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Blackstone bets on music business with billion dollar deal with Hipgnosis

The investment, which Blackstone chief Qasim Abbas called a “starting point” is part of a partnership with a consultancy firm affiliated with the Hipgnosis Songs Fund. Ltd.

SONG 4.99%

, a music investment company listed on the London Stock Exchange. Hipgnosis, run by the former manager of pop star Merck Mercuriadis, buys catalogs of artist songs and earns income when the music is streamed online or used in movies or advertising.

By partnering with Hipgnosis Song Management Ltd., Blackstone hopes to unlock new ways for fans to listen to music via the Internet. Subscriptions to streaming services offered by Spotify Technology HER,

Apple Inc., Inc.

and others have sparked the resurgent growth of the music industry over the past five years. However, the industry is increasingly turning to social media, video games, and the fitness for growth.

Recent developments in the music industry “make us feel that private capital has a role to play not only as an investor, but in creating a platform with more enhanced capabilities,” Mr. Abbas, senior managing director of Blackstone Tactical Opportunities, in a statement. maintenance.

“There is a lot of data coming 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 the endorsement of one of the world’s leading financial players. Mr. Mercuriadis, its founder, previously led singers such as Beyoncé and Elton John and bands such as Guns N ‘Roses and Iron Maiden.

“In the future, we expect to see billions of microtransactions arrive in real time in a way that is not much different from the way Visa or American Express works,” said Mr. Mercuriadis.

The music copyright market started to heat up about three years ago, as artists sought to capitalize on the excitement over the growth of music streaming, low interest rates and a reduction in the capital gains tax. Appetite has exploded during the Covid-19 pandemic, with more and more artists seeking to monetize their music rights and investors viewing music as a stable asset independent of wider market fluctuations. Music streaming has proven to be pandemic-proof and old classic songs have been re-streamed, further enhancing their long-term value and proven record.

As music lawyers privately praise the massive sums Mr Mercuriadis has offered artists for their lifelong work, recording and editing officials say Hipgnosis overpaid for rights. music without the infrastructure and manpower to capitalize.

“There are a lot of things in space that are misunderstood and evolve, and multiples are not the best way to think about pricing because a young catalog can be expensive at a multiple of 10, and an older one can be expensive. be cheap at 25 times many because their cash flow behaves in different ways, ”Abbas said.

“For the investment community, we want to be the gold standard…”

– Merck Mercuriadis, Hipgnose

Mr Mercuriadis, who has insisted his investments will more than pay off, said Blackstone will help Hipgnosis become a more sophisticated operation.

“For the investment community, we want to be the gold standard as an investment advisor and fund manager,” he said. “This is something that Blackstone will help us achieve. “

As part of the deal, Blackstone and Hipgnosis Song Management will create a new fund, Hipgnosis Songs Capital, which will have a billion dollar war chest. Blackstone will also take a stake in the consultancy firm with plans to help it create a more sophisticated platform for underwriting, pricing and managing music investments.

Mr Mercuriadis said any potential deal will be presented to the two Hipgnosis funds and the public fund will have the opportunity to co-invest in the catalog acquisitions of the new Blackstone partnership. He predicted the acquisitions would happen quickly as the companies worked on a pipeline for the five months it took to close the deal.

Hipgnosis went public in 2018. As of June, it owned the rights to over 64,000 songs, including nearly 14,000 top ten hits. Hipgnosis kicked off this year with major copyright deals from Jimmy Iovine, Lindsey Buckingham and Neil Young. Mr. Young’s sale alone fetched a price of between $ 40 million and $ 50 million for a 50% stake, according to people familiar with the deal.

Other large asset managers have lined up similar bets on music rights, both by investing in other companies and by directly acquiring the rights.

Through its credit branch, Apollo Global Management Inc.

Last week he pledged to back HarbourView Equity Partners, a new company that plans to accumulate rights to the songs, with a $ 1 billion investment. The deal includes a combination of debt and equity that will be used to buy assets, an Apollo spokeswoman said.

This new venture is led by the same executive who helped run Tempo Music Investments, founded in 2019 with support from Providence Equity Partners. Tempo, in partnership with Warner Music Group Corp.

, quietly bought the musical rights to the Jonas Brothers, Florida Georgia Line and Wiz Khalifa. The company has more than $ 1 billion to keep buying, according to people familiar with the matter.

Earlier this year, KKR & Co. Inc. took a controlling interest in a catalog of pop songs from producer Ryan Tedder. KKR has also launched a partnership with BMG, a record label and music publisher, with a commitment of around $ 1 billion for investments in music rights.

Hedge fund manager William Ackman bought a 10% stake in Universal Music Group this summer ahead of its split as a public company from Vivendi SE.

He had previously attempted to invest in Universal through a specialist acquisition company he controlled, but the deal failed amid regulatory scrutiny.

Write to Anne Steele at [email protected] and Matt Grossman at [email protected]

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