Hipgnosis Reports Solid Growth in Maiden Financial Results: Hit Songs Are as 'Investable as Gold or Oil'

Courtesy of Hipgnosis
           

In its first year, the company owns full or partial stakes in 12 catalogs amounting to 3,096 songs in total.

In its first 10 months of trading music IP investment company Hipgnosis generated revenues of £7.2 million ($9.2 million) from its fast-growing list of catalog holdings, according to its maiden financial results released Monday (June 24). 

From June 8, 2018, to 31 March, 2019, Guernsey-registered Hipgnosis acquired full or partial stakes in 12 catalogs, including The-Dream, Tricky Stewart, Poo Bear, Chic co-founder Bernard Edwards, English songwriting trio TMS, Giorgio Tuinfort and Itaal Shur, best known for co-writing the Santana and Rob Thomas smash hit "Smooth." 

Other acquisitions concluded during the period included the catalogs of songwriters and producers Johnta Austin, Sean Garrett, Rico Love, Ari Levine and Sam Hollander (deals for Levine and Hollander were not announced until several months later). 

The 12 catalogs -- adding up to 3,096 songs in total -- were acquired for approximately £120 million ($153 million), equivalent to a blended multiple of 12.75x historical annual net income. Hipgnosis reports that the £7.2 million ($9.2 million) in publishing revenue they generated in the 2018/19 financial year represented a 9% rise on a like-for-like basis compared to what the portfolio had generated the year before. The total 'fair' value of the 12 catalogs has risen to £128 million ($163 million) since being acquired, the company states.  

Driving the growth was increased streaming revenues and improved song placement, said Hipgnosis, which was founded by former Beyoncé and Guns N' Roses manager Merck Mercuriadis.

Notable synchronization deals included ad spots with Louis Vuitton for the 2013 Beyoncé song "XO" (co-written and co-produced by The-Dream) and licensing deals with Universal Pictures for "Hard" by Rhianna and the J. Holiday's "Bed" (also part of The-Dream catalog). Hipgnosis' most synchronized asset is its 37.5 percent stake in 290 songs by Chic's Bernard Edwards, which it says will generate more than $1 million in sync revenues by the end of the current financial year. 

As for where Hipgnosis generates the bulk of its publishing revenues, 64% of its income in 2018/19 came from the U.S. with 15% from the U.K. and 4% from Australia. The company's end of year financial report says it anticipates "an increase in revenues from other developed and emerging market countries as streaming services expand in those markets. " 

Since the end of March, Hipgnosis has acquired a further 10 catalogs bringing its total spending to date to £241 million ($307 million) and total catalog holdings to just under 6,000 songs. Recent acquisitions include deals for the catalogs of Teddy Geiger, Starrah, Jamie Scott, Michael Knox, Al Jackson Jr, Neal Schon and the full catalog of Eurythmics co-founder Dave Stewart, comprising over 1,000 songs and including his writer's, artist's and producer's share of income.

"We are delighted with our maiden final results," said Mercuriadis, who was CEO of London-based The Sanctuary Group before its 2007 sale to Universal Music and counts Elton John, Morrissey, Iron Maiden and Diane Warren among his former management clients. 

Mercuriadis went on to say that the company's strong performance proved the validity of Hipgnosis' business model, which looks to growth in streaming, emerging markets and improved royalty tracking among future opportunities to increase income for shareholders. 

"Hit songs are as predictable and reliable and therefore investable as gold or oil. We had access to those proven hit songs and the value of them was going to grow significantly in-line with the consumption of music thanks to streaming," stated Mercuriadis. "Every day," he added, "there is more evidence to back our thesis."

The company says is is currently performing due diligence on a "significant number of new catalog acquisitions" worth a combined value of £146 million ($186 million), which it is looking to complete by the end of July 2019.