Concord announced the completion of its $468 million acquisition of Round Hill Music Royalty Fund on Thursday (November 2), officially completing the largest catalog deal of the year. The deal includes more than 150,000 songs, including works by The Beatles and tunes recorded by Elvis Presley, Meatloaf, James Brown and Billie Holiday, but also marks a pivotal moment for publicly traded royalty funds and the scale of Concord’s business.
Executive Director of Concord Bob Valentinewho succeeded Scott Pascucci in February, speak with billboard about the deal, what it says about the state of the music royalties market and how Concord plans to deal with the headwinds the music industry is currently facing.
On October 31st, you completed the Round Hill Music Royalty Fund acquisition. Why was it attractive to Concord and what does it say about the state of the song catalog market?
When you look at the landscape of large-scale and quality acquisitions, [Round Hill’s] assets have been on our radar for some time. Our view was that the company’s share price did not give the appropriate fair value of the asset value. Josh was one of the early proponents of the idea of music assets as financial assets. We have a similar background, having started in investment banking. The quality of assets Round Hill has accumulated has been remarkable in terms of scope, genres and the ability to use these assets in film and television. There are Beatles songs on here, for God’s sake. I call these things assets. They are truly works of art that have stood the test of time in terms of revenue.
You pointed out that this deal contradicts the larger narrative that the market for music royalties has fallen over the last year or so. Why?
Our deal proves that, from an institutional perspective, the core value of copyright is still there. We just went through the first ever DSP price increase cycle. It seems, knock on wood, that the impact on the casting is within the allowable levels [of customers]. You have continued growth in countries around the world that have never in the history of the music business been significant sources of legitimate revenue. We now expect fairly regular price increases [by the DSPs] in mature markets. So if you believe the long-term trends that suggest the value of music should increase in the medium term. Then, as institutional investors, it all comes down to what is your time horizon?
But with Concord acquiring a publicly traded music royalty fund and Hipgnosis investors voting to eventually close the Hipgnosis Songs Fund, doesn’t that spell the end of the publicly traded music royalty fund experiment?
History has yet to be written on Hipgnosis. Their shareholders and board still have time for that [explore options]. The thing that strikes me about the comments surrounding Hipgnosis is the fundamental belief of shareholders in the underlying value of the assets it owns. Shareholders rejected the sale of these assets because they appear to fundamentally believe that the value of these assets is higher than [what they could get in that) proposed in the sale.
The question is whether a publicly traded fund is or isn’t the right vehicle to access returns. We’ve tapped the asset-backed securities space and have done very well. There is certainly private investment happening and it continues to happen. I still see significant institutional interest in this space. We are still getting inbound requests from artists, managers, etcetera, asking us to look at assets for sale. The underlying market for assets is robust. Because interest rates have gone up, the high end of the price scale has come down. But there is still plenty of activity where the prices make sense.
How do you view Concord’s creative mission and direction?
We built the company over time around our catalog. We have an extraordinary catalog of works that span over a century. Because we’ve been financed by pension funds and institutional investors, the cash flow of the catalog and investing in catalogs has been part of how we grow the company. But I’m keenly focused on the notion that we are not a fund. We are a fully functional organic music company. You can’t be a music company without creating new art and discovering new artists and exposing those new artists to the world. They will create the next remarkable piece of art that 50 years from now people talk about buying. Concord has the scale now and the relationships to be a leader in catalog acquisition and exploitation but also front-line investment. And on the music publishing side, we have really grown that business over the last three to four years. We have the writers of some of the largest songs in the world. One of ours co-wrote most of the last two Harry Styles records. On the recorded side, we’ve always been in more niche genres — jazz, bluegrass, adult contemporary. We have not been in the front-line pop business or R&B or hip-hop. Those genres have always been the domain of the majors. It’s because it takes a significant amount of marketing expenditure and recording…. That said, we’re now the size that we can compete occasionally to get a few artists in those genres. I think it’s important to grow that business.
We have seen layoffs hit different music companies over the last 18 months. Do you feel your team is in good shape? Are you looking to make any pivots in strategy or structure?
From a senior exec position, [former chief label officer] Tom Walley stepped down so we had to find a replacement. That’s why we have Tom Becci. As he takes on this new role, there are a few changes that will continue – the integration of the frontline and catalog. How people report through the recorded music department and how people spend their time may require some change. But this is structural change – reporting changes. I feel like we’ve always thought about the business and the growth in a careful way, so hopefully we haven’t over-hired or put people in situations where, if there were layoffs in the business, we’ve had challenges. I don’t see the need for wholesale changes or layoffs in the near future.
What’s the thinking behind putting frontline and catalog under one roof?
From our point of view, the problem with a catalog versus a first line is that you’re really talking about a relationship with an artist. If we have an artist on one of our flagship labels who also has a catalog, having two different departments working in that artist’s life creates a kind of weird, unintended division where the artist hopes to have one team of people. So, it’s an alignment to get into how the artist thinks about his own work. There’s a tendency in the industry to put a lot of work into an artist’s last album for good reason. But in the world we live in today, an artist’s older works can be reactivated very quickly in tandem with the release of a new album. We hired Tom largely because he had a little bit of everything. He worked in the catalog, on the front line at Universal, in management. He has perspective from all these different angles.
What’s going on with Concord’s theater division?
We own Rodgers and Hammerstein. We present 30,000 theatrical rights. It’s a sneaky, big part of our business. It’s a very interesting corner of our business that we’ve built through acquisitions over the past five years. We made these acquisitions [starting in] 2018 and the challenge was that a large part of our business was licensing schools and universities which were affected during Covid. We were also producers on Hadestown and an investor in Some Like It Hot. We continue to invest in new Broadway shows and replicas of productions that go on tour. A lot of investments are made there.
What revenue will come in this year?
I think we’ll get to the mid-$600 million range. We are growing pretty consistently.
How much debt does the company have?
The ABS was $1.8 billion and then we just did the separate tranche with Apollo for $500 million. We also have a revolver with a consortium of banks. I don’t remember that balance, but we didn’t use up all our dry powder [on the Round Hill deal]. One of the reasons we wanted to do the IPO with Apollo was that we thought there was an opportunity to come back to the market when we wanted to fund acquisitions. We think there will be a rinse-and-repeat component to our access to this market.