As the Founder and CEO of Hipgnosis, Merck Mercuriadis has led the way in establishing music rights as an asset class.
At last month’s Data, Rights & Royalties Summit, Synchtank’s Emma Griffiths caught up with Mercuriadis to discuss his mission to revolutionize music publishing and change where the songwriter sits in the economic equation.
Watch the panel in full now or scroll down for an edited transcript of the conversation.
How has 2021 been for Hipgnosis so far?
It’s been a fantastic year.
When we came to market, we had three goals. One was to establish songs as an asset class that could rival gold and oil, the second was to use the leverage of our fund and our success to change where the songwriter sits in the economic equation, and the third was to take what I think is a broken traditional publishing model and to replace it with song management.
Within all of that I had to get the support of the financial community, and what I’m particularly proud of is that everything we’ve ever told the investment community, from the first meeting more than four years ago through to today, has either come true or been exceeded.
That’s been very good in the establishment of songs as an asset class which is great for Hipgnosis, but it’s great for all songwriters and rights owners as well.
You mentioned your mission to improve where the songwriter sits in the economic equation. From the DCMS’ inquiry into the economics of streaming to campaigns like #BrokenRecord, what are your thoughts on the recent discussions around streaming?
I’m very grateful to the DCMS in the UK for holding these parliamentary hearings that we’ve given written evidence to. I’m very hopeful that we’ll see strong results from them.
If you asked me three years ago when Hipgnosis got off the ground, I would have told you that I expected that this part of the mission [to change where the songwriter sits in the economic equation] would have taken as many as 10 years to come to fruition. I now think that it’s more like seven years, and I mean seven years in total. So I expect to see results in the next two, three, four, five years.
When you look at the economics of streaming, for every £1 of income, 30p is going to Apple or Spotify and 55p is going to the record label. They’re paying most artists on a sale rather than on a license, so instead of splitting that money with the artists, they’re taking the vast majority of it. Then the remaining 15p is being shared amongst four or five songwriters and their publishers.
That crazy disparity is only down to the fact that the three biggest recorded music companies in the world own and control the three biggest publishing companies.
We’re in a paradigm today where almost every record that is successful has an outside songwriter on it, and these people need to be rewarded properly. My mission is to work on behalf of the songwriting community and the artist community to ensure that they get their fair share of the pie.
And it’s not just the majors, there’s also reform that has to take place amongst the performing rights societies as well. Numbers have come out from PRS where as much as a third of songwriter income that’s coming into a not-for-profit organization is being paid out in salaries and overheads, which is ridiculous.
Can you tell us about the songwriters Guild that you plan on launching?
This is an important part of holding everyone’s feet to the fire. I’m forming a songwriters Guild that will be manned by the most important songwriters in the world. It’ll be announced during the course of this summer and the goal is very simple, which is to ensure that any discussion that takes place going forward that affects how a songwriter is paid is one that has songwriters at the table that are expressing views and towing a line that the songwriting community has agreed.
I think it’s now more evident than ever, even in the major record companies, that the songwriter is the most important person in the room.
“I think it’s now more evident than ever, even in the major record companies, that the songwriter is the most important person in the room.”
I’m not anti majors. I recognize that there are amazing people that work in these companies. The problem is that they’re working under a paradigm that doesn’t reflect the role of the songwriter in today’s business. That paradigm is not their fault, but they have to be part of the solution, not part of the problem.
My prediction is that once Universal floats and that Lucian [Grainge] and co have established themselves not only as the 900 pound gorilla in the music business, but as what I believe will be a hundred billion dollar, if not a hundred billion Euro company, everyone will recognize that there’s plenty of money to go around for the songwriter.
Artist services companies have gained huge amounts of traction and power in recent years. How, in your opinion, will this affect how the industry operates?
What I love about label services is that they are giving the artist an opportunity to release records with a powerful infrastructure behind them and, at the same time, be in a position where they own those records. That’s very powerful and I applaud it.
I also believe that it’s forcing the majors and record companies in general to change their model. If you were to take your record to Universal or Warner or Sony, and say, listen, you can be my partner in this. I’m going to lease you my music. I, the artist, am going to pay you a very strong fee for delivering your infrastructure and working on behalf of my record. But this is my record.
Maybe on day one, when you’re making the capital investment, you’re getting 80% of that pool and I’m getting 20% of it. But then the more and more the record becomes successful, the more it shifts to the other direction where I’m eventually getting 80% and you’re eventually getting 20%.
It’s going to gradually change to the point where I’m just paying you a fee to be a part of my team. I’m not a part of your team. You’re not lending me money to build a house that I then pay back out of one fifth of the money and that you end up owning. I own this house from day one.
“There’s no question that the label services companies are forcing the hand of the majors to change the way that they do business.”
I genuinely believe that there are forward-thinking people in Warner and Sony that will make these sorts of deals. And I suspect that will be where Universal ends up as well. But there’s no question that the label services companies are forcing the hand of the majors to change the way that they do business.
You recently told Bloomberg that you’re in the middle of doing a deal with Tencent in China to allow them to interpolate your Hipgnosis copyrights into new IPs for the Chinese market. How big is the potential here for emerging markets?
The emerging markets are very, very relevant for a number of reasons. Whether it’s China, Africa, India, for the most part in the past these have been illicit markets where people would buy the bootleg version of the CD for a dollar, and none of that money ever made its way back to the artists.
Now this is a very legitimate business because instead of giving that dollar to the local bodega, you’ve got your smartphone. It’s not at the level it is in the UK or in the US but it’s still real money that’s making its way.
Equally well for Western artists – I’m a very proud custodian of Neil Young’s catalog, Lindsey Buckingham’s catalog, Journey’s catalog, and so many more. They’re all artists that have gotten somewhere between 35 and 60 years of the most enormous success in the world, but they’ve never made any money from India or China or Africa. And that’s all changing now.
For the first time ever, Journey’s ‘Don’t Stop Believin’’ is getting money from places like the Congo and Senegal, which is pretty remarkable.
“For the first time ever, Journey’s ‘Don’t Stop Believin’’ is getting money from places like the Congo and Senegal, which is pretty remarkable.”
If you look at India, as little as 16 or 17 months ago, the consumption of international repertoire was 8%. They grew up on Bollywood, Indian folk music, Indian classical music. They had some sense of international Western stars, but they didn’t have ready access.
But now with streaming, the consumption of international repertoire in India in that period of time has gone from 8% to 42%. The same thing is going to happen in Africa and China.
With Tencent, my view was, let’s take these incredible verses, hooks, melodic ideas and as an experiment with Tencent, reinterpret them and create new songs that can be big hits in the Chinese and Asian marketplace. I approved it with the artists’ and songwriters’ consent because even though I don’t need it, I will always get their consent.
I have no idea yet what the results will be, but as long as it works artistically and as long as it meets with the approval of the creators, then we’ll give it a go. I think that it could really be something that works.
Let’s talk about the current state of the acquisition market. Multiples are at an all time high and there’s more supply and demand than ever before. How long can this last?
It’s a very good question, because it can’t go on forever.
These song catalogs have been undervalued for way too long. I don’t want to pick on the majors again but in the past, they were the only players, bar one or two, that told you what it was worth. And then there was what it was really worth.
One of the things that I hate about traditional publishing is that they haven’t demarcated the management of great songs with the desire to create new songs. 99.9% of the focus of major publishing companies and even independent publishing companies is to go out and sign new songwriters and create new songs. And they use the passive income of the great catalogs that they own to underwrite that business.
The reason why it’s passive income is because they’ve got as many as 20,000 songs per person, and you can’t possibly manage a catalog that has 20,000 songs per person.
For me, the management of great songs is very important, and taking those songs and managing them with the same sort of responsibility that I manage human beings and having a ratio of 500 songs to a thousand songs per person is going to add value. That ability to add value allows you to recognize what you’re paying the songwriter for their assets.
“For me, the management of great songs is very important, and taking those songs and managing them with the same sort of responsibility that I manage human beings.”
From a Hipgnosis point of view, I think there are two to three years of strong buying in front of us.
At that point in time, we’ll have grown from being a near 2 billion pound company to being a four or five billion dollar company and we’ll have grown from 63,000 songs to somewhere between 120,000 and 150,000 songs.
And that will be the ceiling for our growth because I’m trying to create song management as a paradigm, and I don’t think you can manage more than 150,000 songs because that’ll take 250 people to do it well. And being able to manage more than 250 people is a chore in itself.
We’ll go from being an active buyer to just being completely focused on managing the songs. And what I hope is that that example will split up a lot of other song management companies that replicate what we do, and that song management becomes something that people recognize is necessary.
Do you really think that the publishing business could see such a huge change within the next decade?
I really do. I think that going forward, in the same way that companies like AWAL and Downtown will force the hands of the majors by providing artist services, you’ll see companies like ours spinning up other song management companies. And that will also force the majors into having real demarcation between song management and song creation.
But ultimately, before we get to that point, what I’m really the most hopeful of is that you’ll see real regulation put in place that stops major record companies from being able to control major publishing companies.
Publishers are providing the most important component to an artist having a hit. So if you’re any one of these major publishing companies and you’re delivering a songwriter that’s making your record company all the money, why are you only getting one fifth of the money when your record company is getting four-fifths of the money?
It’s a songwriter’s world. And we’re lucky to live in it.