Selling the rights to your back catalogue has become a well-trodden path for musicians.
What is slightly eyebrow-raising about the deal, though, is that, at the age of 28, Bieber is somewhat younger than many of the artists to have done so during the last few years.
Most of the big blockbuster deals have involved so-called ‘heritage’ acts such as Bob Dylan, Neil Young, Bruce Springsteen and Fleetwood Mac rather than younger artists.
The rationale for Bieber and the other artists selling their rights is straightforward – they receive a lump sum payment giving them and their loved ones financial security.
For the buyer, the rationale is that songs can be turned into a source of income in a variety of different ways, including streaming, the physical purchase of CDs or vinyl records, downloads, live performances or by licensing their use to the makers of films, TV shows and, increasingly, computer games.
By buying up a large number of back catalogues, in scale, the buyer can build a portfolio that is sufficiently diversified to appeal to all tastes that can generate a consistent flow of earnings regardless of changes in trend.
These buyers, such as Hipgnosis, also argue that by specialising in this field they are well-placed to more successfully commercialise songs by actively managing the portfolio.
The Bieber transaction is slightly riskier from the buyer’s perspective, though, because of his relative youth.
Bieber still has many years ahead of him – for better or worse
The likes of Springsteen and Dylan are known quantities: there is an established audience and fanbase that will happily continue to pay for their music and, accordingly, the earnings their work can be relied on to generate are pretty predictable.
Given their ages, too, there is little chance of them being involved in a scandal that would make their work toxic to consumers.
Bieber, on the other hand, still has many more years ahead of him and, accordingly, plenty of time in which to alienate his fanbase either by his behaviour or by producing sub-par new work that puts fans off his past efforts.
Bowie was a pioneer in monetising back catalogues
Music fans will be unsurprised to learn that one of the pioneers in monetising back catalogues effectively was one of pop’s greatest innovators – David Bowie.
In 1997, he and his management team came up with the idea of selling asset-backed securities to investors, paying them a return from a share of his future royalties for the next 10 years. He raised $55m (£44m) from the sale of these ‘Bowie bonds’, some of which, ironically, he used to buy back rights to some of his earlier recordings from his former manager.
Merck Mercuriadis, the founder of Hipgnosis, has built on that idea by seeking to commercialise the rights to back catalogues more aggressively, by seeking to make songs an asset class in their own right and by doing so via a stock market-listed vehicle.
Mr Mercuriadis, a former manager of artists such as Beyonce, Elton John, Morrissey and Guns N’ Roses has raised £1.2bn from city investors, such as Axa and Investec, who liked the idea of a reliable stream of earnings that could remain consistent whatever the economic weather. That enabled him to buy the rights to yet more songs.
Founder of Hipgnosis has competition
Mr Mercuriadis, whose portfolio includes the works of Blondie, Chic – whose frontman Nile Rodgers is a close friend – and Barry Manilow, does have competition, though.
His rivals include New York-based Primary Wave, which owns a 20,000-song catalogue featuring works by artists including Aerosmith and Bob Marley and Round Hill Music which, like Hipgnosis, is listed on the London Stock Exchange. Its catalogue includes Beatles hits ‘From Me To You’ and ‘She Loves You’, as well as the Beatles-penned first single by the Rolling Stones, ‘I Wanna Be Your Man’.
Then there is Los Angeles-based Iconic Artists Group, founded by the music industry veteran Irving Azoff, the former manager of The Eagles and Jon Bon Jovi.
It owns the rights to works of artists Linda Ronstadt, Dean Martin, Nat ‘King’ Cole and the Beach Boys.
There are other big established global music groups which have also been busily buying up rights. For example, Sony of Japan last year bought the rights to Springsteen’s back catalogue, while US-based Universal Music bought Dylan’s works at the end of 2020. Warner Music, meanwhile, bought the publishing rights to Bowie’s back catalogue for $250m in January last year.
Scepticism towards business model
One other curiosity of the Bieber deal speaks to the scepticism, in some quarters, towards the business model.
Shares of Hipgnosis Songs Fund trade at a significant discount to the company’s net asset value per share (the value that would be realised, per share, if the company was broken up, its assets sold off and the proceeds returned to shareholders).
That reflects the fact that the market does not believe some of the songs in the company’s portfolio are worth what the company says they are. Hipgnosis values its catalogue at $2.2bn (£1.78bn) but the company currently has a stock market valuation of just over £1bn.
That discount – described by Mr Mercuriadis last month as “unacceptable” – has prevented the company from raising more money from investors with which to buy more songs.
So the Bieber catalogue has been bought not by Hipgnosis Songs Fund but by the similarly-named Hipgnosis Songs Capital, which is not listed on the stock market but which is instead owned by Blackstone, the private equity giant.
The latter, like Hipgnosis Songs Fund, is advised by Hipgnosis Song Management – which, to add to the confusion, is majority-owned by Blackstone and managed by Mr Mercuriadis.
The Bieber deal is unlikely to be the last done by Hipgnosis Songs Capital. It is reportedly the front-runner to buy Pink Floyd’s back catalogue although a sale is said to have been held up by the poor relationship between band members Roger Waters and David Gilmour.
And more broadly, other deals are likely to be done, many of them involving British artists. The weakness of the pound makes their catalogues all the better value for US buyers paying in dollars.