Hipgnosis CEO Merck Mercuriadis Lays Out His Companys Vision and Goals at Canadian Music Week

Hipgnosis CEO Merck Mercuriadis Lays Out His Companys Vision and Goals at Canadian Music Week

Merck Mercuriadis, founder and CEO of Hipgnosis Songs, was the man of the hour — make that the day — Thursday at Canadian Music Week in Toronto, returning to his native country for three separate sessions. While one saw him presenting the Nile Rodgers Global Creators Award (named, of course, after the legendary Chic cofounder and his partner in Hipgnosis) to singer, songwriter and record producer James Fauntleroy and, virtually, to hip hop record producer Dion “No ID” Wilson and another was giving Public Enemy founder Chuck D the organization’s first annual Social Justice Honors Award, most notable was his featured keynote, at which he reinforced his company’s stated mission to change the dynamic of the music industry so that songwriters are on top.

After reiterating that he has raised more than $3 billion for Hipgnosis and given his investors a “48% total return on their investment to date,” he laid out the company’s origin, vision and goals in a 45-minute keynote conversation with his friend of 30 years, Live Nation Canada’s head of industry relations Joey Scoleri. His quotes, excerpted below, speak for themselves:

“Songs are the currency of the music industry — there is no music industry without them,” he said. “But the songwriter is the low man or woman in the economic equation. And I wanted to change that.

“I realized, as I studied it more, that the real reason why the songwriter isn’t being paid properly is because the three or four — there were four when I started, now there are three [after EMI was acquired by Universal and Sony] — major recorded-music companies own and control the three or four major publishing companies, and they stopped those companies from advocating on behalf of songwriters because on the recorded side of the music business, they’re getting four-fifths of the revenue; they’re getting an 80 percent gross margin; 40 percent net margin, and, in general, they own those recorded masters in perpetuity.

“Conversely, on the songwriting and publishing side of the business, you’ve got a fifth of the revenue, you’ve got a fifth of the margin, and quite rightly, whether it’s too good management or good lawyering or renegotiations or reversions, the songs end up back in the hands of the creators or co-creators. So it’s in the best interest of Universal, Warner and Sony — there, I’ve named them — to push as much of the economics in our business towards recorded music, because that’s where the lion’s share is theirs.

“And the more I became convinced of this, the more I realized that in order to be able to really fight it, I would need to have an incredible platform. I was lucky enough that, at that moment in time, I could see what was going to happen with streaming. And in 2009-2010, I went to see [Spotify founders] Daniel Ek and Martin Lorentzon, and said, ‘Listen, I don’t know if you guys can really fully understand what’s about to happen. Your platform is going to change the face of music.’ And that started the basis of the investment thesis for Hipgnosis.

“So I started to see institutional investors in London. And I would explain to them, ‘Listen, these songs have really predictable and reliable income,’ and I wanted to create a vehicle that isn’t a publishing company but rather a song-management company. I wanted to create a new paradigm that we would bring efficiencies to the collections of these great songs, and the blockchain was also going to change things positively for the future.

“But it wasn’t just about making money, and that needed to be clear from the get-go. They needed to be on board with the fact that we had the ulterior motive to use the platform to change where the songwriter sits in the economic equation.

“The average publishing company has 20,000 songs per [A&R rep]. Hipgnosis has 500 songs per person. So we have a very small catalog of only 65,000 songs, but they’re massive songs. Our people are really adept at putting them in movies and TV commercials and video games and making sure that new songwriters are interpolating them, that new artists are covering them, etc., in order to be able to add value. But what’s really important about all of this is that when I presented this investment case to the financial community, I told them what the motive was, which is that this is going to be a great way to make money, because Spotify and streaming are going to go from having 30 million paid subscribers to having a hundred, two hundred, three hundred, four hundred, five hundred million. By the time we get to the end of this decade, we’ll be over a billion. And by the time we get well into the next decade, we’ll be at 2 billion paid subscribers, and that money is coming from all over the world.

“And I would go to war — not with Universal, Warner or Sony, but more on behalf of the songwriter community that would then compel Universal, Warner and Sony and everyone else in this business, to help bring the change that is necessary so that the songwriter goes from the bottom of the economic equation to the top. And I won’t stop until that has happened.

“If you’d asked me four years ago, I would’ve told you that it was going to take 10 years,” he concluded. “If you ask me today, I’ll tell you that it’s going to take another four years. So we’re two years ahead of where we expect it to be.”

Will that vision come to fruition, particularly now that the catalog-acquisition market that Mercuriadis has done so much to accelerate is slowing down? Time, as it always does, will tell.

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