Since its IPO in 2018, Hipgnosis Songs Fund Limited has built a $2.2 billion music rights business that generated $138.4 million in net revenue last year, the company revealed in an unaudited financial report on Monday. Although only five pages in length, the document — which covers the year ended March 31, 2021 — has plenty of interesting details ahead of full-year results coming June 29.
To date, investors have piled £1.1 billion ($1.56 billion) into the London-based, Guernsey-domiciled royalty fund, enticed by steady returns from a unique asset class, and a lucrative, fast-growing streaming market. That interest has given Hipgnosis enough money to buy a staggering number of catalogs in fewer than three years. “At a point in time when the explosion of streaming has transformed music from a discretionary consumer purchase to a utility purchase and new heights of consumption we have acquired amongst the most important songwriter, artist and producer catalogues of all time,” said Merck Mercuriadis, founder of Hipgnosis, in the report.
Integral to Hipgnosis’ thesis is the value of classic songs — especially on streaming services. With record amounts of money pouring into music investments, some critics worry that companies are overpaying for rights in order to beat competitors to the seller. But Mercuriadis doesn’t see Higpnosis’ investments that way. The pandemic accelerated streaming growth and leaves Hipgnosis “well positioned for the future,” he said, adding that synch revenues “exceeded all expectations” and “highlighted not only that we have bought well but also how undervalued our iconic songs have been by traditional publishers and the massive opportunity this affords Hipgnosis.”
Here are seven key takeaways from the report:
After over $1 billion in acquisitions, Hipgnosis’ catalog is now worth $2.2 billion
Over the past year ended March 31, 2021, Hipgnosis paid $1.06 billion to acquire 84 catalogs, including songs by Neil Young, Lindsey Buckingham of Fleetwood Mac, Shakira, Steve Winwood, Barry Manilow and Chrissie Hynde of The Pretenders. Those acquisitions have since brought Hipgnosis’ net asset value — the value of the catalog minus debt — to over $2.2 billion. Hipgnosis is choosey about its acquisitions and targets what it calls “culturally important songs” of successful songwriters, recording artists and producers. Of the 64,555 songs in its entire 138 catalogs, 3,738 songs have held a number one chart position. They’re heavily skewed toward pop (46.1% of portfolio value) and rock (27.3%). Only 2.5% of the songs are three years old or younger while 60.2% are over 10 years old. Many of the prominent acquisitions in the year are music released from roughly 1970 to 1985, putting these valuable titles in the 35 to 50 years old range.
The catalog is giving double-digit returns
Net asset value per ordinary share increased 11.3% in the last financial year compared to the year prior. (Note that Hipgnosis has released unaudited figures in document.) The NAV per share rose from $1.5114 to $1.6829 after a bump in catalog’s value minus the expense of dividends paid to shareholders, and a couple smaller items. The NAV return is 40.7% since its $260 million IPO in June of 2018.
Quietly getting into NFTs, starting this August
Hipgnosis is getting into the NFT business by launching “personalized digitally focused merchandise and collectibles utilizing our copyrights alongside significant activity across the top tier lucrative NFT landscape, the first of which launches in August this year.” To date, company has not publicly revealed anything about its NFT plans. The Hipgnosis website‘s only mention of NFTs is an email address for people interested in licensing their music. But given the new popularity and potential of NFTs, it’s sensible for any rights-owning company to entertain ways of getting into the space.
TikTok and Peloton royalties are on their way
Emerging platforms such as TikTok and Peloton have paid administrators but those royalties are not expected to reach Hipgnosis until later in the year. Among them will be for Chic’s “Everybody Dance,” written by Nile Rodgers and Bernard Edwards, which was used in Public Health England’s NHS x TikTok campaign.
More than 110 game placements this year
Placements in TV, movies and advertisements often get more attention, but gaming is a bountiful market for music, too. Hipgnosis has placed more than 110 songs in video games since January, with more than 75 songs cleared for Beatstar, a song-based smartphone app in the vein of Guitar Hero. Among the placements are Lizzo’s “Tempo” in Call of Duty Cold War; Chic’s “Warm Summer Night” in Grant Theft Auto V Online, and Lorde’s “Supercut” in EA’s FIFA ’22. In addition, Hipgnosis now exclusively represents the original music in EA Games.
COVID-19 hammered performance royalties by more than a quarter
Performance royalties, which accounted for 29% of net revenue, declined 25.8% in the second half of the year compared to the first half of the year. Hipgnosis expects “a further, modest fall” in performance royalties in the first half of the current year and an end to the decline in the autumn. U.K.-based PRS For Music announced on in April that its performance royalties dropped 19.7% in 2020.
Developing a new system to solve data problems and prevent lost royalties
Hipgnosis built a proprietary platform — not mentioned publicly until now — that weeds out data issues across the 200 companies that collect its royalties. When fixed, these data problems, which outside of Hipgnosis from the previous owners, are expected to provide a “revenue uplift…as much as 40%.” Every fix “is pure revenue upside,” says the report.