The Bidding War That Could Change the Music Industry: Inside the Battle for Hipgnosis – The Average Joe
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    The Bidding War That Could Change the Music Industry: Inside the Battle for Hipgnosis

    Noah Weidner

    April 23, 2024

    For decades, music labels were the only investors in the music industry — offering artists upfront cash in exchange for a share of their future earnings. But with legacy music businesses languishing, investment firms like Apollo ($APO) and BlackRock ($BLK) are pouring billions into buying stakes in artists’ catalogs, hoping to cash in on the music industry’s growth. However, not all investors are hitting the right notes.

    Hipgnosis no more: Take Hipgnosis Songs Fund ($HPGSF), the first publicly traded music investment company. They’ve splashed out nearly $2.2B to acquire over 57K music royalty rights. But with shares dropping 11% over the last five years to a record low and facing a slew of auditing and management controversies, shareholders finally voted for the company to be reorganized. Now, Hipgnosis is at the center of a bidding war among top music royalty investors.

    • Last week, Hipgnosis agreed to sell itself to the world’s largest music investor, Concord, for $1.4B — financed by Apollo Asset Management ($APO).
    • Days later, Apollo’s competitor Blackstone ($BX) also threw their hat in the ring with a $1.5B cash offer, capturing the attention of the fund’s board.

    Make music, not money

    Hipgnosis may have overestimated the value of their catalogs — expecting music royalties to rise in value. Except they didn’t expect 5%+ interest rates and inflation to take a bite out of the industry’s growth since 2020. Other investors might be more lucky. Streaming services (representing over 80% of industry revenues) are planning price increases — which could boost catalog values and royalty payouts.

    • Take Spotify ($SPOT), which charged $9.99/mo since its US launch in 2011, raised prices last year on all of its plans — and intends to do so again this year.
    • With the company paying ~70% of its revenues to music rights holders, even slight price hikes could mean big bucks for the music industry.

    It’s not all harmonious: Spotify’s 60% surge this year comes at a cost to artists and labels. In its latest earnings yesterday, the company reported record profits— but it took laying off a quarter of its staff, scaling back its podcast ambitions, and charging musicians for promotional features that used to be free to get there.

    Read: Music Companies Wage a War on AI-Generated Music

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