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Justin Bieber selling his back catalog is eyebrow raising because of how young the artist is

Selling the rights to your back catalog has become a well-trodden path for musicians.

So Justin Bieber is not exactly groundbreaking selling the rights to his work to Hipgnosis Songs Capital for $200m (£162m).

However, what’s a bit startling about the deal is that at 28 years old, Bieber is slightly younger than many of the artists who have done so in recent years.

Most major blockbuster deals involved so-called “heritage” acts like Bob Dylan, Neil Young, Bruce Springsteen, and Fleetwood Mac rather than younger performers.

The rationale for Bieber and the other artists who sell their rights is simple: they receive a lump sum payment that gives them and their loved ones financial security.

For the buyer, the rationale is that songs can be turned into a source of income in a variety of ways, including streaming, the physical purchase of CDs or vinyl records, downloads, live performances, or licensing their use to the creators of movies. , TV shows and, increasingly, computer games.

By buying up a large number of old catalogs at scale, the buyer can build a portfolio that is diversified enough to appeal to all tastes and can generate a consistent stream of income regardless of trend changes.

These buyers like Hipgnosis also claim that by specializing in this area, they are in a good position to commercialize songs more successfully by actively managing the portfolio.

However, the Bieber transaction is a bit more risky from the buyer’s perspective, due to his relative youth.

Read more:
Sting sells the rights to his music
Why are so many big stars selling their music rights?

Justin Bieber
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At 28, Bieber is one of the youngest artists to sell his music rights

Bieber still has many years ahead of him – for better or for worse

The likes of Springsteen and Dylan are well-known greats: there is a captive audience and fan base that are happy to keep paying for their music and accordingly the income from which their work can be generated is quite predictable.

Also given their age, they are unlikely to become involved in a scandal that would make their work toxic to consumers.

Bieber, on the other hand, has many years ahead of him and thus plenty of time to alienate his fanbase through his behavior or produce subpar new work that scares fans away from his past endeavors.

Bowie was a pioneer in monetizing old catalogs

Music fans won’t be surprised to learn that one of the pioneers in effectively monetizing old catalogs was one of pop’s greatest innovators: David Bowie.

In 1997, he and his management team came up with the idea of ​​selling asset-backed securities to investors and paying them back a portion of his future royalties over the next 10 years. He raised $55 million (£44 million) selling these ‘Bowie bonds’, ironically buying back some of the rights to some of his previous recordings from his former manager.

Merck Mercuriadis, the founder of Hipgnosis, has built on that idea by trying to more aggressively commercialize the backing catalog rights, making songs a standalone asset class, and doing it through a publicly traded vehicle.

Mr Mercuriadis, a former manager of artists such as Beyonce, Elton John, Morrissey and Guns N’ Roses, has raised £1.2bn from city investors, such as Axa and Investec, who liked the idea of ​​a reliable income stream that could remain consistent. found regardless of the economic weather. That enabled him to buy the rights to even more songs.

Justin Bieber sings his song "Peaches" at the 64th Annual Grammy Awards Show in Las Vegas, Nevada, USA on April 3, 2022. REUTERS/Mario Anzuoni
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The Bieber deal is unlikely to be the last done by Hipgnosis Songs Capital

Founder of Hipgnosis has competition

However, Mr. Mercuriadis, whose portfolio includes the work of Blondie, Chic – whose frontman Nile Rodgers is a close friend – and Barry Manilow, does have competition.

Its rivals include New York-based Primary Wave, which owns a 20,000-song catalog of works by artists such as Aerosmith and Bob Marley, and Round Hill Music, which, like Hipgnosis, is listed on the London Stock Exchange. The catalog includes Beatles hits “From Me To You” and “She Loves You,” as well as the Rolling Stones’ Beatles-penned first single, “I Wanna Be Your Man.”

Then there’s the Los Angeles-based Iconic Artists Group, founded by music industry veteran Irving Azoff, the former manager of The Eagles and Jon Bon Jovi.

It owns the rights to works by artists Linda Ronstadt, Dean Martin, Nat ‘King’ Cole and the Beach Boys.

There are other big established global music groups that are also busy buying up rights. For example, Japan’s Sony bought the rights to Springsteen’s back catalog last year, while US-based Universal Music bought Dylan’s works in late 2020. Meanwhile, in January last year, Warner Music bought the publishing rights to Bowie’s back catalog for $250 million. year.

Skepticism about the business model

Another curiosity about the Bieber deal speaks to skepticism, in some circles, about the business model.

Shares of Hipgnosis Songs Fund trade at a significant discount to the company’s net asset value per share (the value that would be realized per share if the company were split up, assets sold and proceeds returned to shareholders ).

That reflects the fact that the market doesn’t believe that some of the numbers in the company’s portfolio are worth what the company says they are. Hipgnosis values ​​its catalog at $2.2bn (£1.78bn), but the company currently has a market capitalization of just over £1bn.

That discount – described as “unacceptable” by Mr. Mercuriadis last month – has prevented the company from raising more money from investors to buy more songs.

So the Bieber catalog was not bought by Hipgnosis Songs Fund, but by Hipgnosis Songs Capital of the same name, which is not listed on the stock exchange, but is owned by Blackstone, the private equity giant.

The latter, like Hipgnosis Songs Fund, is advised by Hipgnosis Song Management – which, to add to the confusion, is majority owned by Blackstone and managed by Mr. Mercuriadis.

The Bieber deal is unlikely to be the last done by Hipgnosis Songs Capital. It is reportedly the frontrunner to buy Pink Floyd’s back catalog, though a sale is said to have been held back by the poor relationship between bandmates Roger Waters and David Gilmour.

And more broadly, other deals are likely to be made, many with British artists. The weakness of the pound makes their catalogs all the more affordable for US buyers who pay in dollars.

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