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Merck Mercuriadis talks streaming opportunities, copyright data and digital pies in Hipgnosis Annual Report

By | Published on Monday 5 July 2021

Hipgnosis Songs Fund

The Hipgnosis Songs Fund acquired 84 catalogues through deals worth $1.089 billion in the last financial year. It also hired a bunch of music industry veterans and acquired in-house publishing administration expertise via the purchase of Big Deal in the US. Amid all this, it increased its ‘operative net asset value’ by 11.3% to $1.6829 per share.

But you knew all that already because we reported on it all. Well, maybe not the operative NAV. Do you like that sort of thing? Really? Well, writes Hipgnosis founder Merck Mercuriadis in his company’s new annual report: “Against one of the most challenging backdrops of our lives, the operative NAV per share increased by 11.3% to $1.6829, which with dividends paid reflects a total operative dollar NAV return of 15.7%. This brings the total NAV return since IPO less than three years ago to 40.7%”. Now all nod and pretend you know what he’s talking about. Well done everybody!

And now let’s delve a little further into Mercuriadis’s statement to his investors to find out how he’s planning to profit from all the music rights he’s been busy spending the big bucks acquiring. Basically, Hipgnosis plans to ride the ongoing streaming wave, sort out all the data blockages that are causing the cash to stall, and then continue fighting the good fight for a re-slice of the digital pie in favour of the song copyright.

“Revenues have been highly resistant during the course of this incredibly challenging year”, he writes, “and are well placed for future growth with global streaming adoption beating all expectations – seeing the 30 million paid subscribers when we first started grow to 450 million paid subscribers today to what are forecast to be two billion paid subscribers by the end of the decade. This has turned music from being a discretionary or luxury purchase to very much being a utility as a result of the convenience and access afforded by streaming”.

“Going forward this accelerated streaming will be enhanced as revenues from TikTok, Peloton, Triller, Roblox, and other rapidly emerging digital platforms start to be paid through”, he goes on. “These are new income streams, expected to be a material portion of our revenue going forward, that are not in the data that we buy catalogues on. We are entering an era where now, for the first time ever, almost all consumption of music is paid for”.

However, as the digital market gains momentum and diversifies, the need to be on top of music rights data becomes ever more crucial, especially when most of the rights you control are song rights. But don’t worry Hipgnosis investors – a data cleaning frenzy is going on at Hipgnosis HQ in relation to all those catalogues that have been acquired.

The company’s copyright management team, Mercuriadis adds, “has identified historic registrations errors, break downs in income chains and unclaimed recordings, which when fixed will all create incremental revenue for the company”.

“For example”, he goes on, “we have identified 76 million views of unclaimed/unmatched recordings of our songs on YouTube in the month of January alone, which would represent a 36% uplift. Further to this we have done test cases on five catalogues, identifying broken registrations that indicate that more than 40% income on each has not been collected previously due to errors in registration that pre-date our acquisition. These have now been corrected and the same work is being actioned on all of our songs”.

See, I told you the data was important. Employ your inner music geek to sign up the kinds of artists and songwriters that get your investors excited, then switch over to data geek mode to get them some kind of return on their investment.

And finally, given the Hipgnosis catalogue very much skews to songs, there’s the ongoing digital pie debate, and the campaign – among the songwriting community – to get a bigger slice of streaming income allocated to the song rights, based on the argument that in the digital domain the record industry does less heavy lifting.

Mercuriadis, of course, has been very vocal on that topic, including in his submission to the UK Parliament’s culture select committee inquiry into the economics of streaming.

In his statement to investors he notes that that debate has gained momentum this last year. And, unlike the majors, who get to keep a much bigger share of their recording revenues than their publishing revenues, with the songs-skewed Hipgnosis Songs Fund, his investors’ interests are very much aligned with the interests of songwriters. Which means he’ll keep on speaking out in a bid to get a bigger slice of the digital pie for songs and songwriters everywhere.