For decades, music labels were the only investors in the music industry — offering artists upfront cash in exchange for a share of their future earnings. But with legacy music businesses languishing, investment firms like ApolloAPO

and BlackRockBLK

are pouring billions into buying stakes in artists’ catalogs, hoping to cash in on the music industry’s growth. However, not all investors are hitting the right notes.

Hipgnosis no more: Take Hipgnosis Songs FundHPGSF

, the first publicly traded music investment company. They’ve splashed out nearly $2.2B to acquire over 57K music royalty rights. But with shares dropping 11% over the last five years to a record low and facing a slew of auditing and management controversies, shareholders finally voted for the company to be reorganized. Now, Hipgnosis is at the center of a bidding war among top music royalty investors.

• Last week, Hipgnosis agreed to sell itself to the world’s largest music investor, Concord, for $1.4B — financed by Apollo Asset Management ($APO).
• Days later, Apollo’s competitor Blackstone ($BX) also threw their hat in the ring with a $1.5B cash offer, capturing the attention of the fund’s board.

Make music, not money

Hipgnosis may have overestimated the value of their catalogs — expecting music royalties to rise in value. Except they didn’t expect 5%+ interest rates and inflation to take a bite out of the industry’s growth since 2020. Other investors might be more lucky. Streaming services (representing over 80% of industry revenues) are planning price increases — which could boost catalog values and royalty payouts.

• Take SpotifySPOT
  , which charged $9.99/mo since its US launch in 2011, raised prices last year on all of its plans — and intends to do so again this year.
• With the company paying ~70% of its revenues to music rights holders, even slight price hikes could mean big bucks for the music industry.

It’s not all harmonious: Spotify’s 60% surge this year comes at a cost to artists and labels. In its latest earnings yesterday, the company reported record profits— but it took laying off a quarter of its staff, scaling back its podcast ambitions, and charging musicians for promotional features that used to be free to get there.

Read: Music Companies Wage a War on AI-Generated Music