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The Financialized Song: The Rise of the Hipgnosis Song Fund

Hello, hello, hello! Quick personal update, I’m going to hold off doing reader calls for the rest of
Penny Fractions
The Financialized Song: The Rise of the Hipgnosis Song Fund
By David Turner • Issue #143 • View online
Hello, hello, hello! Quick personal update, I’m going to hold off doing reader calls for the rest of the year. Even though I love doing them and just announced a new one last week, over the past week I realized that I was starting to get a bit overwhelmed by this project and needed to pull back. The newsletter will continue and I’ll remain open to email and chats, especially for folks trying to figure out their path in this industry. Thank you to everyone who did join a call this year, it’s much appreciated! Okay, now let’s get to the main topic.  

Merck Mercuriadis enjoys the press. The co-founder and unofficial spokesperson for the Hipgnosis Song Fund, a company founded with a mission to buy song rights, managed to raise over a billion dollars in a short few years. Much of that can be credited to Mercuriadis’ former job as a manager for the likes of Beyoncé, Elton John, Guns N Roses, and Iron Maiden. Such connections are likely why he’s recently scored coverage beyond the small music trade bubble at Complex and the Guardian, which painted him as trying to “disrupt” music publishing. It’s suddenly much easier to sell financial investments when it’s about who’ll be paid off hits such as “Uptown Funk”. The catalog range allows publications to come up with clever ways of describing Mercuriadis as if he’s selling the Hot 100 charts to the highest bidder. That framing certainly helps Hipgnosis, but a quick peek at its earliest press coverage may help consider a different view. 
Hipgnosis’s initial debut onto the London Stock Exchange didn’t go quite right. The debut was delayed multiple times until the summer of 2018, but his 2017 quotes to CityWire, a London-based financial publication, are still worth observing (emphasis mine): 
Following 15 years of disruption, it is now more convenient to consume music legally on a global basis and this has created a perfect storm for investing in songs…I can’t remember a more exciting time in the evolution of the music market as consumers can finally have it their way and get to choose the songs they want to hear when they want to hear them. 
Mercuriadis’s phrasing pulls a nice sleight of hand at contextualizing Hipgnosis, a company that’s simply buying up songwriting credits, as tapping into a “disrupted” record industry. He isn’t incorrect to note that the record industry continues to see year-over-year growth, but that’s because it’s spun around the axle of finance and tech, not due to any particular technological innovation. This confusion of cause and effect allows Mercuriadis to be framed as if he’s a real challenge to the record industry instead of, as was noted in the podcast Money 4 Nothing, simply buying assets that are valuable because of record industry labor. Spotify’s immense worth despite not providing a stable business model for more than a decade would show that an investment in music is removed from outside of normal market forces. This would be a fairly novel insight if it wasn’t an argument already made nearly forty years ago.
The Song Buyers
The late 1960s kicked off a decades-long shift in music publishing that saw multiple generations of consolidation. Earlier this year when I wrote about the rise of financial firms in song rights it wasn’t to just highlight the rising valuation of these companies but rather the larger ripple effects it was pushing up on the market. Billboard’s coverage of Freddy Beinstock and the Rodgers & Hammerstein estate’s 1983 purchase of the Edward B. Marks publishing catalog captured that history (Emphasis mine): 
The deal, reflecting a further diminishing of long-established, independently owned publishing entities, was closed last Wednesday…Since the conglomerate binge of the ‘60s, many of the catalog rich, colorful independent publishing operations have become entities within other corporate structures. Among them are Chappell (PolyGram), Mills Music (Belwin), E.H. Morris Music and Frank Music (both MPL), and dozens of smaller companies. In further concentration of major catalogs, firms that had large corporate parents, such as United Artists Music and 20th Century-Fox Music, have recently shifted to other publishing houses. 
Smaller publishers were swept up in the post-Rock and Roll boom. E.H. Morris Music and Frank Music, which were cited by Billboard, were in fact bought by MPL, Paul McCartney’s privately held music publisher. The 1960s signaled an end for those “colorful independent” publishers that by the 1980s would be lost within the corporate swamp of reshuffled global music firms. Though possible if it wasn’t yet disclosed, Billboard’s overlooking of a certain financial backer feels notable. However, that record wouldn’t stay fuzzy for long.  
A couple of years later, the New York Times in a profile of Beinstock, gives a central role of Wertheim & Co, an investment firm, to the completion of the purchase of the Edward B. Marks catalog. James A. Harmon, a vice president at Wertheim and a president at Chappell, described music publishing as “recession-resistant”. That insight and his dual hats might explain why in 1984 Chappell was bought by Freddy Beinstock, the Hammerstein’s estate, and Wertheim & Co. after Polygram was blocked from a similar deal. Harmon’s business path found a powerful combo of making investments sound exciting (own part of your favorite song!) and economically sustainable (publishing is disconnected from the stock market’s whims). 
This practice was supported by larger macroeconomic forces as the music industry was already coming out of the late 70s disco crash, while the overall economy was coming out of an early 80s recession. The Los Angeles Times in December 1985 said it best with the headline: “Music Copyrights Can Be Gold Mines to Current Owners.” The phrase “current owners” is striking, because as the 60s and 70s consolidation occurred in the following decades, Wertheim’s entry made it clear for other financial institutions to take another pass at music publishing. I’ve quoted Harmon from this piece before but he so elegantly captures contemporary music publishing all the way back in the mid-80s (emphasis mine):
Some people see music publishing as a dull, nickel-and-dime business because publishers collect very modest royalty sums from thousands of copyrights they own or administer all over the world…We saw a business that was consistent, with many different and stable sources of revenues, that didn’t have the volatility of the other more glamorous areas of the entertainment industry, which didn’t require heavy spending and which was only going to increase with the new changes in the delivery of music, namely music videos and compact discs.
Now, what happens over the next couple of decades is the constant selling and flipping of the smaller music publishers. Unlike record labels, which by the mid-00s were only down to four major record companies, publishing still held opportunities to find and purchase older catalogs. In 2008, the Dutch pension fund Stichting Pensioenfonds ABP, founded Imagem Music Group that made a splash purchasing the classical music publisher Boosey & Hawkes from HgCapital, an early private equity owner in the music catalog. Imagem quickly built up its catalog by picking up the publishers that Universal Music Group was forced to cut when it purchased BMG through regulations by the European Commission. Thus, the market gap created by corporate consolidation was quickly snatched up by a pension fund-backed music publisher. Rather than private equity or an investment firm partnering with some established industry players, Imagem just went directly to the source of deep international wealth: national pension funds. 
Imagen’s next purchase that caught major attention was in April 2009 of the Hammerstein and Rodgers catalogs. Within the span of three decades, the estates from two of the 20th century’s most well-known songwriters transitioned from partnering with investment firms to buying up publishers to suddenly selling themselves directly to a pension fund. The financialization of music publishing reached a zenith when suddenly the only people competing to own song rights were no longer former industry suits but rather global pension funds.
The Future of Song Investments
David Pullman, at least in his own retelling, came up with the idea of Bowie Bonds, which allowed people to invest in the singer’s masters. The late 90s scheme was repeated with James Brown, the Isley Brothers, and Rod Stewart. On paper, anyone with enough cash could be directly tied into the material success of their favorite artists. The experiment didn’t inspire a massive sea change of fan-to-artist investments but that hasn’t prevented commentators from contrasting the idea with the Hipgnosis Song Fund. Mercuriadis may speak of creating a songwriters’ union but the median music fan, much like with Bowie Bonds, likely isn’t going to be making such investments. Rather, his projects aligned closer to Round Hill Music and Concord Music, which are often funded by private equity, pension, and sovereign wealth funds, not at all vehicles for fans to connect meaningfully with their favorite artists. 
A more accurate view on Hipgnosis and its peers can be found in a recent Billboard story, which centers on the Federal Reserve’s cutting of interest rates signaling that it’s a great time to invest more money in music publishing as an attractive, if marketable, outlet. In a global recession, why not invest in a “recession-resistant” asset as Harmon described of music publishing back 1985? Private equity firms, often backed by pension funds following Imagem’s lead, after decades of experimentations now believe this is a market that allows steady returns.
Round Hill inching towards an IPO on the London Stock Exchange only reinforces these trends. Founded in 2012, it was one of the original finance (“limited partnerships, family offices, foundations, and wealthy individuals”) backed music firms to collect song rights, so in many ways, it makes sense that it’s following the path towards an IPO. (Downtown, which dabbles a bit in such practices, may also be for sale.) 
Hipgnosis, through clever branding, positions itself as fighting for artist rights, while its peers both in the mid-2010s and 1980s never held such lofty pretenses. Ignoring that coat of paint, the underlying message to investors or to pension funds: song revenue is disconnected from the real economy, so invest your money now! If only all of these hundreds of millions of dollars were flowing back to artists, rather than pension fund-backed owners and other deep-pocketed investors. 
Unheard Labor
The National Music Publishers’ Association is typically not an organization I rally behind. Yet, David Israelite, the group’s president, used a Billboard op-ed to wag his finger at Spotify employees for taking issue with Joe Rogan and not the company’s constant refusal to support paying songwriters more is fair. I support worker demands on how a company spends money. Still, Israelite makes a fair point that many musicians could really use workers within Spotify, or any company, who’d push back against company practices that fight working artists. He certainly wouldn’t want durable cross-industry solidarity, since artists might then question the role of publishers in their lives but I appreciate the nudge. 
A Note of Financialization
I mentioned the Round Hill IPO rumors above but there is another sneaky story of financial manifesting in the music industry. Music Business Worldwide last week ran an odd story about Universal building hotels across the United States. (An investment for a post-pandemic future one must assume.) The company partnered with Dakia U-Ventures, part of Dakia Global, which as far as I can tell is a socially-conscious investment firm stuffed with music industry figures including Kerry Gordy, Berry’s son, and former private equity players. That, in many ways, makes it a fairly normal music industry tale in 2020. 
6 Links 2 Read
This podcast on the National Independent Venue Association, Oda speakers, and the dominance of music’s often very white middle class in framing industry-wide stories is fascinating. I’m a big fan of Money 4 Nothing, note I was on it a couple of months ago, but this was the kind of challenging industry critique we need! 
Even though in the United States many other stories are dominating the national attention, the situation with live music is fairly dire as colder months loom ahead and coronavirus cases continue to go up across the country. That Live Nation, AEG, and all of the other global players in the record industry are asking for government relief speaks to the level of crisis ahead but as the Money 4 Nothing episode, I mentioned early discussed. It’ll be important to see what venues are helped and who is left outside. 
Streaming may continue to undermine the relevancy of Billboard’s charts but the promotional arm of the record industry cannot stop chasing No. 1 spots. The internal motivation for the top slot doesn’t even carry the same weight as it did decades ago (CD sales vs. amassing streams), but deference to the Billboard charts remains. Sadly, while the publication layoffs employees, it’s a cultural cache for certain status chasers remains. 
Payola is alive and well in 2020. Certainly would be interested in any government action, because this is a space where the government can shape the music industry in rather significant ways. 
I’m typically skeptical of narratives that posit the most successful as being a stand-in for all musical artists. Still, I wish this piece centered a bit more on the fact that companies like Kobalt, AWAL, DistroKid, STEM, etc. are often backed by venture capital and tech money. That’s not to say some aren’t offering better deals for artists but the end goal for these companies isn’t meaningfully aligned with this precarious class of artists. Artists, as a class of workers, don’t hold any Kobalt board seats. 
I’d like to look at some numbers. The article notes that the pop singer Ava Max held a “concert” in Roblox that reached over 1.1 million unique people. By contrast, her recent single “Who’s Laughing Now” got over 43 million views on YouTube alone. Of course, those views do not mean there are tens of millions of Ava Max fans but it shows that there is a sizable audience that will engage with Ava Max content. This makes me wonder what exactly is notable about Roblox and its musical efforts beyond being an appealing tech story for the “future of music” folks. Music and video game collaborations have been happening for decades but I guess the allure of “virtual concerts” still makes for an easy press narrative. 
Blog Roll
The Penny Fractions newsletter arrives every Wednesday morning (EST). You can support via Patreon or follow on Twitter. If curious, here is the newsletter’s budget sheet. If you’d like to join our monthly reader calls sign-up here. The artwork is produced by graphic designer Kurt Woerpel, and the newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My current job is Emerging Creator Lead at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to pennyfractions@gmail.com. 
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