Hipgnosis-style offers. It’s a new paradigm that
Merck should take credit for creating.”
Mercuriadis points to a Jan. 21 prospectus issued
by the company that indicates the average multiple
paid by Hipgnosis is 15.63. He claims his reputation
for driving up prices originated with competitors
who lost catalogs to Hipgnosis. “They were all
running around saying, ‘Oh, he’s paying 25 times,’
because they had to give their shareholders an
explanation,” he says, adding that they aren’t
factoring into their calculations the many private
deals that he does.
Traditional publishers maintain that he’s
overpaying. Some offer barbed criticism
anonymously. (A sample, from an independent
publishing executive: “His whole spiel about song
management is bullshit.”) But no one can dispute
that prices are rising, to the benefit of creators,
or that Hipgnosis is winning plum assets, among
them Kobalt Music Copyrights Fund 1 and the Big
Deal music publishing company, both owners of
multiple catalogs, as well as the catalogs of Justin
Bieber collaborator Jason “Poo Bear” Boyd, Chrissie
Hynde, Lindsey Buckingham, Ernest Dion “No I.D.”
Wilson, Shakira and Neil Young (see story, page 48).
So far, Mercuriadis says, Hipgnosis’ song man-
agement strategy is working. About a year ago, the
company was added to the Financial Times Stock
Exchange 250, one of the U.K.-equivalent indexes
to the S&P 500. For the fiscal year ended March 31,
2020, Hipgnosis’ profits jumped $31.2 million on
total revenue that grew eightfold over the previous
year to $81.3 million. For the first six months of the
current fiscal year, Hipgnosis shows net profits of
$12.7 million on $62.1 million in revenue. If that pace
continues, the company will double its revenue for
the full year, given the flurry of acquisitions that
Hipgnosis has made since Sept. 30, 2020.
“Warner Chappell did $657 million in busi-
ness on 1.4 million songs, and we did $85 million
on 13,000 songs at the time,” says Mercuriadis,
comparing Hipgnosis’ numbers from its fiscal year
ended March 31 with those Warner Chappell re-
ported from its previous fiscal year. “So we did 12%
of their business on less than 1% of the amount of
their songs.” He points out that Hipgnosis gener-ated $6,280 in revenue per song
it owns, while Warner Chappell
brought in $470 per song. “Not be-
cause we’re smarter or better than
they are,” he says, “but because
we’re focused purely on managing
these great songs.”
Traditional publishers spend
more time and money developing
talent, however, while Hipgnosis
tends to buy blue-chip catalogs
— for a premium. And some of
Hipgnosis’ rivals, as well as a few
financial analysts, are now starting
to question how the company val-
ues the assets that it acquired and
how it calculates the multiples
that it discloses in its financial
reports, which are significantly
lower than those estimated by
competitors that have bid for the
same catalogs. In other words:
whether Hipgnosis’ accounting
methods are valuing assets too
high and purchase prices too low.
A January analyst report issued
by the investment bank Stifel
Financial downgraded Hipgnosis
from “buy” to “neutral” and raised
questions about the math used
by the company’s independent
valuer, Massarsky Consulting.
Mercuriadis says Hipgnosis’
financial advisers “spent hours
addressing Stifel’s questions,
and that was not reflected” in
the bank’s report. He’s not fazed
though: He expects criticism to
grow as his company does and
predicts a wave of stories “focus-
ing on, ‘Hipgnosis: Is it too good to
be true?’ ” All the criticism stems
from rivals attempting “to under-
mine what we are doing,” says Mercuriadis. “Those
individuals are concerned that we are a threat.”H
IPGNOSIS IS THE FIRST
publicly traded company to
invest solely in music publish-
ing, but Mercuriadis isn’t the
first industry executive to bet
that songs are undervalued. In
1985, Michael Jackson and his
attorney John Branca acquired ATV Music (which
included Northern Songs, most of John Lennon and
Paul McCartney’s Beatles tunes) for $47.5 million —
an investment that paid off well when, 10 years later,
they sold a 50% stake in ATV to Sony for double that
amount. The publishing market was also spurred
by a 2006 change to the tax code that made sale
income a capital gain. Last year, the prospect that
Joe Biden’s administration might raise capital gains
taxes seems to have motivated some sellers, who can
now choose from among 20 buyers.
What sets Mercuriadis apart from the others isFEBRUARY 20, 2021 • WWW.BILLBOARD.COM 45