Earlier this month, UK-listed Hipgnosis Songs Fund (HSF) printed its latest fiscal results, and so they have been speckled with up-pointing inexperienced arrows.
Living proof: HSF’s gross revenues have 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 Track 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 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 probably the most attention-grabbing a part of the morning’s occasions got here when Mercuriadis and his group have 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 at all times 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 Track Administration (HSM).
The identical query additionally touched on the present share worth 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 (based mostly on a good worth of $2.67 billion).
Mentioned 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 have been ever to be offered or somebody have been to ever take it over, I might have the primary alternative to [acquire it].”
“It’s essential to me after 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 business sacrifice to myself and to the IA [investment advisor], that each on the [HSF] facet of issues and even with my non-public fund with Blackstone, that I’m at all times going to be the supervisor of those catalogs.”
“I’ve made positive, maybe at business sacrifice to myself and to the IA, that each on the [HSF] facet of issues and even with my non-public fund with Blackstone, that I’m at all times going to be the supervisor of those catalogs.”
Mercuriadis has this month already touched on his disappointment in HSF’s present share worth, which has dropped by round 32% YTD..
He noted when saying HSF’s outcomes on December 8: “I share the frustration of Shareholders that the true worth of our iconic Songs just isn’t mirrored in at this time’s share worth. As Songs are a brand new asset class, we perceive that the market has issues about each valuation and low cost price, significantly when our NAV is secure in a macroeconomic atmosphere during which the worth of many different belongings are declining.”
Mercuriadis additionally famous his optimism sooner or later worth development of Hipgnosis Songs Fund, nonetheless, commenting that the agency’s present share worth in his eyes represented an “unbelievable funding alternative”.
On the Capital Markets Day in London, Mercuriadis continued on this theme, stating: “[T]right here’s unbelievable worth right here, and that unbelievable worth is one thing I’m decided goes to be mirrored within the share worth.
“I’ll work tirelessly together with our individuals – [Hipgnosis Song Management] is now greater than 50 individuals sturdy within the UK, with further individuals in America – to [insure] that the share worth displays the actual asset worth of this firm as quick as we presumably can, by at all times telling the reality, working arduous, and including worth.”
2) Individuals are nonetheless writing “very vital 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.
Nevertheless, that doesn’t imply issues have floor to a halt.
“We’re seeing multiples being paid which are 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 offered to Concord for a nine-figure sum, in addition to Primary Wave putting a $2 billion deal with Brookfield – $700 million of which was instantly deployed to purchase current Major Wave-managed belongings.
Continued Mercuriadis: “However quite a lot of the those who have come alongside within the final couple of years which have competed towards 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 are considerably above the place [Hipgnosis Songs Fund’s] NAV is. I’m not speaking about the place our share worth is, however the place our NAV is.”
3) Youthful songs are making up a smaller share of HSF’s portfolio – however have a novel benefit
Hipgnosis Track Administration’s group have been requested on the Captial Markets Day in regards to the common age of songs in HSF’s portfolio which are 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 are 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 typically purchase them cheaper than the ‘classics’… and so they would possibly simply find yourself getting cash 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 gained’t commerce.”
“[We] solely purchase songs which are terribly profitable and have what we imagine is cultural significance,” stated 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, typically 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 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 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 gained’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 unbelievable data which are going to enter public area – as a result of it’s a catalog that’s over 50 years, hitting 60 years, outdated.”
Mercuriadis then stated 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 for those who’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 unbelievable songs that change into 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 perfect”
One of many highlights inside Hipgnosis Songs Fund’s latest half-year numbers (to finish of September ’22) was its lead to sync revenues, which have 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 ‘Massive Three’ administer.
“We’ve vital catalogs [administered by] Common, Sony, Warner, Kobalt and many others,” he stated. “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 usually including worth for Common, Sony, and Warner as effectively.”
“The sync individuals [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 crucial of these corporations as a result of [Mercuriadis believes] they maintain again how songwriters are being paid. However in the end for those who get previous the senior management of these corporations and also you get to the sync individuals… 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 palms these passive requests not often get answered and acted on in a well timed vogue 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 are going to inform you we’re the perfect [partner] there may be as a result of they’ve been ready to make more cash on the identical time we’re making more cash.”Music Enterprise Worldwide
