Old songs have become an asset class in their own right – but trouble looms
It’s boom time for the baby boomers, as the icons of Sixties counterculture pocket an unexpected windfall. Song catalogues have been changing hands for huge amounts of money, with Bob Dylan’s songbook fetching $330m (£295m). Bruce Springsteen topped that with a $550m deal with Sony. Old songs have become now an asset class in their own right, a development that was unthinkable a decade ago when the music industry was on its knees. But trouble looms, caused by the post-pandemic neutron bomb of rising interest rates.
That’s bad news for Hipgnosis, the newcomer responsible for igniting the back catalogue feeding frenzy. In 2018 Hipgnosis set sail and raised more than £200m from the London market. Today it has raised a cumulative total of more than £1.2bn.
After a series of aggressive deals it now sits on $2.5bn worth of songs. But many of these rights were acquired at the peak of cheap money, and what looked like an attractive punt then doesn’t look quite so good today. Earlier this month, Hipgnosis refinanced its $700m debt. The share price has taken a hit, from a peak of £1.30, to £0.86 per share. Ominously, with interest rates climbing, this may only be the start of its woes. Some also question whether it can exploit the songbook as well as it could.
“That asset is not going to magically be worth more because it’s owned by a pension fund or hedge fund,” one industry insider told me. “They have no skills, and no personal interest in the music and are unlikely to be able to find creative and innovative people to do risky things with those assets.”
There’s another problem too, not just for Hipgnosis, but for the future of the recorded music industry itself. While older catalogue music now takes an increasing share of revenue – more than two thirds of tracks streamed – this may be a temporary generational phenomenon.
It may even be a consequence of us being able to perform technological tricks we couldn’t before, such as recalling a song on the spur of the moment, and asking Alexa to play it. But without wishing to sound morbid, in a few years the audience that has Dylan, Springsteen and Young on endless repeat today will have gone. It’s unlikely that the crematoria and graveyards will continue to have their Greatest Hits tinkling away day and night. So what, then, will replace that income? Will music slowly disappear from people’s lives?
A common complaint made today is the perennial Old Fart’s Lament: things aren’t as good as they used to be, and all the good songs have been written. But this takes us to a very dark place. It means there are no new and interesting ways left of describing the world, which in turn means we may as well turn out the lights and leave the last humans to be bathed in muzak created by artificial intelligence algorithms.
My teenagers and their friends bridle at the implication that the young have run out of ideas, and for them, making and recording music is a huge part of their lives. The figures bear that out: some 100,000 tracks are now uploaded to Spotify’s DistroKid service every day. And naturally, the industry trade group for recorded music, recording industry group BPI objects the most strongly.
The BPI argues that major label re-investment is what ensures a bright future. It says 40pc of income is ploughed back into artist development, a figure that compares favourably with R&D in industrial sectors, particularly energy. A further 25pc goes on “artists and repertoire” or A&R, which is typically financial support of some kind, and 15pc on marketing. Others see an industry that has hollowed itself out, that is increasingly risk averse, and clings to well worn formulae. But both of these views can be true.
Where agreement is almost universal is on the need to grow the pie, rather than squabble over the share – an argument our beleaguered Prime Minister might recognise. This summer the Competition and Markets Authority dismissed one such complaint, rejecting the idea that the streaming market was uncompetitive. Nevertheless, Spotify dominates, with 75pc of the time spent on music streaming by UK adults, rising even higher amongst younger music lovers.
Spotify can at times appear to be a less than fully committed keeper of the music flame. It’s pivoted to podcasts, for example, with big deals and a string of acquisitions. It keeps hinting that payola should return, in the form of labels paying for promotion and placement. Spotify recently experimented with a Discovery Mode, where bands and labels can forgo a percentage of their royalties to appear more prominently in its algorithms. These are all things typically associated with a rent-seeking distribution monopoly. And forking out $300m to get its name on Barcelona football club’s shirts makes for terrible optics.
New products and new formats always help the industry grow, and one large aggregator tells me of an unexpected uptick from Google’s YouTube, the new darling of streaming, for monetising music through content ID and video. Many acts make the video first, then add music. But perhaps the best bet of all for growth remains new talent. Events like next week’s Mercury Prize, showcasing British acts that don’t need a full-time geriatric nurse, might be the place to find it, and prove the grumblers wrong.
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