Blackstone Bets on Music Business With $1 Billion Hipgnosis Deal

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The asset manager, the music company, created the fund to purchase the song catalog, anticipating such rights to grow amid the rise in online streaming.

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By partnering with the firm Hipgnosis Song Management Ltd., Blackstone hopes to capitalize on the new ways that fans are listening to music via the Internet. Subscription to streaming services offered by Spotify Technology Per,

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Apple Inc.,

Amazon.Com Inc.

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And others have fueled a resurgence of the music business over the past five years. However, the industry is increasingly looking to social media, videogames and fitness for growth.

Mr. Abbas, Senior Managing Director, Blackstone Tactical Opportunities, said in a statement, “The recent evolution of the music business makes us realize that private capital has a role not only as an investor, but also in creating a platform that has greater potential. Is.” Interview.

“A lot of data comes from these platforms—Spotify, YouTube, Peloton, Roblox—and as data is generated, it will require an increasingly sophisticated infrastructure,” he said. “And we can use that output to make more informed investment and management decisions.”

For Hipgnosis, Blackstone’s involvement marks the seal of approval by one of the world’s leading financial players. Its founder, Mr. Mercuriadis, formerly managed singers such as Beyoncé and Elton John, and bands including Guns N’ Roses and Iron Maiden.

“In the future we expect billions of micro-transactions to come to you in real time in a way that is no different from the way Visa or American Express operates in real time,” Mr. Mercuridis said.

The market for music copyright began to heat up about three years ago, as artists looked to capitalize on the excitement of music-streaming growth, lower interest rates, and a lower capital gains tax. Hunger exploded during the COVID-19 pandemic, with more artists trying to capitalize on their music rights and investors viewing music as a stable asset that was uneconomical to the volatility in the broader market. Music-streaming proved pandemic-proof, and older classic songs were picked up in streaming, further reinforcing their long-standing value and proven record.

While music lawyers privately praise the hefty sums Mr. has done.

“There is a lot in space that is being misunderstood and developed, and multiples do not represent the best way to think about pricing because a young catalog can be costly at 10 times the multiplier, and an old one 25 times may be cheaper on multiple because their cash flow behaves differently,” Mr. Abbas said.

Mr. Mercuriadis, who has emphasized that his investment will pay off, said Blackstone will help Hypgnosis become a more sophisticated operation.

“For the investment community we want to be the gold standard of being an investment advisor and wealth manager,” he said. “This is something Blackstone will help us achieve.”

Under the deal, Blackstone and Hypnosis Song Management will create a new fund—Hypgnosis Songs Capital—with a $1 billion war chest. Blackstone will also take an ownership stake in the advisory firm, which it plans to help build a more sophisticated platform for underwriting, pricing and managing music investments.

Mr Mercuriadis said any potential deal would be submitted for both the Hypnosis Fund, and that the public fund would have the option to co-invest in the Catalog acquisition of the new Blackstone partnership. He predicted that the acquisition would happen quickly as the companies are working on a pipeline over the five months it will take to complete the deal.

Hypnosis went public in 2018. As of June, it owned the rights to over 64,000 songs, including about 14,000 top-ten hits. Hypnosis debuted this year with major copyright deals for Jimmy Iovine, Lindsay Buckingham and Neil Young. According to people familiar with the deal, the sale of Mr. Young alone fetched between $40 million and $50 million for a 50% stake.

Other large asset managers have made similar bets on music rights, both through investments in other companies and by acquiring the rights directly.

Through its credit arm, Apollo Global Management Inc.

Last week HarborView committed to backing Equity Partners, a new firm that plans to submit the rights to the song with a $1 billion investment. An Apollo spokesperson said the deal involves a combination of debt and equity, which will be used to buy the assets.

That new firm is being run by the same executive who helped lead Tempo Music Investments, founded in 2019 with the support of Providence Equity Partners. Tempo, in partnership with Warner Music Group Corporation

, has quietly purchased the music rights from the Jonas Brothers, Florida Georgia Line and Wiz Khalifa. According to people familiar with the matter, the company has more than $1 billion available to continue buying.

KKR & Co Inc took a majority stake in the pop-song catalog from producer Ryan Tedder earlier this year. KKR has also launched a partnership with BMG, a record label and music publisher, with a commitment of approximately $1 billion for music-rights investment.

Hedge-fund manager William Ackman this summer bought a 10% interest in Universal Music Group ahead of its spinoff as a public company of Vivendi SE..

He had previously tried to invest in Universal through a special purpose acquisition company he controlled, but the deal fell through amid regulatory scrutiny.

Anne Steele at [email protected] and Matt Grossman at [email protected]

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