to a halt.
“We’re seeing multiples being paid which can 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 just lately being bought to Harmony for a nine-figure sum, in addition to Main Wave hanging a $2 billion cope with Brookfield – $700 million of which was instantly deployed to purchase present Main Wave-managed property.
Continued Mercuriadis: “However quite a lot of the folks that have come alongside within the final couple of years which have competed in opposition to us are on the market [today] writing very important cheques.
“I can’t touch upon the person catalogs. However what I can let you know is that we’re seeing multiples being paid [in 2022] which can 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 share of HSF’s portfolio – however have a singular benefit
Hipgnosis Track Administration’s crew had been requested on the Captial Markets Day concerning the common age of songs in HSF’s portfolio which can be lower than 10 years outdated. Such songs, versus these over a decade outdated, are usually anticipated to see a decline in annual earnings – a ‘decay curve’ – till they hit an annual income plateau.
Chris Helm, the CFO, of Hipgnosis Track Administration, revealed that, of the songs owned/part-owned by HSF which can 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”. Nonetheless, he then acknowledged that these under-10-year songs include distinctive benefits: Particularly, you may typically purchase them cheaper than the ‘classics’… and so they may 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 can be terribly profitable and have what we consider is cultural significance,” mentioned Mercuriadis, pointing to Senorita, carried out by Camila Cabello and Shaun Mendes. Launched in 2019, that track 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.
Mentioned 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 similar time we all know we’re additionally going to get larger 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 stage 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 seems to be wonderful, however beneath the floor, you’ve acquired unimaginable information which can 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 document of all time. However [in investment terms] it’s an viewers with a restricted life left to it. Whereas if you happen to’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 into a material of your life and a part of the material of society.”
4) “The sync division of Sony, Common, or Warner… will let you know we’re the perfect”
One of many highlights inside Hipgnosis Songs Fund’s current half-year numbers (to finish of September ’22) was its end in 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 ‘Large Three’ administer.
“We’ve got important catalogs [administered by] Common, Sony, Warner, Kobalt and so on,” he mentioned. “All of them have their strengths, all of them have their weaknesses, and we all know these in all probability higher than anybody. Our chief concern is so as to add worth for our shareholders; on the similar time we’re typically including worth for Common, Sony, and Warner as effectively.”
“The sync folks [at major music companies] love us, as a result of we’ve created a stage 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 corporations as a result of [Mercuriadis believes] they maintain again how songwriters are being paid. However finally if you happen to get previous the senior management of these corporations and also you get to the sync folks… they love us, as a result of we’ve created a stage of effectivity amongst these iconic catalogs they’ve by no means [seen] earlier than.
“On the similar 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 palms these passive requests hardly ever get answered and acted on in a well timed vogue as a result of there’s a lot paperwork [in music rights]. However after they ship us one thing they’ve solutions in seconds.
“You might go to the sync division of Sony, Common, or Warners and I assure you that they may let you know we’re the perfect [partner] there’s as a result of they’ve been in a position to earn more money on the similar time we’re making extra money.”Music Enterprise Worldwide
