Hipgnosis Songs Fund revenues climb 7.5% YoY, streaming revenues up 15.8% YoY, in most up-to-date half-year interval
There have been quite a lot of eyes on Hipgnosis Songs Fund (HSF) this 12 months. The UK-listed fund, as soon as essentially the most lively acquisitive entity in music rights, has paused its shopping for of catalogs over the previous 12 months, and hasn’t raised any new share capital for rights buyouts throughout this era.
HSF’s monetary outcomes, subsequently, give us a helpful indication of the natural power of the corporate’s catalog, which covers rights/earnings streams in 65,413 songs, in keeping with firm paperwork.
Immediately (December 8), HSF has introduced its half-year outcomes for the six months to finish of September 2022, with various constructive indicators, each for HSF traders and for the music rights enterprise at giant.
Gross income at HSF stood at USD $91.7 million within the six-month interval, up 7.5% YoY on the $85.3 million generated within the equal prior 12 months interval.
Internet income of $78.4 million elevated by 5.8% year-on-year (six months ended 30 September 2021: $74.1 million), after royalty value deductions of $13.3 million.
Stripping out changes similar to RTI [‘Right To Income’ accounting] plus a one-time retroactive cost for the CRB III choice within the US, mentioned HSF, reveals that its underlying internet income additionally grew 5.8% YoY within the 2022 half-year interval to $65.1 million.
Half-year EBITDA elevated 16.9% YoY to $63.8 million (six months to 30 September 2021: $54.6 million) attributable to development in income and diminished working prices.
One essential metric revealed by Hipgnosis Songs Fund is its Professional-Forma Annual Income (PFAR), which particularly reveals royalty income earned in a given interval.
HSF’s PFAR determine has just lately attracted scrutiny from some quarters as a result of it fell barely YoY in calendar 2021.
That raised questions concerning the industrial sturdiness of HSF’s acquired catalog. However the firm blamed this decline on the influence of Covid-19 lockdowns on HSF’s efficiency earnings (from concert events, plus music performed in eating places, bars and so forth.), and the truth that collections of this earnings can take anyplace as much as 12-18 months to ‘wash via’ to a music rightsholder through the worldwide PRO system.
Considerably vindicating that argument from HSF, right now the corporate revealed that its PFAR within the 12 months to finish of June 2022 switched again into development – growing 4.2% YoY to USD $120.8 million, “regardless of foreign money headwinds because of greenback power impacting the worth of non-US greenback denominated supply earnings”.
The PFAR of catalogs over 10 years outdated at HSF grew 7.7% YoY on this interval (12 months to finish of June 2022) to $69.9 million, whereas the PFAR of catalogs much less than 10 years outdated had been flat YoY at $50.9 million (see chart beneath).
HSF defined to traders right now why it felt this below/over-10-year breakdown is so essential. Catalogs over a decade outdated, it causes, must be rising year-on-year as streaming subscriptions proceed to extend.
However catalogs below 10 years outdated are normally anticipated to bear a ‘decay curve’ whereby they’re dropping reputation from the height of their release-year ubiquity.
HSF is proud that revenues from its catalogs youthful than 10 years are actually flat year-on-year – proof, it suggests, that it’s been selecting the correct acquisition targets for long-term worth.
Stated Hipgnosis founder, Merck Mercuriadis: “Our youthful catalogs proceed to display that they’re reaching the top of their forecasted decay curves and we’ve notably targeted on synch alternatives the place the anticipated life cycle of a catalog signifies that it strikes on from ‘new music’ radio stations, however isn’t but mature sufficient for ‘Gold’ stations.”
Talking of synch, Hipgnosis Songs Fund’s catalog noticed a 32.0% YoY rise in synch revenues within the six months to finish of September (fiscal H1 2022), as much as $9.78 million.
Mercuriadis attributed that rise to “the tireless efforts of [Hipgnosis’] synch workforce to get songs positioned into adverts, tv reveals, movies and video video games alongside new revenues from rising platforms similar to TikTok”.
There was additionally a considerable rise within the six months to finish of September for HSF’s streaming revenues, which rose 15.8% YoY to $23.6 million (fiscal H1 2021: $20.4 million).
HSF’s total PFAR within the six months to finish of September 2022, mentioned Mercuriadis, was up 7.8% YoY to $58.5 million.
These figures happy JP Morgan, which mentioned of HSF’s newest outcomes this morning: “Underlying H1 earnings is forward of [JPM’s expection], with a powerful efficiency from streaming and synch, although foreign money has been a much bigger headwind than we anticipated, and the underlying portfolio valuation is broadly flat”.
Added the JP Morgan be aware: “We stay optimistic concerning the asset class, which advantages from the structural development of paid music streaming subscriptions, and we predict SONG gives a lovely mixture of a excessive present dividend yield (6.6%) and robust capital development potential from the underlying property mixed with potential for a narrower low cost.”
“Underlying H1 earnings is forward of [JPM’s expection], with a powerful efficiency from streaming and synch, although foreign money has been a much bigger headwind than we anticipated… We stay optimistic concerning the asset class.”
JP Morgan analysis be aware on HSF revealed right now
HSF has frequently knowledgeable its traders that acquisitions at its firm are – in the meanwhile – being halted amidst a tough set of macroeconomic situations.
(Hipgnosis Music Capital, a separate and personal fund in partnership with Blackstone, has been spending this 12 months: It’s splashed over $300 million shopping for catalogs in 2022 from the likes of Justin Timberlake and the Leonard Cohen property).
Nevertheless, Hipgnosis has raised just a little bit extra debt this 12 months, having locked in a brand new USD $700 million revolving credit score facility (RCF) in October, which introduced with it steady rates of interest. (Round $600 million of debt was already absolutely leveraged at Hipgnosis previous to this RCF being secured; it successfully added $100 million of spending energy to the corporate.)
Following a collection of share buybacks since that debt increase, Hipgnosis Songs Fund right now confirmed that it was sticking with its plan to pay shareholders a goal dividend at 5.25p per Peculiar Share for the monetary 12 months 2022-23.
Hipgnosis additionally advised traders right now that Citrin Cooperman had carried out a valuation of HSF’s catalog on the finish of September, touchdown on an “combination honest worth of $2.67 billion… in step with the prior 12 months”. That valuation was calculated utilizing an 8.5% low cost charge.
HSF additional defined that HSF’s board, sooner or later within the prior 12 months, “appointed Kroll Advisory Restricted (“Kroll”), an impartial valuation agency, to contemplate and advise on the reasonableness of sure assumptions generally employed within the valuation of music Catalogues primarily based on knowledge offered by the Firm…. the outcomes of the analyses by Kroll present, within the Board’s view, further help as to the reasonableness of assumptions employed in arriving on the Truthful Worth of the investments”.
Merck Mercuriadis (pictured inset) wrote a complete tackle Hipgnosis Songs Fund’s half-year efficiency inside the agency’s HY report right now, which you’ll be able to learn in full beneath.
In a really difficult surroundings, I’m proud that in our work to ascertain Songs as an asset class, all the pieces we’ve advised our traders from IPO has both turn into actuality as said or been exceeded. That features the expansion of streaming, our capability to ascertain Music Administration as a brand new paradigm and handle the Songs higher so as to add worth, bringing efficiencies to income assortment, advocating on behalf of songwriters to get a much bigger slice of the pie and making Hipgnosis the popular purchaser of the songwriting neighborhood, enabling us to accumulate effectively.
This technique has delivered a Complete $ NAV Return to Shareholders as at 30 September 2022 of 11.8% per 12 months, 60.0% in combination because the IPO on 11 July 2018 (together with 19.0p per share of dividends).
Our thesis has at all times been that Songs of extraordinary success and cultural significance produce long-term and dependable earnings streams, making them extremely investable property.
We constructed Hipgnosis Songs Fund as an asset-backed funding automobile with iconic Songs at its coronary heart to ship worth for our Shareholders off the again of this thesis.
We subsequently assembled a Portfolio of Songs that’s unrivalled for its extraordinary success and cultural significance and that are in excessive demand. It’s a usually accepted idea that almost all music corporations make their cash on 10% of their Songs. I’m assured that our Catalogue would characterize the highest 10% of any music firm’s portfolio.
“In a excessive inflation surroundings, it’s debatable that there isn’t a higher worth than c.£/$10 per 30 days for a premium music streaming subscription service.”
We display this by co-owning almost 1 / 4 of the Songs within the “Spotify Billions Membership” (Songs streamed over a billion occasions on Spotify) and over 10% of Rolling Stone’s The five hundred Biggest Songs Of All Time.
Solely final month, the Official Chart Firm, on behalf of the BBC, recognized essentially the most streamed Songs launched in every of the final 70 years. Hipgnosis co-owns rights to 9 of those. Songs like Don’t Cease Believin’ (Journey, 1981); Candy Desires (Are Made Of This) (Eurythmics, 1983); Livin’ On A Prayer (Bon Jovi, 1986); and All over the place (Fleetwood Mac, 1988). You might be seemingly buzzing no less than a kind of Songs as you learn this paragraph.
A few of you’ll hopefully go onto Spotify, Apple Music or YouTube right now to listen to these Songs. Others will probably be prompted so as to add them to a playlist. Many, many extra can have achieved so when the BBC performed all of them to rejoice its 100th anniversary. Every time this occurs a cost is earned by Hipgnosis Songs Fund.
Importantly, folks proceed to take heed to and pay for music regardless of the challenges of right now’s macro-economic situations. We frequently say that when persons are dwelling their finest lives they’re doing so to a soundtrack of nice Songs. Equally, when they’re experiencing life’s challenges, they’re taking consolation and escaping with nice Songs. Both manner, our iconic Songs are being consumed and are producing income.
Certainly, just lately revealed analysis from the IFPI, who characterize the worldwide document business, reveals that folks around the globe are participating with music in 2022 greater than ever, with common listening as much as 20.1 hours every week – a rise of 1.7 hours since 2021.
In line with Luminate, as of 26 November, music audio streams in the US are actually over the one trillion mark for the primary time ever in a single 12 months. That’s already a rise of 11.9 billion in comparison with the earlier 12 months. It is usually seven occasions greater than in 2015. This report additionally included the High 5 most streamed Songs of the 12 months to this point; At No.2, Glass Animals’ Warmth Waves generated 493 million on-demand US audio streams. That is administered by Hipgnosis Music Group (HSG) within the US. That’s the second most streamed Music of the 12 months on the planet’s largest paying market.
In a excessive inflation surroundings, it’s debatable that there isn’t a higher worth than c.£/$10 per 30 days for a premium music streaming subscription service.
Paid for streaming – and its utility-like revenues – continues to develop with greater than 523 million premium paid subscribers globally. In current months, we’ve seen Spotify Premium Subscribers attain 195 million, a 13% improve year-on-year regardless of the macro-economic surroundings. Wanting on the wider music market, the RIAA reported US revenues for recorded music within the first half of 2022 rising 9.1% year-on-year. Apple Music has just lately elevated costs past the 9.99 per 30 days value level within the US, UK and continental Europe. This emphasises the unimaginable worth that music streaming represents and reveals that one of the vital commercially profitable companies on the planet recognises the pricing energy that nice music offers their platform. We count on different streaming platforms will observe Apple‘s transfer. Elevated income to the Digital Service Suppliers means elevated revenues for Hipgnosis.
We promised traders that we’d ship a brand new, accountable method to Music Administration, one the place we’ve the useful resource and bandwidth to handle our nice Songs to their full potential – and in doing so add important worth.
All of the Small Issues carried out by Blink-182 reached Quantity six within the Billboard Sizzling 100 and Quantity two within the UK on launch in 2000. This Christmas, it’s nearly unattainable for anybody within the UK to not be conversant in a brand new model which is the soundtrack to the seasonal ritual that’s the John Lewis Christmas advert. It is a nice instance of our method in motion – our Synch workforce noticed the potential of the Music and took it to John Lewis, then did all the pieces they might to make it as environment friendly as attainable for them to decide on and use our Music.
“The outcomes we publish right now present the power of our Portfolio.”
Together with the Superbowl, the John Lewis Christmas advert is arguably essentially the most coveted synch on the planet. In our early days of assembly potential traders we promised we’d procure this and we’ve delivered as we mentioned we’d.
The outcomes we publish right now present the power of our Portfolio.
Gross income within the interval elevated by 7.5% year-on-year to $91.7 million (six months to 30 September 2021: $85.3 million), whereas our Operative Internet Asset Worth per share remained regular at $1.8312 (31 March 2022: $1.8491). When translated into GBP, at a Sterling to Greenback change charge of $1.2223, our Shareholders benefitted from the sturdy greenback, with an equal GBP NAV of 149.82p as at 6 December 2022 (31 March 2022: 140.79p).
Like-for-like professional forma (PFAR) revenues within the first half of the calendar 12 months had been $58.5 million, a 7.8% improve on the comparative interval in 2021.
Our PFAR reveals that our Streaming efficiency is powerful, up 15.8% to $23.6 million (H1 2021: $20.4 million) – whereas the tireless efforts of the Synch workforce to get Songs positioned into adverts, tv reveals, movies and video video games alongside new revenues from rising platforms similar to TikTok, have resulted in Synch income rising by some 32.0% year-on-year to $9.78 million (H1 2021: $7.41 million) year-on-year.
Our youthful Catalogues proceed to display that they are reaching the top of their forecasted decay curves and we’ve notably targeted on Synch alternatives the place the anticipated life cycle of a Catalogue signifies that it strikes on from “new music” radio stations, however isn’t but mature sufficient for “Gold” stations.
Information from the US, reveals that classic music is an ever growing proportion of consumed music – now making up three quarters of Songs loved, up from just a little over a half in 2017. Partly, that is because of the client with the ability to select what they need to take heed to on demand. We’re additionally seeing the constructive influence of older demographics adopting paid streaming and Songs boosted via strategic Synch and Playlist placements. This reminds folks of nice Songs they will now take heed to at will. Final 12 months, we had 4 Songs that had been launched previous to 2010 within the Spotify Billions Membership; this 12 months we’ve 11!
The Music is the foreign money of our enterprise; with out the Music we merely haven’t any music business. But for too lengthy the songwriter – who delivers an important element to the success of a document firm, digital service supplier, music merchandiser or stay promoter – is the bottom paid individual within the financial equation.
I’ve at all times been clear that our motive is to ascertain Songs as an asset class and to supply an excellent return for our traders. Concurrently our “ulterior” motive is to make use of our success to assist take the songwriter from the underside to the highest of the financial equation. We advocated for, and welcome the strikes by the US Copyright Royalty Board (CRB) and the broader music business within the US to extend the charges paid to songwriters and publishers. CRB III offered for a 44% improve within the headline charge of DSP revenues paid to songwriters and Publishers, reaching 15.1% in 2022. The joint business proposals for CRB IV would see that proportion rising incrementally to fifteen.35% in 2027, whereas the royalty payable on a bodily sale or obtain would rise from 9.1 cents to 12 cents with further inflationary will increase.
There’s nonetheless a protracted method to go earlier than songwriters are pretty remunerated, however these are essential steps in the best path. The joint CRB IV proposals present there may be growing acceptance – because of our work – throughout the music business that songwriters must be pretty rewarded for his or her work. While the rise is extra modest than the CRB III rises, we help it as it can present a background of stability on the highest streaming charges ever paid within the context of which we will proceed our advocacy efforts. Our final objective is for songwriters’ pay to be decided by the free market, not laws.
When a Catalogue is acquired, our Shareholders sit instantly within the footwear of the songwriter so there may be full alignment between the songwriting neighborhood and our Shareholders. What’s in one of the best curiosity of the songwriter can also be in one of the best curiosity of the Firm.
Regardless of our successes, I share the frustration of Shareholders that the true worth of our iconic Songs isn’t mirrored in right now’s share value. As Songs are a brand new asset class, we perceive that the market has considerations about each valuation and low cost charge, notably when our NAV is steady in a macroeconomic surroundings wherein the worth of many different property are declining.
It’s essential to keep in mind that the music business went via a chronic interval of decline for 15 years, between 2001 and 2016, when technological disruption within the type of unlawful downloading nearly killed it off. The one good factor to return out of that period is that it left these nice Music property at engaging costs, simply because the know-how developed into streaming, which made it extra handy for shoppers to as soon as once more take heed to and pay for music legally.
We began shopping for property in 2018 when paid US music streaming subscribers had been lower than 10% of the 523 million international subscribers there are right now. YouTube had barely paid $2 billion to rights holders in 2018 in comparison with the $6 billion it has paid in 2022. Whereas beforehand, nearly all consumption of music was unpaid for, right now, nearly all consumption of music is paid for and music has modified from a discretionary buy to a utility.
These are all constructive elements in our NAV.
On account of our success in establishing Songs as an asset class, we’re flattered that many different traders have come into the market.
“Regardless of our successes, I share the frustration of Shareholders that the true worth of our iconic Songs isn’t mirrored in right now’s share value.”
Whereas Hipgnosis Songs Fund is presently absolutely invested, Hipgnosis Music Administration (HSM) stays lively available in the market, which provides us entry to unimaginable quantities of transactional knowledge and first-hand data of this rising market. This info is shared with the Hipgnosis Songs Fund Board who, because of the strong co-investment coverage between Hipgnosis Music Administration and its shoppers, sees all the pieces that HSM sees.
Many Non-public Fairness funds, among the most profitable long-term traders on the planet, are right now making high-profile Catalogue purchases at multiples that reinforce the Truthful Worth of our Portfolio and reassure us that we’ve purchased effectively.
The Truthful Worth of the Portfolio was calculated by the Portfolio Unbiased Valuer, Citrin Cooperman, at $2.67 billion, in step with the prior 12 months. They’ve a workforce of main consultants in music valuation who’ve been concerned in lots of current excessive profile music catalogue purchases. For the present NAV, they’ve continued to make use of a reduction charge of 8.5%. This Truthful Worth permits us to calculate the Operative NAV which remained steady at $2.2 billion. To offer traders reassurance, the Board additionally appointed Kroll Advisory Restricted (“Kroll”), an impartial valuation agency, to contemplate and advise on the reasonableness of sure assumptions generally employed within the valuation of music Catalogues primarily based on knowledge offered by the Firm. The outcomes of the analyses by Kroll present, within the Board’s view, further help as to the reasonableness of assumptions employed in arriving on the Truthful Worth of the investments. This offers us, and may give traders, nice consolation over the Truthful Worth of our Songs and subsequently the unimaginable funding alternative the present share value represents.
A rise within the low cost charge from 8.5% to 9.0% would cut back the Operative NAV by $212 million. Our present share value is buying and selling at a reduction to the Operative NAV of over 45%, which suggests a reduction charge of almost 12%. There’s appreciable upside.
We go into the second half of the 12 months positioned strongly. Our re-financed Revolving Credit score Facility, rate of interest hedges and foreign money hedges for our Sterling dividend funds, finalised publish interval finish, give elevated certainty on prices, whereas the current affirmation from CRB that it’ll implement the rise in revenues from US streaming, as proposed in its CRB III settlement, is additional boosting income. Moreover, the return of Efficiency revenues to pre-COVID-19 ranges is but to be seen in our revenues.
The statistics frequently display the significance of Music in all of our lives as an excellent and reasonably priced supply of consolation, nourishment, sustenance and pleasure. I’m delighted that it’s Songs owned by Hipgnosis that persons are listening to and which might be amongst essentially the most consumed Songs all through the world.
You might be pioneers in establishing an thrilling new asset class and we don’t take your perception within the Firm evenly. We subsequently take our duty to you, our Shareholders, very significantly. I subsequently hope that the knowledge we’re sharing in these outcomes provides you with perception in our Truthful Worth and we’re firmly dedicated to making sure that the Firm’s unimaginable worth is recognised available in the market.
I wish to pay tribute to the incomparable Christine McVie who handed away final week on the age of 79. She wrote iconic songs that propelled Fleetwood Mac into one of many largest artists of all time. She was our Songbird and it’s one among Hipgnosis’ best privileges to endlessly be the custodians of her particular songs. It’s clear from the stay chart knowledge that hundreds of thousands of persons are streaming her hits with Fleetwood Mac’s Rumours having already returned to the High 10.
“You might be pioneers in establishing an thrilling new asset class and we don’t take your perception within the Firm evenly.”
This week Mariah Carey’s All I Need For Christmas Is You is heading for the UK Quantity One slot and is already Quantity One on the Billboard International 200 chart. In the meantime, Michael Buble’s Christmas Album is ready to be again in to the High 10, Hipgnosis Songs Fund has an curiosity in each and there’s one other three weeks to go earlier than the massive day. The Firm has co-owned All I Need For Christmas Is You since 2020, one of many seasonal greats. In our first full 12 months of possession we noticed a 78% improve in revenues in comparison with the common of earlier three years – shopping for effectively, proactive Music Administration and robust market development delivering as soon as once more. Additional to this Fleetwood Mac’s Rumours is again within the High 10 UK album chart and Warmth Waves by Glass Animals has simply been named Billboard’s #1 Sizzling 100 music of the 12 months.
It stays just for me to thanks to your help in addition to that of the unimaginable songwriters which have entrusted us with their iconic work.
Wishing you, and your family members, all one of the best for a Merry Christmas, fantastic holidays and a contented, wholesome and affluent 2023!
Music Enterprise Worldwide