What does inflation mean for the music industry? Part Three.

In November 2022, we wrote a piece on the impact of inflation on music streaming services through the examination of Hipgnosis Song Funds, a hedge fund specialising in songs as an asset class. Happily for the team at esk and unhappily for the wider music-loving world, our predictions seem to be correct.

Specifically, we discussed that rising inflation would impact the cost of servicing the large debt that Hipgnosis had accumulated in order to buy these songs. The last figures for Hipgnosis came out last week and highlight that their share price is trading at 50% of their net asset value. Simply put, the market thinks they are worth half of what Hipgnosis believe is the true value.

This causes a headache for Hipgnosis as they will have to concentrate on delivering value to their shareholders. They are faced with two options: trying to raise prices on the use of their songs through streaming services or licensing, or selling off the song catalogues entirely. With pressure from their largest shareholder Blackstone, it is likely that a shareholder vote in September will result in a forced sale of the catalogue to generate revenue.

This has dramatic implications for the song catalogues they own. Hipgnosis bought them on the basis that the songs would be treated with respect and wouldn’t end up being exploited. However, this is likely to be the case as whoever buys the songs catalogues is likely to be more interested in driving value out of the catalogues than safeguarding their use.

Therefore, buying songs as an asset class was a novel idea at the time. However, doing so has subjected Hipgnosis to the same market forces that govern all asset classes and now they’re struggling with their share price. The real casualty though will be the listener. If September’s board vote forces Hipgnosis to offload their catalogue at reduced prices, it is possible it will lead to exploitation of the catalogues for whatever usage brings the highest fees.