Does Hipgnosis Actually Own The Neil Young Songs In Spotify Row?

The Neil Young and Spotify row is showing that there might be a small hole in the Hipgnosis Songs Fund Ltd (LON: SONG) story. Which is, well, does Hipgnosis really, wholly and truly, own the song rights that it says it does?

No, no one is saying that Hipgnosis doesn’t own what it says it does, rather this is a question about what that ownership really means. They own 50% of the Neil Young catalogue and they do truly own it. But do they own in the sense of being able to determine what happens or are they merely residual cash flow collectors? This matters to a valuation of Hipgnosis of course.

The base idea at Hipgnosis is just fine. Song rights last 70 years after the death of the songwriter (mechanical rights are different and aren’t the issue here). So, feeding capital now to songwriters, while they can spend it, to collect the revenue stream over the decades makes some sort of sense.

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This in itself makes Hipgnosis shares not really shares though. They’re somewhere between a bond and a preference share. There’s a certain amount of inflation protection available as we’d expect streaming fees, CD and record prices to rise with inflation, radio play fees too. On the other hand, rising interest rates and inflation both make such annuity-like payments worth less as a net present value.

So it’s not wholly and entirely simple even as that base idea works in a theoretical sense. Hand over capital now for a long-term stream of income off into the future. And 70 years is long enough to really be a perpetual in valuation. OK, all’s fine with Hipgnosis then.

Except one of the selling points is that Hipgnosis can do more than this and this is what makes them equity. By managing those song rights with an eye to maximising income said management can increase that future income flow. Tout songs to get into movies, onto collections of songs, load them onto new streaming services, and so on. Sure, might work, might not, but that is part of the claimed plan. That might be worth a premium to the simple net present value of that estimated cash flow.

Now we’ve the Spotify and Neil Young row. Joe Rogan had someone on his show who muttered something about vaccines. So, Neil Young demanded either Joe Rogan goes off Spotify or he would. The decision was that Mr. Young got the door in the bootie. Well, OK.

But this then calls into question that ownership by Hipgnosis of 50% of the Neil Young catalogue. This isn’t, after all, a revenue maximising move. So, does Hipgnosis really own the song rights, in that they can do as they wish with them? Promote, enhance the value? Or are they merely residual cash collectors. After the songwriters decide what they want to happen, Hipgnosis just gets a share of whatever income there is? That is, is the idea that Hipgnosis can increase the cashflow through management something that Neil Young has just disproven in this row with Spotify?

For there to be an equity premium at Hipgnosis, a valuation above a mere perpetual inflation protected bond, there needs to be more clarity on this. A significant explanation from Hipgnosis could well aid the share price.