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Overture |
Earlier this week Blackstone bought music catalog fund Hipgnosis for $1.6B… |
A symbolic transaction marking a high note in the market |
In 2023, Dr. Dre sold his catalog in a transaction valued at $200M+. |
Justin Bieber sold his catalog for $200M+ around the same time. |
Katy Perry sold her catalog for $225M later that year. |
In the past four years alone, a wide range of artists and songwriters have sold $6B+ of music catalogs to third party investors. |
The artists? Bruce Springsteen, Justin Timberlake, Future, Shakira, John Legend, David Bowie, The Red Hot Chili Peppers, Tina Turner, Iggy Azalea, and more |
The buyers? Hipgnosis, Universal Music Group, KKR, HarbourView, Shamrock, Sony Music, Litmus (Carlyle-backed), Influence Media, and others |
The reason? We'll get into that below… |
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raindrops on roses |
When Dre took his catalog to market, his business team was seeking a quarter billion dollar payout. |
Ultimately, the buyers, Shamrock Holdings and Universal Music Group, closed two separate deals at a combined price tag north of $200M but under the original valuation. |
Details of the transaction: |
The assets generate $10M per year in passive income, implying a 20x+ multiple for the catalog. Important to note that Shamrock and UMG both acquired separate assets, which traded either above or below the aggregate multiple 75-90% of the package's revenue streams were acquired by Shamrock while UMG took a relatively small bite Shamrock previously acquired Taylor Swift's first 6 commercial albums for $300M
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Dre laid a foundation for other hip-hop artists, most notably, Future, to sell their catalogs. Before the Dre purchase, the market for hip-hop catalogs was frigid compared to other genres… There were doubts - and still are to some extent - about the timelessness of those assets. |
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 | future sold his catalog to influence media and a blackrock-backed fund |
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Back to the Blackstone-Hipgnosis deal that took place this week |
The story of Hipgnosis starts in 2014 with a man named Merck Mercuriadis. |
Merck previously managed artists like Elton John, Beyonce, and Iron Maiden. |
One day, he was going back and forth with Niles Rodger, a songwriter, on better ways to compensate songwriters. |
The idea was this: buying catalogs from songwriters and artists provides life changing money for people who often get the short end of the stick when it comes to contracts. On the other end of the market, investors who contribute money to the Hipgnosis war chest are able to access streams of passive income with potential for upside as streaming becomes bigger. |
With a team of music executives, artists, and investors in place, Hipgnosis went straight to the public market in 2018 and raised $270M+ in a British Stock Exchange IPO. |
If people are living their best lives, they're doing it to a soundtrack of songs. But equally, if they're experiencing the sort of challenges we've experienced over the last six months, they're taking comfort and escaping in great songs. So music is always being consumed and always generating income. | | | | Merck Mercuriadis, chune securitization expert |
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Hipgnosis went on acquiring hit after hit, including Justin Bieber's catalog, Justin Timberlake's catalog, The Dream's catalog, Red Hot Chili Peppers, and more. |
The fund did more than just buy artist income streams, they also provided liquidity to labels, producers, and other parties involved in the music money machine. |
LA Reid, the CEO of Epic Records, sold his entire 162 song catalog and then joined the Hipgnosis advisory board Jimmy Iovine sold his producer royalties which included credits on Get Rich or Die Tryin' and 8 Mile.
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Now, to be clear - the concept of music royalty securitization isn't novel. |
But the scale at which Hipgnosis attempted to execute, was notable. |
Blackstone got involved in 2021 by investing $1B in a related entity spearheaded by Mercuriadis, Hipgnosis Song Management. |
At this point, the music acquisition fund had consolidated catalogs to the tune of $2.2B. |
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Something Good |
Unfortunately, every crescendo must fade |
The past few years proved tumultuous for the Hipgnosis business model |
While 2020 and 2021 were profitable, 2022 and 2023 put up disappointing numbers… Also doesn't help that dividends were cancelled last year |
Shareholders reacted accordingly, driving the stock down during the following time periods: |
$1.70 (Dec 2021) → $1.05 (Dec 2022) → $0.90 (Dec 2023) |
Their income statements for the last two years show a large spike in depreciation/amortization and other operating expenses. |
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Blackstone won shareholder support for the transaction by purchasing the company for $1.31/share ($1.6B total), a premium to Concord's failed takeover bid in May, which was priced at $1.25/share. |
The private equity firm has acquired all Hipgnosis assets, including 65,000 songs. |
Considering the company IPO'd at a nearly identical valuation 6 years ago, Blackstone wins this round. |
I would be shocked to see another purchase of this magnitude in the near future. Other players - HarbourView, Influence Media, etc - do not have the same level of assets that Hipgnosis did. |
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Will the music stop? |
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mainstreet HQ |
Last week in 1776, our founding fathers quietly launched one of the greatest startups of all time. |
Last week in 2024, mainstreet quietly welcomed its founding members onto the private community platform. |
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Some of our most engaged readers now have a HQ to invest, share dealflow, connect, and build together. |
Just like the founding fathers, our founding members come from a wide variety of backgrounds, including: |
professional athletes venture capitalists CEOs winners
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To secure your spot in mainstreet history, use the poll below. |
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What is your primary use case as a community member? |
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long live mainstreet. |
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Headlines |
NFL will allow private equity by year's end. FOS article here Benchmark raises $425M fund, says it will avoid AI mega-rounds. Axios article here London Stock Exchange launches new rules to attract IPO candidates. CNBC article here TNT (WBD) could try to match Amazon's $1.8B NBA media rights bid, not NBC's. SBJ article here Faith-driven investor, Sovereign's Capital, closes on its largest venture fund. VCJ article here
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