Blackstone Bets on Music Business With $1 Billion Hipgnosis Deal
Asset manager, music company create fund to buy song catalogs, expecting such rights to grow amid rise in online streaming
Blackstone Inc. plans to invest $1 billion in acquiring music rights, as the asset manager bets on a nascent but exploding category that is benefiting from the rapid growth of online streaming. The investment — which Blackstone executive Qasim Abbas called the “starting point” — comes as part of a partnership with an advisory firm affiliated with Hipgnosis Songs Fund Ltd., a music-investment company that trades on the London Stock Exchange.
Hipgnosis, led by former pop-star manager Merck Mercuriadis, buys artists’ song catalogs and earns revenue when the music is streamed online or used in movies or advertising.
By joining with the firm Hipgnosis Song Management Ltd., Blackstone hopes to cash in on new ways that fans are listening to music via the internet.
Subscriptions to streaming services offered by Spotify Technology SA, Apple Inc., Amazon. com Inc. and others have sparked the music business’s resurgent growth over the past five years. However, the industry is increasingly looking to social media, video games and fitness for growth.
“The recent evolution of the music business makes us feel private capital has a role to play not just as an investor but in creating a platform that has more enhanced capability,” Mr. Abbas, senior managing director of Blackstone Tactical Opportunities, said in an interview.
“There is a lot of data that comes out of these platforms — Spotify, YouTube, Peloton, Roblox — and as that data is generated, it will require increasingly sophisticated infrastructure,” he said. “And we can use that output to make more informed investment and management decisions.”
For Hipgnosis, Blackstone’s involvement marks a stamp of approval by one of the world’s leading financial players.
Mr. Mercuriadis, its founder, formerly managed singers such as Beyoncé and Elton John and bands including Guns N’ Roses and
Iron Maiden.
“In the future we expect to see billions of microtransactions coming at you in real time in a way that is not real different from the way Visa or American Express operates,” he said.
The market for music copyrights began to heat up about three years ago, as artists looked to capitalize on the excitement around music-streaming growth, low interest rates and a lower capital-gains tax.
Appetite exploded during the Covid-19 pandemic, with more artists seeking to cash in on their music rights and investors viewing music as a stable asset untethered to broader market fluctuations.
Music-streaming proved to be pandemicproof, and older classic songs picked up in streaming, further reinforcing their long-term value and proven record.
While music lawyers privately praise the hefty sums Mr. Mercuriadis has offered artists for their life’s work, recording and publishing executives have said Hipgnosis has overpaid for music rights without the infrastructure and manpower to capitalize.
“There’s a lot in the space that is misunderstood and evolving, and multiples don’t represent the best way of thinking about pricing because a young catalog might be expensive at a 10 times multiple, and an older one might be cheap at 25 times multiple because their cash flows behave in different ways,” Mr. Abbas said.
Mr. Mercuriadis, who has insisted his investments will more than pay off, said Blackstone will help Hipgnosis become a more sophisticated operation.
“To the investment community we want to be the gold standard as far as being an investment adviser and money manager is concerned,” he said. “That’s something Blackstone will help us achieve.”
Under the deal, Blackstone and Hipgnosis Song Management will create a new fund — Hipgnosis Songs Capital — that will have a $1 billion war chest.
Blackstone also will take an ownership stake in the advisory firm with plans to help it build a more sophisticated platform for underwriting, pricing and managing music investments.
Mr. Mercuriadis said that any potential deal will be presented to both Hipgnosis funds, and the public fund will have the option to co-invest in the new Blackstone partnership’s catalog acquisitions.
He predicted that acquisitions would happen quickly because the companies have been working on a pipeline during the five months it took to complete the deal.
Hipgnosis went public in 2018. As of June, it owned the rights to more than 64,000 songs, including nearly 14,000 top-ten hits.
Hipgnosis kicked off this year with major deals for copyrights from Jimmy Iovine, Lindsey Buckingham and Neil Young. Mr. Young’s sale alone fetched a price between $40 million and $50 million for a 50% stake, according to people familiar with the deal.
Other big asset managers have lined up similar bets on music rights, both through investments in other companies and by acquiring rights directly.
Through its credit arm, Apollo Global Management Inc. last week committed to back HarbourView Equity Partners, a new firm that plans to accumulate song rights, with a $1 billion investment.
The deal includes a combination of debt and equity that will be used to purchase assets, an Apollo spokeswoman said.
That new firm is being run by the same executive who helped lead Tempo Music Investments, founded in 2019 with backing by Providence Equity Partners.
Tempo, in partnership with Warner Music Group Corp., has quietly bought up music rights from the Jonas Brothers, Florida Georgia Line and Wiz Khalifa.
The company has more than $1 billion available to keep buying, according to people familiar with the matter.
KKR & Co. Inc. earlier this year took a majority stake in a pop-song catalog from producer Ryan Tedder.
KKR has also launched a partnership with BMG, a record label and music publisher, with a commitment of about $1 billion for musicrights investments.
Hedge-fund manager William Ackman bought a 10% interest in Universal Music Group this summer ahead of its spinoff as a public company from Vivendi SE.
He had previously tried to invest in Universal through a special-purpose acquisition company he controlled, but the deal fell through amid regulatory scrutiny.