Livin’ on a Prayer, Heart of Glass, Copacabana, Single Ladies.They’re all huge pop songs and dancefloor favourites of the past 50 years. And according to one music industry veteran, they are more valuable than gold.
Merck Mercuriadis is the founder of Hipgnosis, a London-listed company offering investors the chance to make money from the royalties generated from these and thousands of other songs by famous artists.
Mercuriadis, the former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé, launched the company two years ago and has since spent about £700m amassing the rights to more than 13,000 songs.
“Proven songs are predictable and reliable in their income streams,” he says, speaking from Los Angeles having this week announced two more deals – buying 197 back-catalogue Blondie songs and more than 900 Barry Manilow tunes, including his 1970s hits Mandy, I Write the Songs and Could It Be Magic?.
“When I say it is as good or better than gold or oil, it is because it is uncorrelated to what is happening in the marketplace,” says Mercuriadis. “Ultimately, if people are living their best lives, they’re celebrating with the soundtrack of music. Equally, if they are experiencing the sort of challenges we have been experiencing over the past 25 weeks or so, they are escaping and taking comfort in music.
“Music is always being consumed. Gold is something that only few can buy, whereas a £10 Spotify or a £10 Apple monthly subscription is something pretty much everyone can make. And, as has been proven during the pandemic, those subscriptions have gone up as people have gone looking for comfort.”
Subscriptions have indeed gone up. Last week Spotify reported a 29% year-on-year increase in active monthly users, to 299 million worldwide. Paying subscribers – the company’s lifeblood, accounting for 93% of its €1.8bn (£1.63bn) revenue in the past three months – jumped 27% on 2019 levels to 138 million.
Mercuriadis says the sweet spot for making money from song rights is buying older music rather than current chart hits. A third of the songs bought by Hipgnosis are more than 10 years old, and 59% are between three and 10 years old. Fewer than 10% are newer releases.
A slide that Hipgnosis rolls out to entice prospective investors is titled the “Livin’ on a Prayer case study”, and it charts the revenue growth of Bon Jovi’s 34-year-old hit. Since 2013 – the year after Spotify’s launch in the US – the song’s annual revenues have increased by 153%.
Investors seem to like what they have been hearing. Hipgnosis has raised more than £860m since floating in 2018, including £236m last month. The group’s shares have climbed from 100p to 121p since its flotation, and some of the biggest and best-known fund managers – including Investec, Schroders and Aviva – are on the shareholder register.
The son of a Greek footballer, Mercuriadis was born in Schefferville, a former mining town in northern Quebec, Canada. After growing up in Nova Scotia, he made the move to London, where he still lives, to embark on a career in music. Now 56, he has spent nearly 40 years in the music industry positioning himself as a champion of artists, something he learned working for Sir Richard Branson in his first job.
“Virgin Records in the early 1980s was the best record label there was, and it was certainly the most artist-friendly label, which is why I went to work for them,” he recalls. “But I wasn’t sophisticated enough to understand that I wasn’t actually working for the artist, [instead] I was working for Richard Branson. There was a difference between working for a record label and working for the artist.”
The idea of buying into the past success of an artist is not new. In the 1990s the public was given the chance to invest in David Bowie’s popularity by purchasing “Bowie bonds”. These were 10-year bonds backed by Bowie’s future royalty earnings from songs released prior to 1993, with an attractive interest rate of 7.9%. Prudential Insurance bought the whole issue for $55m (£42m).
Bowie was followed by artists including Iron Maiden and James Brown. However, as fans drifted away from record stores in the early 2000s, owners of Bowie bonds saw their investment tank.
Other back-catalogue investments range from Michael Jackson’s purchase of 250 Lennon-McCartney songs as part of a $47.5m deal in 1985 to last year’s $300m purchase of Taylor Swift’s back catalogue by Scooter Braun, famous for managing Justin Bieber and Ariana Grande, when he took ownership of Swift’s label Big Machine Records. Swift has pledged to regain control of her songs.
With streaming breathing new life into the industry following more than a decade of plummeting CD sales and piracy, music has got its mojo back. Last year global music sales grew for the fifth consecutive year, to $20.2bn, driven by a 23% growth in streaming, having hit a low of $14bn in 2013.
By the end of this year there will be more than 450 million subscribers to paid music services including Apple, Amazon and Spotify.
In June, Warner Music, the world’s third largest music company, floated in the US, selling $1.9bn in shares and achieving a market value of more than $12bn. Its owner Len Blavatnik had paid just $3.3bn for the company in 2011.
Mercuriadis reckons he has about two more years at most to spend a total of £2bn- £3bn buying artist catalogues before he hits the Netflix problem and the price of content rockets.
The 64 catalogues bought to date have been at an average price of 13.99 times their earnings. Mercuriadis wants to get to 60,000 songs and believes that his investors, and the artists he has brought onboard, will then be sitting on assets worth 30 times earnings thanks to the streaming revolution.
“I can’t play the guitar, I can’t sing a song, I can’t write a song,” he says. “What has given me a seat at the table is I take my responsibility of doing business very, very seriously. I make people believe in what I believe in. It is an integrity-based business. If I say ‘it is the best thing since sliced bread’ and it’s not, next time I come along to you you’ll shut the door in my face. Championing the artist, song and music will take you a long way in our business.”
It might also prove to be very profitable.
A selection of songs owned by Hipgnosis
Bon Jovi – Livin’ on a Prayer
Eurythmics – Sweet Dreams (Are Made of This)
Amy Winehouse – Back to Black
Justin Timberlake – SexyBack
Journey – Don’t Stop Believin’
Rihanna – Umbrella
Beyoncé – Single Ladies
Blondie – Rapture
Ed Sheeran – Shape of You
Al Green – Let’s Stay Together
Adele – Set Fire to the Rain
Barry Manilow – Copacabana
Luis Fonsi & Daddy Yankee – Despacito (Remix) feat. Justin Bieber
Mark Ronson feat. Bruno Mars – Uptown Funk
The Chainsmokers – Closer