UK-based song-investment fund Hipgnosis dropped $260 million on song catalogs from April 1st through September 30th of this year, but with net debt having surpassed a staggering $550 million, the company doesn’t “intend to offer further shares for cash consideration” before March 30th, 2022.
Hipgnosis revealed these and other noteworthy points in its newly released interim report, which spans a whopping 74 pages and covers the entity’s operations between April and September, as mentioned. Beginning with song acquisitions, Hipgnosis bought the rights to another 1,315 tracks during the period – including the catalogs of the Red Hot Chili Peppers, the Kaiser Chiefs, and Christine McVie – “for a total consideration of c$260 million.”
The purchases upped Hipgnosis’ portfolio to 146 catalogs and 65,413 songs, “with an aggregate value of $2.55 billion (as determined by the Independent Portfolio Valuer),” or Massarsky Consulting, Inc. Towards the start of 2021, a Stifel analyst said that he felt “uncomfortable with Hipgnosis’ valuation procedure,” it bears mentioning on this front.
Plus, the $260 million sum spent on music IP throughout the period is relatively modest, for Hipgnosis dropped over $1 billion in its 2021 fiscal year – or roughly $250 million per quarter as opposed to every six months.
Back to Hipgnosis’ latest interim report, though, net revenue came in at $74.04 million (up from $56.69 million during the same six-month stretch in 2020). Interestingly, the company says that sync accounted for approximately the same percentage of net revenue (16 percent) as “mechanical/master royalties” in the period, compared to 36 percent for streaming and 27 percent for performance, notwithstanding COVID-driven declines.
Total revenue, for its part, touched $85.27 million, with $11.23 million in royalty costs. And this $85.27 million in total revenue resulted from sources including “writer share income” ($21.39 million), “streaming income” ($19.86 million), and sync income ($14.92 million).
However, Hipgnosis’ operating expenses cracked $92 million across the half-year window, including (in the “other operating expenses” category) $504,000 in “public relation fees” between April 1st and September 30th – up from $217,000 during the identical period in 2020. Also highlighted in the financial document are “travel and accommodation fees” ($254,000, up from $140,000) and “staff payroll and expenses” ($3.34 million, up from $257,000).
Of course, these expenditures (along with the substantial sums spent on catalogs) contributed to the initially disclosed net debt of Hipgnosis, which totaled $550.9 million as of September 30th, 2021 – a hike from $464.4 million as of March 30th, 2021. (The entity actually drew down the entirety of its $600 million revolving credit facility by the end of September, but had $49.11 million in cash on deposit.)
And in terms of the corresponding catalog-acquisition slowdown and pause on share issues – Hipgnosis raised another $215 million or so over the summer – the text relays in part: “Prior to the last equity raise, a strategic decision was taken…that the Company does not intend to offer further shares for cash consideration until after publication of the net asset value per share as at 31 March 2022,” or the end of its fiscal year.
Instead, Hipgnosis is poised to focus “on managing the iconic Songs we have acquired over the past three and a half years,” the text discloses. The song-investment business’s sync deals increased in number by 20 percent in July, August, and September, compared to April through June, the document proceeds.
“We have a newly-created, dedicated, in-house sales function, tasked solely with curating our Catalogue from a synch perspective,” Hipgnosis’ analysis states. “For the vast majority of our repertoire – regardless of who administers the song – we are the sole approval party for all synch requests.”
Unlike Round Hill Music, Hipgnosis hasn’t publicly revealed the value of its major sync deals, but some of the highlighted placements include Eurythmics’ “Sweet Dreams (Are Made of This)” and Blondie’s “Heart Of Glass” in trailers for House of Gucci as well as Carly Simon’s “Nobody Does It Better” in a DHL cross-promotion campaign for No Time to Die.
Lastly, regarding other interesting details from the report, earnings per share finished at -$1.69 through the six-month stretch, “because of the high amortisation charged during the period.” The latter reached $52.12 million for catalogs, and Hipgnosis says that it “amortises Catalogues of Songs with a limited useful life using the straight-line method of 20 years.”
Hipgnosis also described NFTs as “an important part of the future,” touted the perceived value of song “mashups” on TikTok, and disclosed that it possesses “an interest in 11 out of the Top 30 most viewed videos globally on YouTube.” During today’s trading hours, Hipgnosis stock (SONG on the London Stock Exchange) dipped by 1.89 percent, to about $1.67 per share.
Welcome to the house of cards.
SS Mercuriadis channels the ice-choked waters with ease…
prepare to see some rearranging of deck chairs shortly