Chat with Merck Mercuriadis, Canadians spend billions on song catalogs – National
HOLLYWOOD—Merck Mercuriadis is pretty comfortable for a guy who just landed the biggest contract of his career. 24 hours after buying Justin Bieber’s song catalog for a rumored $200 million – his most expensive deal to date – his biggest concern is moving house.
“Business is under control,” he said with a quiet smile. “It was a move that made me nervous.” Top of the list? Wondering how 100,000 vinyl albums would make the trip.
Sitting poolside at a nearly empty house beneath a Hollywood sign – movers are coming to move the rest of their belongings to a new place in Laurel Canyon – Merck delayed leaving until they I have a chance to talk.
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Merck, in case you didn’t know, is the former Quebec-born representative of Virgin Records who went on to manage Guns N’ Roses, Elton John and Morrissey, among others. Today, he heads the Hipgnosis Song Foundation, one of about a dozen big-name companies that have licensed the songs of the biggest artists in the world. He (and some others like him) believes that these songs are eternal, an essential part of our culture, and will be enjoyed by everyone for decades to come. That means this music will generate income – a lot.
Hipgnosis has spent $3 billion over the past 10 years and currently manages about 60,000 songs. That includes compositions by Neil Young, David Crosby, Barry Manilow, Eurythmics, Blondie, The Pretenders, Shakira, Shawn Mendes, Leonard Cohen, Red Hot Chili Peppers, Fleetwood Mac, Kenny Chesney, Justin Timberlake, and dozens more. is different.
The company is named after the iconic album artwork studio headed by Storm Thorgerson, responsible for dozens of unforgettable covers, including multiple commissions for Pink Floyd. Storm, a longtime friend, is also responsible for Merck’s Hipgnosis logo, which features an upside-down elephant.
“I asked him, ‘What does that have to do with what I’m trying to do?’” Merck said. “He replied, ‘It’s not an upside down elephant. It’s an elephant blown away by how good the music is.’ A few years ago, Billboard said ‘Someone just explained to us what the logo means. You’re turning the music industry upside down.’ And I said, ‘OK. Sure.'”
Merck considers songs a great long-term investment. “What I want to do is establish tracks as an asset class for institutional investors and the stock market,” he told me. “I want them to understand that when these songs become successful, they become a fabric of our human and social lives. As a result, they have very reliable and predictable income — and that makes them investable.
“Songs are even better than gold or oil because if you’re living your best life, you’re making great music. And you’re listening to music too if you’re facing a challenge, whether it’s due to a pandemic, inflation, recession, high interest rates, or whatever that might be. You are feeling at ease and escape with great music. So great music is always consumed.
Merck is bullish on streaming. “The old standard for phenomenal success was a platinum album, in the US it was a million sales [and 80,000 in Canada] in a country of 330 million people. That means one in 330 people bought that album. That immediately tells you that the average person might love music but not love it enough to put their hands in their pockets and pay for it. Today, one in every 330 million people has been replaced by 100 million homes with paid streaming subscriptions. That means we went from one in 330 to one in 3.6.”
He believes that companies like Hipgnosis are essential to the musical health of the future. “The major record companies are curating 20,000 songs and creating new songs every day. They don’t have the bandwidth to make incredible hits in their catalog. We replaced that with song management.
“My job has always been to manage artists. I can’t play the guitar. I can’t sing a song. What I bring to the table is responsibility. Now I’m putting the same responsibility on managing good songs like Sweet dreams are made of this.”
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His ultimate goal is to make musicians better paid and give them the opportunity to bring in song revenue for them.
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“If you were Justin Bieber, you wouldn’t have made this deal to take the money and spend it. You made this deal so you can use this money to work for yourself and earn more than you could possibly have.”
There are also solid tax reasons to sell your music to a company like Hipgnosis. If you regularly check royalties, most governments consider it income from wages and can be taxed at rates as high as 50%. If the artist prepays future royalties in a lump sum, it is considered capital gains and the tax rate is reduced to about 20%. If you’re talking about a deal of tens of millions, even hundreds of millions of dollars, that’s a big difference.
Artists also benefit from being able to participate in effective estate planning. Money can be invested and used for charity or activism. And depending on the deal, the artist may still retain some royalties from future compositions as only successful, proven songs are included in the acquisition.
So how does an entity like Hipgnosis determine the value of an artist catalog? “Sometimes people look at it [valuations] as a multiple of annual income. We consider it from the point of view of what is the return on investment. How do your songs perform in the streaming world compared to the rest of the market? If you have 70 million monthly listeners on Spotify, your catalog will be worth a lot more than if you had 10 million monthly listeners.
“We have an incredibly diverse portfolio. After establishing songs as an asset class, there are a few things to consider. Copyright protection for songs in North America was extended to 70 years after the death of the last co-writer. We paid an average of 15x for songs, and we have an income stream that will last for 101 years.
“If you’re a big Bruce Springsteen fan, you’re probably at least 50 years old—that’s the average age of his fan base. But if you’re a Justin Bieber fan, you probably have 60 or 70 years ahead compared to 30 years for that Springsteen fan. If you’re a good parent, you’ll teach your kids about Springsteen, but… life. And Springsteen has about 17 million monthly followers on Spotify compared to Justin Bieber’s 80 million.”
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Merck is always reviewing transactions. He reaches out to everyone and everyone approaches him, always keeping an eye on how the songs can best be exploited to bring in revenue. That includes old stuff like sales, radio broadcasts, and other public gig income, but goes beyond that. Obviously streaming. Placement in TV shows. Appeared in the movie. Licensing for advertising. Encourage other artists to cover songs. And here’s the big deal: licensing templates for use in new works.
“Interpolate [the incorporation of elements of old song into a new track] It’s a big deal,” Merck said.
“We had the number one record last year with Nikki Minaj’s Super Girlit’s Rick James’ interpolation’ super freakapparently also interpolated into MC Hammer’s Can’t touch this. We have a part of all of that. And in 20 years, it will be interpolated again and become the number one record for others. And along the way, it will be used in 20 different models, in movies and TV commercials and video games. And most importantly for me, we’re going to honor Rick James in a way he couldn’t because we can afford to.
“And Rick James is not just Super monster. If you go back and listen to Prince, you’ll see how important Rick is to him. He’s a serious player, a serious musician, a serious choreographer, a serious producer. Rick is the real deal and we, as the custodians of that catalog, have a real responsibility to ensure that Rick James is celebrated as one of the great artists of all time.”
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Will this emphasis on older songs in the coming decades adversely affect new artists? If companies like Hipgnosis try to keep this music out of the old world, will it drown out the new music?
“One of the things that comes with streaming is widespread adoption,” says Merck. Today there are more than 600 million people listening to music online, up from 30 million just a few years ago. In a decade, we could have up to two billion people streaming music. That gives the music industry an unprecedented level of data.
“People are printing these articles saying that 70 percent of the world is listening to the catalog [songs more than 18 months old] and only 30 percent are listening to new music, which means new music is dying. That’s BS. The bottom line is that the 70-30 split has always existed. You just don’t have the data.
“When I was growing up, every time I bought a new record, I listened to the older records. For every new Yes record I buy, I’ll buy an old Doors, Beatles, or Jimi Hendrix record. We are still doing the equivalent today.
With the sun setting and movers coming to remove the last of the pool furniture, it’s time to go. We wandered into the backyard for one last look at the Hollywood Reservoir.
“See that house over there?” Merck pointed to a Spanish-style site suspended in the mountains. “Madonna’s old place. And there — “he pointed to another house across the street — “Moby used to live there.” And straight ahead, probably the best view of the Hollywood sign from any home in LA. The new location in Laurel Canyon beckons.
I hope all those records make it safe.
Alan Cross is a broadcaster for Q107 and 102.1 the Edge and a commentator for Global News.
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