The Buying Mania for Old Songs Has Come to a Sudden and Ugly End
The rock stars who sold their catalogs at the top appear to have outwitted the bankers
We’ve been living through a bizarre interlude in the music business. For the first time in roughly 500 years, the power brokers decided that old musicians and old songs were better investments than hot new artists.
You would need to go back to the medieval era to find such reverence for old music. Back then, it was a matter of church sanction. In our own time, the worship of old songs is built on discounted cash flow projections (faulty ones, in my opinion). But they amount to the same thing—a notion that you can put your faith in familiar melodies.
But now it looks like this investment trend has come to a sudden and ugly end.
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I predicted this a year ago, when I wrote:
At first glance, this obsession with old songs makes no sense. Songs are a depleting asset, much like oil in the ground. . . . I’ll cut to the chase: Old songs are hot right now. But they won’t be for long.
But the collapse arrived even faster than I anticipated.
Consider the case of Hipgnosis, the British investment fund that took the lead in this buying mania. The fund was launched in 2018 with the promise that old songs were “a better investment than oil or gold,” according to the Financial Times.
Hipgnosis eventually raised more than a billion dollars, and during their first year alone acquired rights to 5,000+ songs. But that was just a start. By the end of 2021, this fund controlled a staggering 65,000 songs.
Whether your tastes turn to Neil Young or the Chainsmokers or Barry Manilow, they control the songs the whole world sings. And Hipgnosis was so convincing in its advocacy for songs as investments, others with deep pockets decided to acquire vintage song acquire catalogs of their own. Even record labels, businesses that usually focus on new music, decided that it was now better to invest in oldies.
But those rosy promises have failed to come true. As it turns out, oil and gold really are better investments than classic rock.
Hipgnosis now reports that pro forma royalty income from its songs—which is a good measure of financial performance, because it strips out the impact of new song acquisitions from the numbers—has dropped for the last two years.
That would be bad news under any scenario. But it’s even worse in the current environment, when the interest cost on the fund’s $600 million in debt is likely to rise sharply. The fund pays a 5.25 pence dividend to shareholders, but it’s not clear whether it can generate enough cash to maintain the distribution at that level.
Even more worrisome, is the possibility that Hipgnosis will need to write-off some of the book value of its song catalogs. This could seriously impair the fund’s ability to borrow in the future, because its creditworthiness depends ultimately on what this music is actually worth.
That might explain why Hipgnosis hasn’t bought a single song in the last year.
The current situation is the exact opposite of what happened in late 2020 and early 2021, when bidding wars for song catalogs drove up their value. Now the market appears to be going in reverse.
That said, rumors continue to circulate that the fund will acquire the Pink Floyd catalog—with some help from its financial partner Blackstone. But this has been discussed openly in the media for almost three months, with no actual deal resulting. The problem may be that the band publicly announced that their catalog is worth a half billion dollars—a boast that may be great for bragging rights at the rock retirement home, but now puts Pink Floyd in an awkward situation if they settle for less.
Meanwhile other rumors circulate about Hipgnosis deals falling apart before reaching the finish line. Hipgnosis recently had to take a charge of $1.6 million over a six month period for “aborted deal expenses”—apparently validating this industry gossip.
As mentioned above, Hipgnosis has an ongoing relationship with Blackstone—one of the largest investment groups in the world. Don’t be surprised if the folks at Blackstone end up owning all those songs. But if it happens, they will probably acquire the music at a sharp discount to what those songs were worth just a few months ago.
In the meantime, the notion that old songs are sexy, exciting investments has taken a huge hit.
I don’t take much satisfaction in this, even if it validates another one of my predictions—contrary to numerous people who told me that I was underestimating the brilliant minds who had concocted this investment scheme. The plain truth is that I’d rather be wrong than see the music business take another hit.
Let me be more specific: I’m not really concerned with how much a fund manager pays for an old song. I’m more concerned about how little the music business is investing in new music and new artists. For a long time, the obsession with old music has drained investment from the current music scene. That has contributed to a prolonged stagnancy, which I have written about on several occasions (most notably here).
And what happens now?
Unfortunately, the collapse of cash flow from the old music won’t help new music at all. It will merely lead to decline in investment in music of any sort. That doesn’t just hurt Hipgnosis, but also Sony, Universal Music, and the other companies that played a part in the recent mania for old tunes.
The major labels should have been building the future of the music business, not trying to squeeze more cash from the past. We will now all pay a price for their failure of imagination—not just musicians, but also fans and the culture at large.
Even so, there may be some good news out there for songwriters, but it will have to come from somewhere else—maybe via Web3 initiatives or other alternative music distribution platforms. I’ll be on the lookout, and I do have some reasons for optimism (which I will share in another article). But for the time being, I fear things may get worse before they get better.