Interview by Simon Glickman

Hipgnosis Songs Fund Limited founder/chief Merck Mercuriadis has been shaking up the publishing world with his songs-as-assets model. The onetime Sanctuary boss and top music manager has lately acquired hit catalogs from the likes of Benny Blanco, Dave Stewart, The Chainsmokers, Starrah, Poo Bear and many more, financed by institutional investors. Where is all this headed? What does it mean for the songwriters and for the business? Merck agreed to speak very slowly so we could follow along.

You've said that you’d like to abolish the term publisher and that you prefer song manager. How is your approach different from the traditional approach to publishing?
I’ll start by saying that I can't play the guitar; if I sang, you'd run a hundred miles in another direction. The only thing that’s given me a seat at the table with people like Elton John or Axl Rose in the past and people like Nile Rodgers today is that I take my responsibility very, very seriously—to communicate on behalf of the artists, to protect the artists, to maximize the commerce while ensuring that the art is uncompromised. That's what I can do. I can play the iPhone as well as Jimmy Page can play the guitar.

I can do that because, even at half a billion dollars invested, I only own 5,000 songs. And of those 5,000 songs, more than 2,000 of them are #1 records and more than 4,000 of them are Top 40 records. I'm dealing with proven music. Whereas if you are Universal, Warner or Sony, you have as many as 20,000 songs for every creative person working for you in the world. It’s not that these people are not great at what they do—they put tremendous effort in and we all make lots of money together. But ultimately, they don't have the bandwidth to nurture and love and be responsible for all these songs because there are just too many songs for the size of their infrastructure.

Look at the position that I'm in right now, where I own “Sweet Dreams Are Made of This,” “Single Ladies (Put a Ring on It),” “We Are Family,” “Le Freak” and “Don't Stop Believing.” Why wouldn't I put everything I have into those songs?

How are you scaling up as you expand?
My infrastructure is currently 14 people. By the time we get to the end of the summer, it'll be 21 people, and we'll be at about 220-230 songs per person. But even in the next five or six months, when we reach $1 billion invested, I'll only own 10,000 songs. When I'm $2 billion invested, I’ll own 20,000 songs. And at that point I'll probably have 40 people working for me—and we'll still be at about 500 songs per person. Every song has a P&L.

That's why I say that I want to eradicate the word “publishing,” because publishing as it stands right now is very much focused on what's next—as it should be. If you’re Big Jon or Jody or Guy Moot, you're rewarded for having incredible years, signing the best new writers in the business and having massive new hits, which they do. But the catalog side of the business has to change because we can't have 20,000 songs per person anymore and expect to get the results that songwriters deserve.

So just to clarify, when you said that the publishing model is broken, your assertion is that it's the catalog part, primarily, that's broken?
Yes. It's the catalog part that’s broken, certainly not the creation of new songs. They do a tremendous job of creating new songs in signing the right writers and developing them. It’s the management of those songs. That's why I say I want to move from the traditional publishing model into a song-management model—because I want everyone to take responsibility for these incredible songs.

Are you working in tandem with publishers on a lot of these songs or are these songs where you own the writer's share and the publisher retains the publisher share?
Well, in many cases, we own all of it—for example, on The-Dream’s catalog, where we've bought all income, the writer's share, the publisher share, etc. But with Dream’s original deal at Warner Chappell, the retention period still runs for a number of years, so they’re our administration partner on that catalog. They're a great partner. So when we or they come up with an idea, it gets presented to everyone; we all have to say yes to it. We all work together.

When you don't have a major as a partner, do you have your own mechanism in place for foreign collection?
Kobalt are our main administrator when the catalogs are not in an existing admin deal.

"I can play the iPhone as well as Jimmy Page can play the guitar."

Once you've identified someone like Benny Blanco, Starrah or any of these other writers for a portion of their catalog and decided they’re an ideal target, what is your pitch?
I'm happy for this to be on the record. I'm the only person buying publishing catalogs or music rights who comes from the artists’ side of the table. I've made my money and my reputation with artists, not at the expense of artists. I'm very proud of that, and that's never going to change.

So I'm very clear with artists, writers and producers that I believe that these assets are going to go up in value in due course. And that's why I'm buying them. I want them to understand that they’d better have a plan for this money that is going to give them a better return than what their royalties currently are, because this is their pension plan. And all of my deals include bonuses for net asset value growth. Because if I'm right about my thesis and these assets increase in value, I want the artists to participate in that. So the initial check is not necessarily the last check that they're going to get. If I'm right, they'll continue to get further checks.

Good times at the stock exchange with Nile Rodgers

Why do that? These transactions put the songs in your possession, correct?
Correct. And [in traditional deals], that check would be the first and the last check that you got. All I'm saying is that the way that I've structured this enables us to offer the writers bonuses on net asset value growth and on revenue growth. Because if I'm right about my thesis and these catalogs grow in value, I want them to be able to participate in that.

Our thesis has several components to it. One is that I have access to the songs and I can buy them. The second is that streaming is going to grow the pie; if we look at the research, we could have as many as 2 billion subscribers by 2030. The third is that the copyright board ruling will be upheld, and the songwriter's share of the income is going to grow. The fourth is that because we have a very small number of songs overall, a large percentage of them hits; we can actively manage them better than the majors can, so we'll have a better return.

All of that combined should result in a higher net asset value for the songs going forward, and greater revenues. If that happens, I have bonuses at the end of year three and at the end of year four that I pay the songwriters.

Let's talk a bit about the financial basis for this enterprise and how you went about raising the money. I know you've said that you’re expecting to double your investment in the next few months.
Yes, correct. What I invest will have doubled in the next few months. And everything is already in place for my operating capital to double in that period as well.

So who are some of these investors and how did you approach them?
All of the investors today are institutional investors in the City of London [aka England’s Wall Street]. I did 177 meetings with various institutional investors there, of which 38 of them make up the first half a billion dollars-plus that's in the fund.

If Donald Trump wakes up one morning and does something crazy, gold and oil are going to be affected, but music is not—because people use music when they're trying to escape. At the same time, when things are amazing and people are celebrating, people are also using music. So music is always being consumed. And what I did with all 177 of these investors or potential investors is demonstrate to them that proven hit songs are predictable and reliable—investible like gold and oil, but better because they're uncorrelated.

With my demonstration to the financial community, now half a billion dollars in and successfully listed in the premium market and the London Stock Exchange, I've now established songs as an asset class. That's not just good for me; that's good for everybody.

What's your answerability to these investors?
I take the responsibility to the investors very, very seriously. Obviously, I'm dealing with hundreds of millions of pounds. That's a lot of money, coming from a great many people who are willing to put their money into something that they feel is going to give them a good return. I take that responsibility extremely seriously, and I take compliance extremely seriously.

I'm surrounded by incredible people. I have a non-exec board of directors led by Andrew Sutch, a compliance specialist who is the chairman of several billion-pound funds. Until recently he was the senior partner of Stephenson Harwood, one of the most prestigious law firms in the City of London.

My portfolio manager on the board is Paul Burger, who for many years was the Chairman of Sony U.K. and Sony Europe. He understands music as well as I do and has an instinct for it. The audit chair on the board is Andrew Wilkinson, a CPA but also, most importantly for many years the partner of Prince Rupert Lowenstein, business managing the Rolling Stones and Pink Floyd; he created the royalty systems for those artists, so he understands royalties better than most people do. There’s also Simon Holden, a professional non-exec director and a very, very intelligent man. These people are there to ensure that on a 24/7 basis, I'm doing things the right way.

"That's why I say I want to move from the traditional publishing model into a song-management model—because I want everyone to take responsibility for these incredible songs."

Let's talk a little bit more about structure and your overall plan for this enterprise. Do you have an American office or company in the offing?
I don't have a U.S. office yet because I'm in discussions to buy two very significant L.A.-based independent companies. They will stay autonomous of each other, but they will form the basis of my U.S. infrastructure. I expect to close the first in October and the second around Thanksgiving, and then I'll be launching in 2020 with a fully staffed U.S. infrastructure, I think.

Will they expand the capabilities of the company?
Dramatically. Obviously, they will be actively managing the catalog that we own in conjunction with the U.K. team, but they will have capabilities that we currently don’t have. I suppose we should leave it at that; I can’t publicly disclose information that I haven't disclosed to my shareholders.

This brings me to a question that I think you probably find yourself answering repeatedly but which continues to be central to the conversation about you, which is people thinking that you are building something to flip it.
In fact, the exact opposite is true, and my shareholders will back up what I'm saying. The strategy is very much a buy-and-hold strategy; I have no intention of ever selling these assets, unless there was something technologically disruptive on the horizon that could put in a position where the shareholder was not going to continue to get the return they expect.

But I have no intention of ever selling these assets. I want to see out my years. I have some of my kids in the company. I have other people in the company whom I admire greatly and are important parts of the future of the music business. I want to see the assets in their hands being actively managed.

Hipgnosis-affiliated writers The Chainsmokers, Benny Blanco, Dave Stewart,
Teddy Geiger, Poo Bear, Starrah, Ari Levine and Johntá Austin

And I want to revolutionize where the songwriters sit in the economic equation. I'm about to become very controversial here, but I believe that the business that I came into was one where 90% of the artists that we would sign wrote their songs performed them, had a very good idea of who they were, who they might become, what, what politics they might support or not support, what their album cover should look like, what their stage show should look like. And my job was to believe in them and to come up with a strategy that could bring those ideas to fruition.

Today, 90% of the artists that are being signed are talented people for whom, for the most part, fame is the endgame, right? They don't really mind whose song they’re singing. They don't mind if the fame comes from a TV talent competition or from social media. But if you don’t have access to hit songs, you're nowhere. Yet the writers of those songs are the low man or woman on the totem pole when it comes to getting paid. I want to change that.

"This is very much a buy-and-hold strategy; I have no intention of ever selling these assets."

I like to make money on my behalf, and for my shareholders. But my ulterior motive, which is as or more important, is how to redress this imbalance that exists between recorded music and songs. What songwriters have not had up to this point in order to drive home the change that they deserve—and that's required—is leverage. And I'm bringing my leverage to the party, not only on my behalf, but on behalf of all of the songwriters that are out there. And of course that is in complete alignment with what's in the best interest of my shareholders, because if I can help songwriters get paid more, than we get paid more for our songs.

Why does this imbalance exist in the first place?
Universal, Warner and Sony, as the three biggest song companies in the world, cannot advocate for songwriters to the extent that they should because they're owned the three biggest recorded music companies in the world. On the recorded music side of the business, they're getting 4/5 of the money; they make a huge margin. And in general, they own those assets in perpetuity. On the song side, there's one fifth of the money. There's a much smaller margin and, in general—quite rightly—whether it's through reversions, renegotiations or just smart deal-making in the first place, those songs end up in the hands of the people who created or co-created them eventually.

Therefore, Universal, Warner and Sony use the leverage that they have in recorded music, owning songs to push the improvement that we're seeing right now through streaming towards recorded music at the expense of the songwriters.

And let me be clear: I'm not pointing the finger at any individuals, because I'm quite certain that whether it was Lucian or Rob Stringer or Max, that they would understand the logic that I'm talking about, which is that there's an institutional imbalance, and a paradigm that's existed for more than 75 years. So Lucian can’t be the guy to go into Universal and say, “Wow, I've had this epiphany—we should be paying songwriters more money.” But what can happen is that someone like me can.