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Entertainment Hipgnosis hits right note with investors... But industry insiders warn the big-spending music fund could end up top of the flops

01:30  22 january  2021
01:30  22 january  2021 Source:   thisismoney.co.uk

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The music industry is under threat from “gluttonous” record labels taking royalties away from But the Hipgnosis boss insisted the streaming services were “not the villains”, citing their But the executives warned any shake- up of the business model could limit

Hipgnosis Songs Fund is a British Guernsey-registered music IP investment and song management company founded by Merck Mercuriadis and Nile Rodgers in 2018.

Shakira wearing a costume: MailOnline logo © Provided by This Is Money MailOnline logo

Music and video streaming is this generation’s Californian Gold Rush and one man leading the charge is Merck Mercuriadis.

The music mogul and founder of music rights firm Hipgnosis Songs Fund has had a barnstorming pandemic, spending nearly £1billion to acquire some of the world’s best-known artists, from the Kaiser Chiefs to megastars such as Beyoncé and pint sized pop princess Shakira.

Yesterday the company got its hands on Metallica’s music library and launched a fresh equity offering so that it can continue to splash the cash.

Shakira wearing a costume: Big spender: Hipgnosis has had a barnstorming pandemic, spending nearly £1bn to acquire some of the world's best-known artists including pint sized pop princess Shakira (pictured) © Provided by This Is Money Big spender: Hipgnosis has had a barnstorming pandemic, spending nearly £1bn to acquire some of the world's best-known artists including pint sized pop princess Shakira (pictured)

The business model is simple – buy the songs from the artist and every time one of the tunes are played or streamed from Spotify and Apple, Hipgnosis takes a cut.

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Hipgnosis has acquired the rights to music producer Bob Rock’s catalogue, which It said it would spend the money it raised via the placing within three months of the new shares being admitted, having noted in December that there Get alerts on Hipgnosis Songs Fund when a new story is published.

Hipgnosis Songs Fund 's earnings per share have been essentially flat over the past five years. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard.

So successful has the fund been that backers include the Church of England, Aviva, Investec and Axa.

The glitzy headlines from the weekly drip of press releases have also helped the company’s share price grow by 16 per cent since it floated in 2018, making it a stalwart of the FTSE 250.

But many in the music industry are uncomfortable with Hipgnosis and its overnight success, and have questioned whether the company’s performance is too good to be true.

Founded by Mercuriadis and funk guitarist Nile Rodgers, the two veterans drew up the plan for the Guernsey-registered investment company. The unlikely business relationship sees Rogers providing credibility with the artists and Mercuriadis the commercial nous.

But according to music industry sources, the business model adds little long term value for investors as all Hipgnosis does is curate the songs without putting them to work.

Lindsey Buckingham's entire music catalogue acquired by Hipgnosis Songs Fund

  Lindsey Buckingham's entire music catalogue acquired by Hipgnosis Songs Fund Former Fleetwood Mac star Lindsey Buckingham's entire music catalogue has been acquired by Hipgnosis Songs Fund. © Bang Showbiz Lindsey Buckingham Previously, the investment company - which is run by Merck Mercuriadis - had a 25 per cent share of the former Fleetwood Mac musician’s catalogue, but the firm has now secured music publishing and songwriting rights for all 161 of his songs, including some he co-wrote during his time in the 'Dreams' group. What's more, Hipgnosis will also claim a 50 per cent share in any future releases by the 71-year-old songwriter.

Hipgnosis Songs Fund Limited (LON:SONG) stock is about to trade ex-dividend in 4 days time. You can purchase shares before Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends.

Get the latest Hipgnosis Songs earnings report, revenues as well as upcoming SONG earnings dates, historical financial reports, news, analysis & more. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Hipgnosis provides little marketing or strategy for the songs once it has bought them, and no plan for making sure they appear on the right Spotify playlists or in the next blockbuster Hollywood film.

One source said: ‘There’s usually a big infrastructure behind these songs doing well.’

They cite George Michael’s Last Christmas, the first number one of 2021.

‘It didn’t just appear out of nowhere,’ the source said. ‘It had to be pushed. It’s not just a case of buying the songs and watching the money roll in.

‘Marketing and publicity all require investment but so far the evidence is all the capital is going to the artists.’

Others have questioned whether he is overpaying for the musician’s catalogues as the firm does not disclose how much it pays for each deal. Many musicians, particularly older ones, want to sell their songs to pay for their retirement or set up an estate for their children.

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  Neil Young and Fleetwood Mac's Lindsey Buckingham join music rights mega deal spree Rock legend Neil Young is the latest musician to strike a catalogue deal with London-listed Hipgnosis (SONG.L) as it continues its buying spree. The firm has taken a 50% stake in the Canadian star’s portfolio of 1,180 tracks. He is a prolific songwriter and performer, known for his solo work and with bands, such as Buffalo Springfield, Crazy Horse and Crosby, Stills & Nash. The value of the deal has not been disclosed, but experts have estimated a price tag of $150m (£110m).Hipgnosis (SONG.L) was trading lower 0.3% in London at around 11.45am. © Provided by Yahoo! Finance UK The music company's shares were trading lower on Wednesday.

investment vehicle Hipgnosis Songs Fund has been doing some Christmas shopping - snapping up half the rights 10 September 2020 Hipgnosis Songs Fund Limited (" Hipgnosis " or the "Company") Acquisition of Big Deal Music to have a top 20 Billboard hit in each of the past six decades SONG.

Get the latest HIPGNOSIS SONGS FUND LTD (HPGSF) stock news and headlines to help you in your trading and investing decisions. Fed Chair Powell: Coronavirus vaccine is the ‘light at the end of the tunnel’.

Managing and waiting for music royalties to be paid can be a tedious, heavy administrative task. So if someone is willing to pay a lump sum artists often take the option.

The source added: ‘These artists will be happy to take the cheque and there is evidence he is overpaying in order to secure them.’

Nile Rodgers standing in front of a building: Hipgnosis was founded by Merck Mercuriadis, left, and funk guitarist Nile Rodgers, right. The two veterans drew up the plan for the Guernsey-registered investment company © Provided by This Is Money Hipgnosis was founded by Merck Mercuriadis, left, and funk guitarist Nile Rodgers, right. The two veterans drew up the plan for the Guernsey-registered investment company

Mercuriadis himself has also raised eyebrows. The son of a Greek footballer, he was born in Schefferville, a former mining town in the Canadian province of Quebec.

Now 57, he has 40 years’ experience in the industry, much of which was spent at management label Sanctuary.

Despite stating that he does not believe in material things, Mercuriadis owns a six-bedroom off-white townhouse in Notting Hill and his Instagram account is littered with pictures of him staying at five-star hotels around the globe.

In recent weeks financial analysts have also raised red flags over the way the business constructs its accounts.

Shakira sells her catalog to an investment fund

 Shakira sells her catalog to an investment fund © Supplied by Cover Media Shakira Shakira has sold her music publishing catalog to the group Hipgnosis Songs. The Colombian singer has become the latest signing of the investment fund, which has already acquired all of Lindsey Buckingham and Jimmy Iovine's catalogs in 2021, and, more recently, 50% of Neil Young's songs. “Being a songwriter is an accomplishment that I consider equal to, and maybe even greater than, being a singer and an artist.

In particular, City broking firm Stifel has questioned the net asset value measure the company uses. This is regarded as a good measurement for funds that invest in liquid assets with daily prices – such as listed equities –as investors can monitor the prices. But it is no good for alternative assets, like music catalogues.

It is normal therefore for real estate, private equity and infrastructure funds to cautiously mark the asset at cost.

Then, if the asset appreciates, an investor can realise a gain when it is sold. But Hipgnosis does the opposite, writing up its investments as soon as it has purchased them.

Stifel analyst Max Haycock said: ‘Accounts show that recently acquired catalogues have seen significant rises in value. This is despite the manager not having had sufficient time to add value or underlying market assumptions to have materially changed.’

Haycock says he feels uncomfortable with company’s accounting methods as royalties take a long time to pay and so there could be a mismatch in valuations once they have been received.

Haycock also adds that there is evidence Hipgnosis has struggled to collect cash owed from the royalties.

He says: ‘The issues are further compounded by the structure of the music royalty industry, as a song streamed today may not lead to a cash payment for at least six months and possibly longer. There is a significant lag between revenues being booked and cash received.’

For a company that is always tapping investors for money, maybe it is time to question if all that glitters really is gold.

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This is interesting!