Remember when labels and investment funds started buying up the catalogs of your favorite classic rock heroes and paying ridiculous amounts of money? You should, because it was trendy last year (and a little this year).
Turns out it might not have been such a good investment. Like Ted Gioia from the Music Newsletter The Honest Broker points out, the British investment fund Hipgnosis – which controls more than 65,000 songs and launched this music catalog frenzy in 2018 – saw its pro forma royalties on its songs decline for two years. In addition, the cost of paying interest on the group’s $600 million debt is expected to rise.
“Even more worrisome…is the possibility that Hipgnosis may have to write off some of the book value of its song catalogs,” Gioia wrote. “This could seriously harm the fund’s borrowing ability in the future, as its solvency ultimately depends on the true value of this music.”
The investment group hasn’t bought a song in a while and even took on $1.6 million over a six-month period for “aborted transaction expenses.” Gioia suggests that Blackstone, a major backer of Hipgnosis, could buy the company in the near future at a steep discount.
So the days of older musicians selling their catalogs at exorbitant prices may be coming to an end (which could include a $500 million deal for the rights to pink floyd songs). And the decline in value isn’t just going to affect Hipgnosis, but also labels like Sony and Universal, which have spent millions on Bruce Springsteen and Bob Dylan’s catalogs — and not necessarily to make a profit. As David Chidekel, a partner at Early Sullivan Wright Gizer & McRae LLP, told InsideHook last year about these deals: “The company that’s paying the ridiculous amounts of money has a strategic need to have this particular thing, because she knows with that particular thing, they can sell their business for a ridiculous amount of money to someone else.
What if this perceived value has fallen sharply? Then this ridiculous catalog offer will be even worse.
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