Hipgnosis Song Management, a British fund with a vast collection of over 65,000 songs, has encountered significant challenges that have resulted in a 25% decline in its value. The fund is facing a crisis of confidence among shareholders and heightened competition in the industry.
Hipgnosis Song Management, founded by Merck Mercuriades, made headlines by acquiring a quarter of the songs on Spotify with over a billiоn streams. This positioned the fund to potentially earn more than $1.9 billiоn. However, the achievement comes at a steep cost. Hipgnosis purchases song rights and operates a music stock market where investors can invest in these songs and receive dividends from royalties. With the music industry shifting to streaming, which generated $40 billiоn in royalties in 2022, Hipgnosis reimagined the investment concept for the digital era.
Investing in top artists is expensive, and the process of acquiring song rights and valuing intellectual property has left the company with a debt of $650 million. Despite owning assets such as Amy Winehouse’s “Back to Black” and some Nirvana hits, Hipgnosis has struggled to manage its debts. The company operates public and private divisions, but the entire structure is currently facing a crisis of confidence, with experts pointing out initial structural flaws in the funds.
Hipgnosis’s extensive song portfolio, which was previously thriving, has recently suffered setbacks. The value of its music assets dropped by 26.3% to $1.9 billiоn following an audit by Shot Tower Capital. The company’s revenue has declined by 21% this year, and its stock price has fallen by 50% over the past two years. To address its $630 million debt, dividend payments were halted in late 2023. An accounting error further reduced the portfolio’s value by 7.6%.
Mercuriades and his partners now face the challenge of addressing these concerns and restoring investor confidence, particularly with major shareholders like BlackRock, who have held a 50% stake since 2018. Shareholders such as Investec Wealth and Asset Value Investors are starting to question the wisdom of their investments in the company.
The business model of acquiring copyrights is now under scrutiny, as song royalties are unpredictable and valuing song rights accurately is challenging. Hipgnosis is currently embroiled in a dispute with shareholders over the revaluation of its music catalog for future asset sales. The company has also faced criticism for not adhering to industry standards and failing to conduct proper due diligence during acquisitions. Shot Tower Capital, hired by Hipgnosis, has raised concerns about misleading company publications, inflated asset figures, excessive expenses, and a potential cоnflict of interest with Blackstone. It estimated that 75% of the Hipgnosis catalog has missed financial targets.
Despite the challenges, some analysts still support Hipgnosis, setting target prices well above the current price. However, new players like JKBX and Labelcoin have entered the market with similar investment concepts, offering alternatives to traditional music catalogs and attracting attention from investors.
On April 26, Hipgnosis will face a crucial shareholder vote regarding the future of its music catalogs. Without sufficient shareholder support, the company may need to consider restructuring or selling assets to address its financial challenges. Until then, the future of the fund remаins uncertain.