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November 27, 2023

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1 big thing: Can't stop the music

The music rights market has picked up in the last few months after a yearlong dry spell, Tim writes.

Why it matters: The uncertain future of Hipgnosis Songs Management, one of the sector's biggest players, threatened to burst the bubble on the music rights market.

State of play: Money is flowing back into the music rights market.

  • Last week, Broadcast Music Inc. — one of the biggest holders of music rights — was sold to an investor group led by New Mountain Capital in a deal that could be worth $1.7 billion, per industry trade outlet Music Business Worldwide.
  • The BMI sale came more than a year after the company pulled itself off the market after not finding a buyer willing to meet its price.
  • Earlier this fall, Apollo helped to back Concord's $468 million acquisition of Round Hill Music.
  • Morgan Stanley is also partnering with Kobalt to spend $700 million to acquire music copyrights.
  • Katy Perry sold catalog rights to five of her albums to Carlyle Group-backed fund Litmus Music in September for $225 million.

The big picture: The growth of streaming music continues to increase the value of holding song rights.

  • "We're in this kind of massive tidal wave of step change in what the music market looks like from subscription and ad-supported streaming," Bob Valentine, CEO of music rights giant Concord, tells Tim. "Peloton is now monetizing [music]."
  • Despite Hipgnosis' issues, which include a spending spree and leadership turmoil, music royalties is still seen as a stable asset.
  • "I think private equity funds investing on behalf of pensions that are looking for stability will continue to put a lot of money into this space," Reed Smith partner Chris Sheaffer tells Tim.

The bottom line: The general feeling is that Hipgnosis' problems are contained to just that firm because it overpaid for massive song catalogs from major artists — including Beyoncé, Neil Young and the Red Hot Chili Peppers — when interest rates were low.

  • "They raised capital at a much faster rate than the infrastructure and support behind it was built out," Sachin Saggar, an analyst at Stifel, tells Tim. The Merck Mercuriadis-led Hipgnosis is currently deciding on the firm's future, which could include a sale.
  • "I think, if anything, the broader space seems to be doing OK," Sagger continued. "No one is having the issues that Hipgnosis seems to be having."

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