By FERGUS SHAW
The Covid-19 pandemic has highlighted the importance of music as an accompaniment to life, the consumption of which has not been impaired even if the medium has evolved.
Music owners have been reminded of the enduring nature of music and its ability to generate cash flows with seemingly low correlation to the economic environment. Perhaps a wonderful characteristic of songs is that they are written once but consumed infinitely.
When a song is written, a copyright is created which lasts for a long time – 70 years from the death of the last surviving writer. With this established and the song registered with performing rights agencies around the globe, a royalty becomes due every time the song is broadcast, and consumption may take a variety of forms with streaming via services such as Spotify being an important growth area.
To maximise royalty income, the administration of music must be professionally undertaken, and promotion of the songs must be coordinated and energetic. The vast majority or recorded tracks languish in wide ranging catalogues within large recording houses where the level of focus can be diluted by weight of numbers – a song manager might have many thousands of songs to administer and promote and this is not conducive to maximising the royalty income for songwriters in general. There is, however, scope to invest in music via funds or companies which are established with the sole purpose of purchasing and managing high quality music catalogues. The challenge is to persuade artists to part with their catalogues.
One such example is the London listed Hipgnosis Songs Fund Ltd. Established by the enigmatic Merck Mecuriadis in 2018, the company has successfully built a catalogue of music varied by genre and vintage which will generate cash flows for decades to come. The Hipgnosis Fund was added to Cerno multi-asset portfolios in October 2019 and has performed well since with the share price rising by seven percent and dividends adding a further four percent. Part of our initial thesis was the attraction of an identified pipeline of acquisitions many of which were at an advanced stage of exclusive talks.
One year on from our initial engagement, Merck Mercuriadis and his team have executed according to plan. Over twenty high profile catalogues have been purchased across a range of popular genres and vintages. Recently, the catalogues of the co-founders of Blondie and that of Chrissie Hynde of the Pretenders highlight the quality of the music being purchased. For anyone enjoying a moment of nostalgia when hearing “Copacabana”, knowledge that the work of Barry Manilow is now part of the portfolio will be welcome. While the names of other writers might be less familiar, the importance of their work is remarkable, for example the purchase of the catalogue of RedOne brings 185 number one songs to the portfolio, including performances by Lady Gaga, Jennifer Lopez and Shakira. Meanwhile the work of Ammar Malik brings work that has been streamed over 10 billion times to the portfolio. The catalogue of work purchased from Brendan O’Brian includes songs written for Bruce Springsteen, Red Hot Chilli Peppers and Pearl Jam.
Looking forward, we expect the team to continue to purchase high quality music catalogues. The obvious restrictions on travel and live performing are providing added incentive for song owners to consider disposal as a source of funds. In addition, the promotion and income generation of songs is set to be enhanced by an enhanced focus on song management. Merck Mercuriadis has hired two industry veterans, Ted Cockle and Amy Thomson with strong track records in promotion to ensure that enduring music maximises its income potential.
The Hipgnosis Songs Fund sits within the Steady Return component of Cerno multi-asset portfolios and we expect it to generate attractive cash flows for many years to come.