Hipgnosis Faces Investor Ire as Music Rights Fund Faces Uncertainty

The Uncertain Future of Hipgnosis

Hipgnosis, the London-listed company that acquired the music rights of artists such as Beyoncé and Neil Young, is facing a difficult time as investors express their dissatisfaction. Shareholders recently rejected the company’s request for a new five-year mandate, giving Hipgnosis six months to reorganize or face dissolution. In addition, investors voted against the proposed sale of 29 music catalogs to Blackstone for $440 million, questioning the adequacy of the offer.

Sylvia Coleman, senior independent director of Hipgnosis, acknowledged the shareholders’ lack of support but expressed confidence in the quality and potential of their assets. The company is now seeking a new chair to lead a strategic review and focus on delivering improved shareholder value.

The Setback for Hipgnosis

This development comes after Citrin Cooperman, the company’s portfolio valuer, drastically reduced expectations for future royalty payments, compelling the cancellation of an interim dividend payout. The declining interest rates and the devaluation of Hipgnosis’s portfolio have impacted its market value, which is down by 40% since its peak in November 2021.

The Hipgnosis Approach

Hipgnosis, founded by Merck Mercuriadis and Nile Rodgers in 2018, disrupted the music industry with its mission to acquire back catalogs of well-known artists and sell royalty rights to investors. The company leverages the revenue generated by music streaming platforms like Spotify and Apple Music.

This approach allowed musicians to monetize their work upfront, while investors could enjoy a steady stream of income from the catalogs. Hipgnosis capitalized on the growing interest in music assets, securing notable deals with artists like Justin Bieber and Neil Young.

Challenges and Potential

However, the valuation of future assets has been affected by rising interest rates and increased competition from alternative investments. Hipgnosis’s music catalog, valued at $2.1 billion, has faced devaluation. Nonetheless, investors continue to find value in the royalty-based asset class, citing the success of Round Hill Music Royalty Fund, which recently witnessed a significant premium on its stock price when it agreed to be acquired by Alchemy Media.

As Hipgnosis navigates its uncertain future, strategic reorganization and a focus on enhancing shareholder value will be vital for the company’s longevity and success in the evolving music rights industry.

Source: Owners of Beyoncé and Justin Bieber’s music on verge of shutting down