I recently came across this article – The Man Who’s Spending $1 Billion to Own Every Pop Song – and found it to be fascinating.
It’s about a former music manager turned “crazy” (bold?) music investor, who’s buying up the rights to thousands of hit songs from artists like Taylor Swift, Ed Sheeran, and Bruno Mars at what most industry experts consider to be irrational valuations.
It’s a bit long, but the whole thing is worth a read if you enjoy following the music industry.
As a preview, here are a few highlights:
In less than three years, Hipgnosis has purchased nearly 7,500 songs, more than 1,000 of which have been number one hits. Mercuriadis has done eight-figure catalog deals with the writers of five of the songs in Billboard’s Top 10 of the Decade…
The eye-popping dollar amounts Mercuriadis is paying have caused much consternation in the C-suites of major labels and publishing houses, entities that historically have ruthlessly fought against change. “Fuck that guy. What he’s paying is obscene,” says one publishing exec, who, like the 15 other industry sources contacted for this story, declined to comment on the record. In the music industry, paying for assets at a 10x multiple is considered top dollar. Mercuriadis is reportedly paying up to 20x, making it impossible for others to compete.
Ultimately, his goal with Hipgnosis — which went public on the London Stock Exchange in June 2018 — is to own 15% to 20% of the overall publishing market.
What’s so interesting about this is his core investment thesis, which seems to basically be a combination of two things:
(1) He is better at predicting which songs will generate high long-term royalty cash flows relative to industry expectations (i.e., he can pick songs that are more valuable than the market generally realizes), and
(2) He can actively manage to increase the demand for the content his fund owns by using smart teams to market it in innovative ways (i.e., he can increase the cash flows further by finding more ways for the songs to receive royalty payments).
The second item is what caught my attention, because it seems so obvious, and yet nobody seems to be doing it. And he’s doing it in a publicly traded fund, which means this sort of investment is readily accessible to most investors. It’s summed up in the article like this:
Today, the business operates like a cross between an investment fund and a talent management agency …each of his 19 employees is responsible for monetization opportunities for a portfolio of songs
“Major publishers have small staffs working with hundreds of thousands of songs. We’re shooting for thousands of songs and having synch managers who are each responsible for a much smaller amount,” he says. “We’ll make a lot more money than anyone else.”
Mercuriadis’ operating theory — that songs can be viewed as a measurable uncorrelated asset class akin to gold, diamonds, or oil—entities sheltered from the swings of the market. “I think that in due course other people will be saying, ‘I need to be in songs,’” he says.
Time will tell whether the valuations are rational, but the idea of actively managed royalty paying music content that is available as a publicly traded investment makes a lot of sense to me.