After the Gold Rush: The Ballad of Merck Mercuriadis (2024)

Merck Mercuriadis, the one-time artist manager who almost single-handedly touched off the gold rush in music publishing rights with the launch of the Hipgnosis Songs Fund in 2018, liked to say his goal was to amass a large enough portfolio of song rights to tip the industry’s balance of payments back toward artists. He never made it, and now perhaps he never will.

Over the past eight months, Hipgnosis has been engulfed in drama after questions were raised over Mercuriadis’ catalog valuation models, his management of the fund and the book value of the Hipgnosis portfolio. On Thursday, that drama reached its logical denouement when the Hipgnosis board, now largely reconfigured by new chairman Rob Naylor, who was brought in to try to staunch the bleeding after Mercuriadis was shunted aside, voted unanimously to accept a $1.4 billion takeover offer from Nashville-based publisher Concord, backed in part by Apollo Capital. Hipgnosis’ beleaguered shares rose more than 30% on the news. (Another chapter in the drama could still be written as Concord and the board work to disentangle the web of interlocking corporate structures and Mercuriadis ties that surround the fund.)

Business school case studies remain to be written about the rapid rise and apparent fall of Hipgnosis, and the roles played in the saga by Mercuriadis, private equity and the decade and a half of low interest rates and easy money that followed in the wake of the 2008 financial crises and fueled investors’ appetite for alternative assets. But part of the story’s apparent ending is a tale of Mercuriadis’ ultimately Quixotic tilt against the blunt force of industry concentration, and of an entrepreneur undone by the forces he unleashed.

Mercuriadis’ mercurial salesmanship initially was able to attract the backing of institutional investors (and later VCs) that had long-shunned the music business as a high-risk, volatile sector. That brought new money and new players into the business, and others quickly followed on the path he blazed. Among those was the Round Hill Music Royalty Fund, which went public in 2020 (and was similarly acquired by Concord last year in a deal also engineered by Naylor).

Once the music-rights ball got rolling, however, and the long-term asset value of streaming royalties became clear, the Big Three label groups and other major industry incumbents, including Concord, were able to leverage their superior resources, access to capital, and existing relationships with artists to emerge as the biggest buyers in the market. They snapped up the biggest catalog deals, which could be amortized against their existing infrastructure, making it harder for upstarts like Hipgnosis to achieve necessary scale.

Universal Music Group alone spent $1.06 billion buying up catalogs in 2020, including a whopping $300 million deal for Bob Dylan’s entire 600-song collection. Two years later, Sony Music acquired Dylan’s master recording rights, including 39 studio albums and a dozen of so bootlegs he retained rights to, for an estimated $150-$200 million.

In 2021, Sony Music bought Bruce Springsteen’s publishing and master rights for an estimated $500 million. In 2022, Warner Music Group acquired David Bowie’s musical estate for $250 million. And so on.

Those deals were not done out of any sense of idealism, or to tip the industry scales in favor of artists. They were done simply to boost the majors’ already dominant market shares, because in a world dominated by streaming royalties the race goes to the biggest, not the swiftest (unless you’re the Taylor Swift-est).

The new investment capital Mercuriadis helped bring into the business, which he and others hoped would eventually counterbalance the weight of industry concentration under the majors, is instead now helping fuel its further concentration by funding the acquisitions of Hipgnosis and Round Hill.

ICYMI

Netflix Changes the Formula

Speaking of passing eras, Netflix, which more than any other player helped entrench subscriber growth as the uber-metric of the streaming business, is now flipping the script. Starting in the first quarter of 2025, the company said on its Q1 earnings call this week, it will no longer report subscriber numbers in its financial results. The news sent $NLFX shares down 4.5% in the after market, despite beating its earnings forecast for the quarter on a 9.3 million increase in subscribers. “In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” Netflix said in its quarterly investor letter. “But now we’re generating very substantial profit and free cash flow (FCF). We are also developing new revenue streams like advertising and our extra member feature, so memberships are just one component of our growth.”

No Bundle of Joy at Spotify

In 2022, the National Music Publishers Association reached a deal streaming services and the Copyright Royalty Board on a streaming royalty rate through 2027. Now it wishes it hadn’t. The deal included a carve out for “bundled” services, such as family plans, under which DSPs pay a lower overall rate compared with individual plans. Spotify has now thrown a new wrinkle into the agreement by announcing that its formerly standalone premium audiobook tier will be incorporated into its music tiers as a bundled service. That has the effect of lowering the rate it pays for the music in those tiers, and NMPA is not at all happy about it. “It appears Spotify has returned to attacking the very songwriters who make its business possible,” NMPA CEO David Israelite said in a statement. “Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace.” He added, NMPA “will not stand for their perversion of the settlement we agreed upon in 2022 and are looking at all options.”

AI Risk Assessment

Artists and authors aren’t the only people worried about risks from artificial intelligence. Investors are getting worried, too. Alphabet, the parent of Google, and Warner Bros. Discovery are the two latest big companies to be facing shareholder proposals at their upcoming annual meetings asking the companies to disclose the risks to their businesses from the rapid development and growth of AI technology. A similar proposal is pending at Facebook-parent Meta. The AFL-CIO recently withdrew shareholder proposals at Disney and Comcast after those companies agreed to disclose more information on the use of AI. But it is working to gain support for shareholder measures at Netflix and Amazon. The growing shareholder activism targeting entertainment and technology companies is fueled by last year’s Hollywood strikes, which were spurred in part by concerns over the impact of AI on the movie and television business.

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