Back in 2021, investors spent more than $5 billion buying the rights to old songs. Never before in history had musicians over the age of 75 received such big paydays.
I watched in amazement as artists who would never sell out actually sold out. And they made this the sale of a lifetime, like a WalMart in El Paso on Black Friday.
Bob Dylan sold out his entire song catalog ($400 million—ka-ching!). Paul Simon sold out ($250 million). Neil Young sold out ($150 million). Stevie Nicks sold out ($100 million). Dozens of others sold out.
As a result, rock songs have now entered their Madison Avenue stage of life.
Twisted Sister once sang “We’re Not Gonna Take It.” But even they took it—a very large payout, to be specific. A few months ago, the song showed up in a commercial for Discover Card.
Bob Dylan’s song “Shelter from the Storm” got turned into a theme for Airbnb. Neil Young’s “Old Man” was rejuvenated as a marketing jingle for the NFL (touting old man quarterback Tom Brady).
Fans mocked this move. Even Neil Young, now officially a grumpy old man himself, expressed irritation at the move. After all, the head of the Hipgnosis, the leading song investment fund, had promised that the rock star’s “Heart of Gold” would never get turned into “Burger of Gold.”
That hasn’t happened (yet). But where do you draw the line?
I was skeptical of these song buyouts from the start—but not just as a curmudgeonly purist. My view was much simpler. I didn’t think old songs were a good investment.
Back in June of 2021, I wrote:
The biggest player behind these deals is Hipgnosis, a company with only 78 employees but very deep wallets. Hipgnosis has already acquired around 100 song catalogs, and is raising a billion dollars to buy more….
At first glance, this obsession with old songs makes no sense. Songs are a depleting asset, much like oil in the ground. Eventually the copyright expires, and songs enter the public domain—and the older the song and the songwriter, the sooner this will happen….I’ll cut to the chase: Old songs are hot right now. But they won’t be for long.
But even I didn’t anticipate how badly these deals would turn out.
The more songs Hipgnosis bought, the more its share price dropped. The stock is currently down almost 40% from where it was at the start of 2021.
Things have gotten so bad, that the company is now selling songs.
On Thursday, Hipgnosis announced a plan to sell almost a half billion dollars of its song portfolio. They need to do this to pay down debt. That’s an ominous sign, because the songs Hipgnosis bought were supposed to generate lots of cash. Why can’t they handle their debt load with that cash flow?
But there was even worse news. Hipgnosis admitted that they sold these songs at 17.5% below their estimated “fair market value.” This added to the already widespread suspicion that current claims of song value are inflated.
Hipgnosis’s share price actually dropped after the announcement.
Last year, I predicted the following:
Don’t be surprised if the folks at [private equity group] Blackstone end up owning all those songs. But if it happens, they will probably acquire the music at a sharp discount to what those songs were worth just a few months ago.
Can you guess the buyer in the deal announced on Thursday? Yes, it was a Blackstone-backed fund. And they definitely got that discount.
So add another to my list of successful predictions. (See also here and here and here and here.) I should probably give up music reviews and launch a hedge fund instead.
But there’s more to this story.
Just a few days earlier, another large song investment fund announced a huge sale. Round Hill Music sold its huge catalog of 150,000 songs to Concord. The deal gave a boost to Round Hill’s share price, but only because the stock had sunk so low. The more revealing detail is that the sale was made at more than a ten percent discount to the company’s net asset value.
Once again, the songs weren’t worth what investors were told.
It’s revealing that Concord stepped in to buy these 150,000 songs. Concord started out as a jazz record label launched by a car dealer named Carl Jefferson. But it eventually grew into a huge label with superstars from a wide range of genres on its roster.
But nowadays Concord is evolving into an IP management business The company brags on its website that it “represents” one million songs. That’s a revealing term.
If Concord were the only record label doing this, I would dismiss it as a quirk—or maybe just proof of the greater fool theory. But I see similar moves at other record labels, especially the largest ones. They are morphing into rights management operations.
Who could have possibly imagined this just a few years ago? Music people are almost indistinguishable now from lawyers and portfolio managers—at least that’s the image conveyed by the execs at the top.
But will the new acquirers of these songs fare any better than the investment funds dumping them? Let me repeat what I warned above: Songs are a depleting asset.
A gold record is strangely similar to a gold mine. There’s a huge amount of value in that hit song, but less so with each passing decade. The more value you extract, the faster you approach the point of exhaustion. That’s especially true when you bought it from an 80-year-old musician whose core audience is dying off.
But there’s one part of this story that I love.
It confirms my sense that karma is at work in the universe, and everything tends towards justice and fairness—if you’re willing to wait long enough.
Here’s that element of karma. The old rock stars actually did defeat the system. They screwed the man, and did it big time.
By my measure, Bob Dylan sold out at the top, and gets to laugh at the financiers who overpaid him. The same is true of Paul Simon and Neil Young and all the rest.
When I launch my hedge fund, I’m going to invite them to join me as partners. They are shrewd operators, every one of them.
I hope one of these old rock stars writes a song about their successful transaction. It would actually fit in with the rest of their song portfolio (if I can use the prevailing jargon)—because those tunes were often about toppling the system.
That’s exactly what they did to the song buyout funds. As of last week, that system has officially been toppled. The rock stars made it happen. Ka-ching. . . . Ka-boom! And this is absolutely the most fitting way for the story to end.