Since 2015, Merck Mercuriadis has been telling investors that music assets were significantly undervalued and that music publishing was ripe for a remodel.1 The music publishing industry was born over a century ago and profits by acquiring rights in songs and collecting royalties.2 After nearly 200 pitch meetings, Mercuriadis founded Hipgnosis Songs Fund with initial funding of $260 million from 32 investors.3 Hipgnosis went public on the London Stock Exchange a year later4 and currently distributes a dividend of 5.125 pounds per share.5  The company has spent $1.8 billion to purchase the rights to more than 60,000 songs.6

Hipgnosis entered a crowded field of established publishers including Universal, Sony, Warner Chappell, Kobalt, Primary Wave, and BMG Rights Management.7  Spectacular demand for top grossing song catalogs8 has spurred years-long buying sprees across the industry.9  From 2010 to 2015, the total cumulative amount spent on catalog acquisitions rose on average $124.2 million per year.10  From 2015 to 2020, that amount increased on average $2.2 billion per year.11  2020 in particular was a banner year for catalog acquisitions.  Writers such as Bob Dylan, Stevie Nicks, Neil Young, Shakira, Jimmy Iovine and many more sold stakes in their catalogs for tens or hundreds of millions of dollars.12  In some deals, the valuation of the catalog was over twenty times the estimated annual revenue the catalog generates today, a massive leap from the traditional eight to thirteen times multiple.13

This blog post examines three predominant factors driving the race to acquire great songs, which does not show any signs of letting up. First, buyers project that growth in music streaming services over the next decade will increase catalog owners’ revenue from royalties.14 Second, royalties from songs provide a dependable source of income that is untethered to broad market volatility.15  Lastly, new kinds of digital products that use music are growing rapidly, providing another accelerating source of royalty income for catalog owners.16


Songs and sound recordings are both protected by copyright, but they are two distinct classes of assets.17  The owner of a work of authorship like a song has certain exclusive rights, including the right to reproduce and distribute the work and the right to publicly perform the work.18  When a company would like to distribute or publicly perform someone else’s work, it must first obtain a license to do so, thereby generating revenue for the owner.  A license for the reproduction and distribution of recorded music is known as a mechanical license, a reference to mechanical nature of producing copies of devices such as LPs and CDs.19  The remuneration that derives from a mechanical license is known as mechanical royalties.20  Similarly, a public performance license generates public performance royalties.21  The “performance” of a song, which requires a license, includes not only live performances by a band, but more frequently, the playing of a recording over the radio, in a store or restaurant, and even via streaming platforms.22

The Shift to On-Demand Music Streaming

The growth of music streaming has been a boon to rights-holders of song catalogs.23  Interactive or on-demand streaming platforms allow consumers to listen to any song in a multi-million song library in exchange for a monthly subscription fee.24  Under U.S. law, on-demand streaming of music is both a distribution and a performance.25  As such, digital service providers (DSPs) like Spotify and Apple Music must secure mechanical licenses and public performance licenses for every song in their libraries.26  The rates for mechanical licenses and performance licenses are generally a percentage of each DSP’s revenue,27 which means, as the number of subscribers grows, so too does copyright owners’ revenue.

Today, nearly 83% of all revenue generated by recorded music comes from streaming,28 and the market is continuing to grow rapidly with an additional 1.5 billion subscribers projected by 2030.29  The advent of the subscription business model is expected to eventually expand the overall market for music consumption as well.30  In 1999, when sales of physical formats embodying recorded music peaked,31 the average American spent $63 per year on records,32 while today the individual rate for a Spotify or Apple Music subscription is $10 per month, or $120 per year.33

Income from Song Catalogs Is Reliable and Predictable

Music royalties are often unaffected by global macroeconomic events that burden large swaths of the economy—such as materials and labor shortages, geopolitical turbulence, and climate change—making music, in the words of Mercuriadis and others, an uncorrelated asset class similar to gold or oil.34  This has made investments in songs attractive to institutional and retail investors looking to diversify their portfolios with yield-producing holdings.35

As physical product and digital downloads of recorded music continue to decline,36 the amount of royalties generated by songs will become increasingly dependent on the number of users of music streaming platforms.  Streaming has proved to be resilient in the face of market fluctuations,37 growing in revenue every year since 2005.38  Even in the second quarter of 2020, when consumers spent more time watching TV and playing video games than they did listening to music, Spotify’s number of monthly active users increased year-over-year by 29%.39

In some ways, music assets are even better positioned than other forms of entertainment, like film and video games, because user growth in music streaming is not reliant on expensive new blockbusters.40  Over 66% of all listening in the United States is of “catalog records,” songs released more than 18 months prior to the user clicking “play,” as opposed to new releases.41  Therefore, owners of hit songs can rely on a consistent source of income for decades without having to invest additional capital.

Song Catalogs Offer Investors Exposure to the Upside of Music Streaming While Avoiding the Earnings Risk of Spotify Stock

Spotify is the sole, publicly traded company that offers investors pure exposure to the music streaming market.42  But an investment in catalogs is distinct from an investment in Spotify.  Instead of the recurring royalties that come from songs, investors in Spotify gain value when its stock price rises.  In general, one of the key drivers of a company’s stock price is projected acceleration in earnings growth.43  For Spotify, this means continuing to add millions of subscribers at undiscounted subscription rates.44  However, heavyweights Apple and Amazon, among others, have engaged Spotify in a fierce battle for new users around the world.45  Thus, the return on an investment in Spotify is largely dependent on its ability to outperform competitors in the music streaming space.  In contrast, the owner of a song catalog earns royalties from all DSPs and benefits no matter which provider amasses new subscribers.

New Commercial Uses of Music Have Become Exceptionally Popular

During the COVID-19 pandemic, consumers flocked en masse to video games, social media, and home fitness apps.46  The trend has been posited not as a momentary event, but rather as an acceleration of enduring changes in consumer behavior.47  By using millions of songs, these emerging technologies have created a newfound revenue source for owners of catalogs.

With 2.69 billion players worldwide,48 the video game industry now generates more revenue than movies and North American sports combined.49  Oftentimes, game producers will compose original music to accompany a new game,50 but they also license popular music.51  To use someone else’s music in a video game, the producer must secure both a synchronization license from the owner of the song52 and a master-use license from the owner of the sound recording.53  These licenses are negotiated individually between the copyright owner and the game producer, and generally sell for $8,000 to $20,000 per license depending on the popularity of the song.54

Short-form video app TikTok now has 1.9 billion monthly active users and generated $34.3 billion in 2020.55  Millions of content creators on the platform use music in their videos every day.  In July 2020, TikTok and the National Music Publishers’ Association (NMPA), a trade group representing rights-holders of songs in the United States,56 entered into a multi-year licensing agreement.57 Triller, a competing short video app, reported having 65 million active users in August 202058 and entered into a licensing agreement with the NMPA earlier this year.59

Home fitness company Peloton’s meteoric rise in 2020 transformed its flagship product, a stationary bicycle that enables subscribers to participate in remote classes, from a luxury to a household staple.60  Classes featuring the music of popular artists are available on-demand 24/7.61  With over 2 million subscribers, Peloton’s annual subscription revenue has ballooned to $239.4 million and accounts for 19% of its total revenue.62  In February 2020, Peloton settled a $370 million copyright infringement lawsuit brought by a class of music publishers.63  The NMPA has said that the settlement ensures rights-holders are properly compensated.64

Criticisms of Hipgnosis’ Business Model

As mega-deals for catalogs continue to pile on, critics have become weary of their price tags, potentially dubious projections of earnings growth, and buyers’ reliance on the staying power of certain songs, particularly for hits that are not even ten years old.65  The amount of revenue that a song generates is directly correlated to how popular the song is over long periods of time.66  Older hit songs with long track records of consistent revenue year after year are perceived as more valuable and safer investments.67  40% of Hipgnosis Songs Fund’s catalog is of songs that are fewer than ten years old.68

In January 2021, investment bank Stifel downgraded Hipgnosis Songs Fund stock from buy to neutral, citing the company’s aggressive accounting practices and overly bullish forecasts.69  In March, Hipgnosis provided investors with additional information by revealing how it predicts a song catalog’s estimated future earnings.70  The key assumptions in the company’s projections are (1) expected growth of the music streaming market, (2) expected uplifts in revenue resulting from the efficiencies of Hipgnosis’ royalty collection process, and (3) expected uplifts in revenue resulting from “active song management.”71  Active song management72 involves ensuring that all royalties payable worldwide are collected (something that is more difficult than one might expect),73 as well as creating new revenue by pursuing opportunities for “cover” recordings74 and placements in films, TV shows, and advertising campaigns—a decades-old practice known as “song plugging.”75


It will be years before purchasers of catalogs know whether their top dollar bets truly paid off.  Music’s supposed dissociation from market volatility makes catalogs an attractive choice for investors,76 but the main factor pushing prices to astonishing new heights is expected growth in revenue from music streaming77 and other attention-grabbing mediums.78  We will have to wait and see whether these projections come to fruition.  As best put by Peter Paterno, a veteran attorney whose clients include Dr. Dre and Metallica, “The buyers aren’t stupid.  They might be wrong, but they’re not stupid.”79

  1. See Madeline Berg & Antoine Gara, Meet Music’s Most Hated Man—And Its Top Dealmaker, FORBES (Feb. 24, 2021); Ben Sisario, This Man Is Betting $1.7 Billion on the Rights to Your Favorite Songs, N.Y. TIMES (Dec. 18, 2020); Tim Ingham, Merck Mercuriadis Wants to Raise a Billion Dollars. And Then He Wants to Change the Face of the Music Business, MUSIC BUS. WORLDWIDE (July 18, 2018); Interview by Larry LeBlanc with Merck Mercuriadis, Founder and CEO, Hipgnosis Songs Fund, CELEBRITY ACCESS (May 30, 2019) [hereinafter Interview by Larry LeBlanc].
  2. See generally DONALD S. PASSMAN, ALL YOU NEED TO KNOW ABOUT THE MUSIC BUSINESS 220-23 (Simon & Schuster 10th ed. 2019).
  3. Berg & Gara, supra note 1.
  4. Tim Ingham, Merck Mercuriadis Fund Pays $23M to Buy 75% Stake in The-Dream Catalog, MUSIC BUS. WORLDWIDE (July 11, 2018) (“Hipgnosis Songs Fund Limited (HSFL) has successfully IPO’d on the London Stock Exchange . . . .”).
  6. Berg & Gara, supra note 1.
  7. See, e.g., Tim Ingham, Who’s the Biggest Music Publisher in the World?, MUSIC BUS. WORLDWIDE (Dec. 17, 2019) (comparing the revenues and catalogs of Universal, Sony and Warner); PASSMAN, supra note 2, at 224 (categorizing music publishers by size into three groups); see also Kobalt (last visited Aug. 2, 2021); Primary Wave (last visited Aug. 2, 2021); BMG (last visited Aug. 2, 2021).
  8. A song catalog, frequently referred to as just a catalog, is the collection of all songs written by a single composer and the legal rights thereto.
  9. See Anne Steele, For Music-Rights Deals, the Hits Keep Coming, WALL ST. J. (Apr. 30, 2021) [hereinafter Music-Rights Deals] (discussing the “frenzied market for music copyrights”).
  10. Berg & Gara, supra note 1 fig. Catalog Craze.
  11. Id.
  12. See Tim Ingham, Universal Buys Bob Dylan Publishing Rights, Acquiring Catalog Worth Hundreds of Millions of Dollars, MUSIC BUS. WORLDWIDE (Dec. 7, 2020); Anne Steele, Stevie Nicks Sells Stake in Songwriting Catalog, WALL ST. J. (Dec. 4, 2020); ASSOCIATED PRESS, Neil Young Becomes Latest Artist to Sell Stake in His Songs, FOX BUS. (Jan. 6, 2021); Julius Young, Shakira Sells Entire Music Catalog to UK’s Hipgnosis Songs Fund, FOX BUS. (Jan. 13, 2021); Jem Aswad, Jimmy Iovine Sells Production Catalog to Hipgnosis Songs, VARIETY (Jan. 3, 2021).
  13. Music-Rights Deals, supra note 9; Berg & Gara, supra note 1; Sisario, supra note 1; Anne Steele, How a Longtime Music Executive Is Trying to Protect Artists’ Legacies, WALL ST. J. (July 17, 2021).
  14. See discussion infra The Shift to On-Demand Music Streaming.
  15. See discussion infra Income from Song Catalogs Is Reliable and Predictable.
  16. See discussion infra New Commercial Uses of Music Have Become Exceptionally Popular.
  17. See 17 U.S.C. § 102.
  18. 17 U.S.C. § 106.
  19. PASSMAN, supra note 2, at 215.
  20. Id.
  21. Id. at 225-27.
  22. Id. at 213.
  23. See Anne Steele, Hot Pandemic Market: Music Royalties, WALL ST. J. (July 1, 2020) [hereinafter Hot Pandemic Market] (“[R]ising revenue from music-streaming services like Spotify . . . and Apple Music has led to an increase in the value of music-rights ownership.”).
  24. See PASSMAN, supra note 2, at 141.
  25. See id. at 232-37.
  26. See id.
  27. For a full explanation of how interactive streaming rates for compulsory mechanical licenses are calculated, see id. at 234-37.  “Blanket” public performance licenses are negotiated individually between each performing rights society and each DSP.  For a full explanation, see id. at 225-31.
  28. RECORDING INDUS. ASS’N OF AM., U.S. Sales Database, fig. U.S. Recorded Music Revenues by Format (sum of 2020 Paid Subscription, On-Demand Streaming (Ad-Supported), Other Ad-Supported Streaming, SoundExchange Distributions, and Limited Tier Paid Subscription).
  29. See Investment Adviser’s Report, in HIPGNOSIS SONGS FUND LTD. ANN. REP. 2021, 12, 12 (2021) (“By the time we get to the end of the decade, there are expected to be 2 billion paid subscribers worldwide.”).
  30. See PASSMAN, supra note 2, at 2.
  31. RECORDING INDUS. ASS’N OF AM., supra note 28.
  32. See Will Page, How I Used Economic Theory at Spotify to Disrupt the Music Business, BUILT IN (July 13, 2021) (“[I]n 1999 . . . the average spend per buyer was $63 per annum.”).
  33. Spotify (last visited July 19, 2021); Apple (last visited July 19, 2021).  While the individual rate is $10 per month, the average customer currently pays about $7 per month due to student and family discounts. See PASSMAN, supra note 2, at 2.
  34. See, e.g., Investment Adviser’s Report, supra note 29, at 12 (“Whilst we never would have wished for a pandemic to prove our thesis, it has . . . demonstrated exactly what an excellent uncorrelated asset class proven Songs are.”); Matt Hendrickson, The Man Who’s Spending $1 Billion to Own Every Pop Song, MARKER (Jan. 8, 2020) (“[M]ercuriadis’ operating theory [is] that songs can be viewed as a measurable uncorrelated asset class akin to gold, diamonds, or oil . . . .”).  But see Andrew Kotliar, Are Music Royalties Actually Uncorrelated?, MEP CAP. (June 10, 2019).  See generally James Chen, Global Macro Strategy, INVESTOPEDIA (Oct. 31, 2020).
  35. Hot Pandemic Market, supra note 23 (“[A]n asset that produces yields largely untethered from the broader economy [is] making music an attractive investment.”); Dave Baxter, Hipgnosis Songs Fund: Striking a Bum Note?, INV. CHRON. (Jan. 14, 2021) (“At a time when equity dividends still look threatened, and bond yields are minimal or even negative, royalties trusts offer an attractive total return that includes a decent income.”).
  36. See RECORDING INDUS. ASS’N OF AM., supra note 28, fig. U.S. Recorded Music Sales Volumes by Format.
  37. See, e.g., Jimmy Stone, The State of the Music Industry in 2020, TOPTAL (2020) (“There [were] modest disruptions to streaming as a result of COVID-19 [a]t the start of the pandemic . . . . [but] these declines returned to growth by the end of April [2020].”); Hot Pandemic Market, supra note 23 (“Investors see music royalties as a relatively safe, stable asset amid current market volatility.”); Interview by Larry LeBlanc, supra note 1 (“Music flourishes equally in bad and good times.”).
  38. RECORDING INDUS. ASS’N OF AM., supra note 28.
  39. Stone, supra note 37 (“[C]onsumers drove less and focused on other platforms (e.g., video streaming) and forms of entertainment (e.g., TV and video gaming).”).
  40. Cf. Erich Schwartzel, With Hollywood Production in Overdrive, the Soundstage Is a Hot Commodity, WALL ST. J. (July 9, 2021) (“Netflix releases a new movie a week, a tempo that ViacomCBSInc.’s Paramount+ says it will maintain in 2022.  Late last year, Walt Disney Co. announced that, by 2024, it would spend nearly $10 billion alone on programming . . . .”); Dan Gallagher, Netflix Will Need Some Post-Summer Blockbusters, WALL ST. J. (Apr. 20, 2021); Steve Theodore, Why Have Video Game Budgets Skyrocketed in Recent Years?, FORBES (Oct. 31, 2016) (“[B]ig mega-blockbuster productions like GTAV and Destiny can see budgets of hundreds of millions of dollars . . . .”).
  41. Tim Ingham, Over 66% of All Music Listening in the US Is Now of Catalog Records, Rather Than New Releases, MUSIC BUS. WORLDWIDE (July 13, 2021).
  42. Gary Alexander, Warner Music Group: Modernized and Ready to Play in the New Streaming World, SEEKING ALPHA (Apr. 15, 2021, 6:32 PM) (“Spotify [is] the only publicly traded pure-play streaming company . . . .”).
  43. See Andrew Beattie, The 4 Basic Elements of Stock Value, INVESTOPEDIA (Jan. 10, 2021) (“[I]nvestors try to predict which stocks will enjoy progressively larger earnings.”).  A company’s earnings are its profits. See Alicia Tuovila, Earnings, INVESTOPEDIA (May 1, 2021).
  44. See Avi Salzman, Spotify Misses on the One Metric That Matters Most. What It Means for the Stock., MARKETWATCH (July 27, 2021) (“[T]he one metric that investors watch most closely [is] user growth.”); Gary Alexander, Spotify: Time to Buy the Dip, SEEKING ALPHA (June 2, 2021, 3:30 PM) (“The biggest . . . driver for the stock has been . . . [monthly active user] growth . . . .”); Francesca Fontana, Amazon, Robinhood, Disney: Stocks That Defined the Week, WALL ST. J. (July 30, 2021) (“Not enough new listeners are tuning in to Spotify.”).
  45. Compare Michael Grothaus, Spotify Now Has 165 Million Paid Subscribers, Likely Topping Apple and Amazon Music Combined, FAST CO. (July 28, 2021), with Dylan Smith, Apple Reports 660 Million Premium Subscribers — Does Apple Music Have More Paying Subscribers Than Spotify?, DIGIT. MUSIC NEWS (Apr. 29, 2021).  See also Anne Steele, Apple, Spotify and the New Battle Over Who Wins Podcasting, WALL ST. J. (Apr. 23, 2021).
  46. See, e.g., Sarah E. Needleman, From ‘Fall Guys’ to ‘Among Us,’ How America Turned to Videogames Under Lockdown, WALL ST. J. (Oct. 31, 2020) [hereinafter Videogames Under Lockdown]; Sarah E. Needleman, Facebook’s Ad Business Drives Surge in Revenue, WALL ST. J. (Apr. 28, 2021); Lauren Thomas, Peloton Reports Sales Up 141% as Cycle Demand Remains Strong, Says It’s Working to Quickly Fix Treadmills, CNBC (May 6, 2021).
  47. See, e.g., Jia Wertz, Changes in Consumer Behavior Brought on by the Pandemic, FORBES (Jan. 31, 2021, 2:53 PM) (discussing how people are spending more time on leisure activities including television and digital wellness); Dayna Winter, 5 Pandemic Buying Habits That Are Here to Stay—According to Shopify Research, SHOPIFY BLOG (Sept. 10, 2020) (discussing consumers’ increasing comfort with and expectation for “virtual experiences”); Videogames Under Lockdown, supra note 46 (“The surge in popularity [of video games] is accelerating a shift in the balance of power within the global entertainment landscape.”).
  48. Nestor Gilbert, Number of Gamers Worldwide 2021/2022: Demographics, Statistics, and Predictions, FINS. ONLINE (2021).
  49. Wallace Witkowski, Videogames Are a Bigger Industry Than Movies and North American Sports Combined, Thanks to the Pandemic, MARKETWATCH (Jan. 2, 2021, 10:27 AM).
  50. See generally PASSMAN, supra note 2, at 468-69.
  51. See, e.g., Ethan Millman, At Work with Steve Schnur, Who Decides the Music in Your Favorite Video Games, ROLLING STONE (Apr. 17, 2020).
  52. See PASSMAN, supra note 2, at 242.
  53. See How to Get Permission to Use a Song, COPYRIGHT ALL. (last visited July 19, 2021).
  54. PASSMAN, supra note 2, at 248.
  55. Liza Lin, TikTok Owner ByteDance’s Annual Revenue Jumps to $34.3 Billion, WALL ST. J. (June 17, 2021).
  56. See NAT’L MUSIC PUBLISHERS’ ASS’N, Our Mission (last visited July 19, 2021).
  57. Murray Stassen, TikTok Inks Global Deal with Music Publishers (Who Previously Threatened to Sue It), MUSIC BUS. WORLDWIDE (July 23, 2020).
  58. Jade Scipioni, Triller on Being TikTok’s Rival: We See ‘Ourselves as the Adult Version, CNBC (Aug. 7, 2020, 12:13 PM).
  59. Tatiana Cirisano, Triller Strikes Music Licensing Deal with Publishers, BILLBOARD (Mar. 24, 2021).
  60. Nina Trentmann, How Peloton Plans to Keep Growing After the Pandemic Ends, WALL ST. J. (Oct. 23, 2020).
  61. See, e.g., Lucy Maher, 6 Peloton Artist Series You Didn’t Know You Needed, PELOTON (last visited July 19, 2021).
  62. Thomas, supra note 46.
  63. Murray Stassen, Music Publishers and Peloton Reach Settlement Over Copyright Infringement Lawsuit, MUSIC BUS. WORLDWIDE (Feb. 27, 2020).
  64. See id.
  65. See Berg & Gara, supra note 1; Baxter, supra note 35.
  66. See PASSMAN, supra note 2, at 228, 236 (calculating the allocation of mechanical royalties and public performance royalties that a copyright owner is paid involves determining “the percentage that your [number of streams] for the [pay] period involved bears to the total [number of streams] for that period”); id. at 242-52 (discussing the range of industry-norm fees and revenue sharing models for synchronization licenses).
  67. ROYALTY EXCH., The 5 Things Most Investors Seek in a Song Catalog, BILLBOARD (Nov. 30, 2020); Berg & Gara, supra note 1; Baxter, supra note 35.
  68. Berg & Gara, supra note 1.
  69. Id.; Baxter, supra note 35.
  70. Tim Ingham, Hipgnosis Reveals How It Values Songs (And That Its Catalog Is Worth Slightly More Than It Originally Forecast), MUSIC BUS. WORLDWIDE (Mar. 16, 2021).
  71. Id.
  72. HIPGNOSIS SONGS FUND, Investment Objective and Policy (last visited Aug. 2, 2021) (“[O]ngoing management of Songs acquired by [Hipgnosis involves] increasing royalty income and collection as well as developing strategies to maximise the earning potential of a Song through improved placement and usage . . . .”).
  73. See PASSMAN, supra note 2, at 252-59.
  74. A “cover” is a recording of a song performed by an artist who is not the songwriter nor the first artist to record the song. See id. at 216, 222-23.
  75. Id. at 223.
  76. See discussion supra Income from Song Catalogs Is Reliable and Predictable.
  77. See discussion supra The Shift to On-Demand Music Streaming.
  78. See discussion supra New Commercial Uses of Music Have Become Exceptionally Popular.
  79. Berg & Gara, supra note 1.
Fordham IP Institute