Royalties are generated every time a song is played legally, anywhere in the world. These revenues are basically divided into two parts: royalties for composers and lyricists, and recording rights. Until recently, record companies were mainly interested in the second part. As producers, they own these rights by definition. Plus, the rights represent a larger chunk of the pie (between 75% and 80% of the total, according to Spotify). But in the past three years, more and more players want in on the royalties. This phenomenon was initiated by one man, Merck Mercuriadis.
A former manager of Elton John, Iron Maiden, Guns N’ Roses and Beyoncé, Mercuriadis launched Hipgnosis Songs Fund in 2018, which is listed on the London Stock Exchange. His firm buys back songwriter rights in exchange for royalties. Mercuriadis made a simple observation, "Hits never die". And more importantly, times have changed. In the days of CDs, songwriters made money through radio play and a percentage of record sales. That income dwindled over time. But that was then. With streaming, songs continue to generate lucrative royalties even years after their release.
For example, "Wonderwall", the famous Oasis song released in 1995, is streamed an average of 750,000 times a week, generating $1 million a year on Spotify alone, according to Rolling Stone magazine. "These great, proven songs are very predictable and reliable in their income streams," Merck Mercuriadis told the BBC in October 2020. Since its creation, Hipgnosis has picked up tracks by Shakira, Neil Young, Blondie and the Red Hot Chili Peppers, who reportedly cashed in $140 million when they sold their catalogue to Hipgnosis in May 2021. For rock veterans, selling their rights is a way of building a comfortable nest egg, with their life’s work becoming readily profitable. In contrast, the pandemic stripped them of their main source of income – concerts – for many months.
As of 31 March 2021, Hipgnosis owned 64,098 songs, most of them purchased during the pandemic.
Out of these thousands of tracks, 36 have been listened to more than
1 billion times on Spotify. This "Billions Club" had 156 tracks on the Swedish platform in March, which is an indicator of how far Hipgnosis has already come. Most analysts approve of the Hipgnosis business model and recommend buying shares.