At the end of January, Hipgnosis Songs Capital (‘Hipgnosis’) announced that it had bought the rights to Justin Bieber’s song catalogue in a deal that will see them take over the rights of nearly 300 songs. Hipgnosis Song Management (the parent company of Hipgnosis) is backed by Blackstone, the world's largest alternative investment firm with $975B of assets under management. Blackstone has made around $1 billion available to Hipgnosis Song Management for music rights acquisitions and catalogue management, with this investment venture structured as an Irish-domiciled investment fund.
Hipgnosis’ investment in Bieber’s catalogue includes Bieber's share of royalties from the Master Recordings, Publishing Rights and Neighbouring Rights – including some of those he worked on with other artists – released before the end of 2021.
Bieber’s catalogue buy-out has hit the headlines as it’s one of the largest of its kind in history. While it’s not unusual for artists to sell their rights to their song catalogue – Bruce Springsteen, Bob Dylan, Paul Simon and Shakira have all done the same – most musicians tend to do so when they are further along in their careers.
There are any number of reasons why an artist will choose to sell their song catalogue, but one of the main reasons is when they want to retire, or reduce their touring schedule which usually provides a more lucrative revenue stream than music sales alone. Many musicians sell their catalogue in order to generate a lump-sum of capital they can use to create a legacy, set up investments and/ or pass on wealth to the next generation. This is especially useful because the artists themselves are the draw for their fan base - their ‘brand’ can’t be passed on to children or grandchildren in the same way a family business can.
Catalogues of popular musicians are prime targets for investors because they represent a steady stream of income that’s relatively protected from market volatility. Whereas commodities, bonds and real estate are all prone to be rocked by socio-economic and geopolitical changes, artists’ songs play on regardless. This will, theoretically, continue to generate revenue well into the future.
Hipgnosis’ deal is relatively rare in the sense that it comes before Bieber has even hit 30. Investments in music catalogues aren’t completely without risk either. If audiences stop playing an artist’s songs, investors won’t continue to generate projected royalties and revenue from them.
It’s for this reason that investors tend to be drawn towards the catalogues of older artists, who have proven that their songs have real longevity and that they have a solid personal reputation. Bruce Springsteen, for example, has proven the enduring popularity of his songs. Born to Run was recorded in 1975 but continues to be played today, decades after its release. While Bieber has had a long career having rocketed to fame as a teenager, he has only been hugely popular in recent years; he signed his first record deal in 2008, only 15 years ago. He also has a young fan base, which means there’s no real way to tell if his songs will be popular in decades to come.
Musical catalogue valuations are highly specialised and niche. In the past, revenue generation from an artist’s catalogue typically spiked almost exclusively after the sale of an album. The rise of streaming has potentially created more opportunities for revenue generation that are steady over time. Emerging platforms and more global streamers are also likely to generate revenue well into the future. This all makes valuations much more complex than in the past.
Although it increases risk, Bieber’s youth may have also supported maximising the valuation of his catalogue to some degree. Bieber was discovered by his manager, Scooter Braun – who is himself only 41 – on YouTube. He’s been well-managed since his career took off and has gone on to leverage and expand his reach through streaming and platforms like YouTube. Data is arguably more readily available now, especially via such platforms, and can arguably be tracked and analysed better than that which is available for older artists and musicians who have been through contractual wrangles. Indeed, it’s likely that Bieber will have extensive royalty reports and other data that support the valuation of his catalogue. While Bieber may have only finalised the sale of his catalogue in January, collecting royalty data and managing his music as effectively as possible with the aim of maximising returns was a strategy likely put in place by his manager and record labels many years ago.
Recent investor interest in song catalogues has pushed prices exceptionally high, and there are some suggestions that catalogues – including Bieber’s – are inflated. Only time will tell if this is true and the return Hipgnosis will make is uncertain. But with Blackstone being backed by capital from institutional and professional investors, the underwriting, due diligence, forecasts and projections for Bieber’s catalogue will have been second to none, and ought to be able to withstand the scrutiny of the world’s best analysts and most-informed investors. Ultimately, this means the investment – especially at the reported price – is unlikely to be a flop (excuse the pun).
No details of how the finance was structured have been announced, but the buyout of Bieber’s catalogue is likely to have been leveraged, given the transaction price accounts for nearly a fifth of the amount Blackstone have said they will invest in music rights acquisitions.
We believe they will have raised anything between 60-80% of the deal price. Because the investment amount and Bieber’s youth represent risk for investors, lenders will have priced the loan(s) to Blackstone accordingly. Anything between 5.5% and 7% on top of the reference rate would likely be a fair deal. However, if Blackstone have indeed leveraged debt, this further underpins their belief in Beiber’s enduring appeal and the returns they can generate from the investment.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation. The views and opinions expressed in this piece are those of the author and do not necessarily reflect the official policy or position of Enness nor are they intended to indicate any market or industry viewpoints, or those of other industry professionals.
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.