‘Songwriters are the lowest paid person in the economic equation’ and Merck Mercuriadis is bankrolling a Guild to fight back

Hipgnosis Songs founder Merck Mercuriadis has again challenged music publishers and the entire music industry to better serve and compensate songwriters.

This time he’s also promising to do something about it.

In a strongly-worded open letter first published by MBW, Mercuriadis whose Hipgnosis Songs spent more than $2 billion acquiring song catalogs, wrote:

“the song is the currency of our business. Yet the songwriter — who delivers the most important component to the success of a record company, publisher, promoter, manager, agent, music venue, radio station, broadcaster et al – is the lowest paid person in the economic equation. An equation that has made the modern music industry a juggernaut.”

The solution?

A new Hipgnosis facilitated Songwriters “Guild” that will look and behave much like the current Screenwriters Guild:

“every few years in Hollywood its representatives walk into the offices of the movie studios… (and) make it clear that there is no movie to make if they don’t have the script – and remind the studios that they’re not getting the script unless they pay the writers properly.”

A former artist manager, Mercurdias has a solid history of fighting for the rights of artists.

But there are several ironies within this latest effort to help songwriters.

The more that songwriters make, the more that he and Hipgnosis earn from the many song catalogs that it controls and that could also mean that he’ll have to pay more the next time that he tries to buy one.

Full text of Merck Mercuriadis’ open letter to the music industry:

Today as many of us gather in London to celebrate the Ivor Novello Awards and the hard work of incomparable songwriters it is worth reminding ourselves, as I do every day, that the song is the currency of our industry.

If you are pushing play on Apple or Spotify, it’s because you like the songs. If you’re buying records on vinyl or CD, it’s because you like the songs. If you go see an artist play live… if you buy merch… if you buy products an artist endorses… it’s because you like the songs.

It’s worth repeating: the song is the currency of our business. Yet the songwriter — who delivers the most important component to the success of a record company, publisher, promoter, manager, agent, music venue, radio station, broadcaster et al – is the lowest paid person in the economic equation. An equation that has made the modern music industry a juggernaut.

Aside from the Ivors, the other major event today is the long awaited flotation of Universal Music Group in Amsterdam — a company which JP Morgan’s analysts believe is worth €53 billion. This is a firm that just eight years ago was being valued at €6.5 billion. I am delighted for Sir Lucian Grainge and his excellent global team, and warmly welcome them as they join Hipgnosis, Warner Music and others in the public markets.

UMG’s surging valuation not only demonstrates its position as the 900lb gorilla of our industry, but also the value of music in a streaming economy that has taken records from being a discretionary or luxury purchase to very much being a utility.

It’s not that long ago that the benchmark for extraordinary success in our business was the platinum record. Using the United States as an example, that’s 1 million copies sold in a country that has almost 360 million people. That 1 in 360 ratio immediately tells you that while the average person might love music, they didn’t love it enough to pull out a tenner from their pocket and pay for it.

That benchmark has now been replaced by 100 million homes in the US having a paid premium music subscription service. Our customer has gone from being 1 in 360 to 1 in 3.6.

The certainty of earnings that comes from this transition impacts the present value of future cash flows positively and, as a result, songs and recorded music catalogues are becoming more valuable on a daily basis. Add to this that today almost all consumption of music – be it on Spotify, Apple, TikTok, Peloton, Roblox, Fortnite – is monetized (whether via subscriptions or ads): as a result the US business alone grew by more than $1.5 billion in the first 6 months of this year. That’s a 27% increase over the first half of 2020!

This will be the most lucrative year ever seen for the recorded music industry by approximately 90% of the people working within it – and the cash is flooding in. Yet songwriters, who are ultimately responsible for this success, are not getting their fair and equitable share. Most are actually having difficulty earning a decent living.

Imagine in football or basketball if athletes that were responsible for a league’s success were the worst paid people in the economic equation.

In almost every other vocation in the world – and even in every other aspect of the entertainment business – the equivalent person to the songwriter would be amongst the highest paid… not the worst. How can this not be the case in music?

That’s a question I have been asking myself for a long time.

When I started Hipgnosis I had a motive and an ulterior motive in mind. Both were presented to all of our investors as being of equal importance.

The motive was to establish songs as an asset class and get shareholders a great return on their investment. The ulterior motive was to use our success to change where the songwriter sits in the economic equation.

The truth is that the latter was as much a driving force as the former. I spent years researching why the songwriter was the lowest paid person in the music business – and the conclusion that I came to was that it was a result of the recorded music industry owning and controlling the publishing industry.

Yes, that’s a generalization. It’s also largely true.

This paradigm has been allowed to exist for many decades, where the biggest publishing companies are not only owned but also controlled by the biggest recorded music companies of the same name.

The recorded music side of the business today is getting 4/5ths of the revenue, operating on an 80% gross margin and a 40% net margin – and in most cases record companies own catalogue music masters in perpetuity. Very few famous artists own their masters.

Conversely, the publishing side of the business is getting 1/5th of the revenue, 1/5th of the margin and, quite rightly – whether through good management and lawyering or via renegotiations or reversions – the rights to songs regularly end up back in the hands of the songwriters.

In that context it’s no wonder that the recorded music companies exercise their control over their publishing companies. It’s in their economic interest to push as much of the money in our business towards recorded music – where the lion’s share goes to the record company. And to be clear: it goes to the record company at the expense of the songwriter.

David Israelite from the NMPA – whom I know, respect, admire and applaud for his excellent work – recently took me to task about these views. He feels I am “dead wrong” in my opinion that the major publishing companies are not advocating adequately for songwriters as a result of being owned and controlled by their recorded music parent companies.

David took this to be a criticism of those publishing companies. It is not. It’s a condemnation of a paradigm that limits this industry’s collective ability to advocate for songwriters to be paid more.

Many people working in the ‘major’ publishing companies are my friends, and people I am proud to know. I am sure they would like to do more to improve the earnings of songwriters they identify, sign, and develop – and who deliver hits to recorded music divisions within the same companies.

Yet I believe the ability for many of these people to do so is limited by the recorded music divisions that control them. I note that none of the major music publishers gave evidence at the recent DCMS hearings on the ‘economics of streaming’ in the UK.

I’m certain the leaders of those companies would have been eager to contribute. Perhaps it wasn’t deemed in the best interest of their parent companies?

My question for David is this: if I am “dead wrong”, then why does the songwriter remain the lowest paid man or woman in the music industry’s economic equation?

Many people point out to me that the amount songwriters get paid is determined by legislation, not the major music companies.

I remind them that legislation is determined by advocacy and lobbying. And if you don’t have the biggest voices in your industry lobbying on behalf of the songwriter in a way that is not conflicted, how can you expect the true value of the songwriters’ contribution to be reflected in law?

It won’t surprise anyone to know that my views are supported by the recent DCMS inquiry’s Committee Report – which recommends the major record companies be investigated by the UK Competitions and Markets Authority. The report identifies market failure within the British music industry. It suggests that the dominance of the three major record companies has created a system that lacks transparency and prevents fair competition. In my view, it’s a system that enables the major record companies to act, without oversight or due scrutiny, against the interests of artists and songwriters.

We will see imminently what the UK government decides to do in response to the DCMS inquiry’s recommendations. But either way, the inquiry itself is a significant and important step, not only for songwriters but for artists as well (the second worst paid people in our business; the manager suffers with both!).

Kudos to the Ivors Academy and the #brokenrecord campaign for their tremendous efforts alongside us in advocating for songwriters and artists. Same to Ryan Tedder for spelling out the economics recently in Rolling Stone and to the BBC.

Ultimately the difference between David and I is that he represents music publishers, whereas I am focused on reforming the decades-old paradigms in our industry that are holding back the songwriter.

I want to take the songwriter from the bottom of the economic equation, where they currently sit, to the very top of it.

Songwriters and publishers have alignment with each other about 70% of the time. Within that 70%, we fight side by side and are a united force in harmony: see the CRB or MMA as but two excellent examples, where the NMPA and the NSAI delivered.

But crucially there is 30% of the time when what’s in the best interest of the publishing company – and the recorded music company that owns and controls it – is not in the best interest of the songwriter. And that’s where my focus is.

I believe that from this moment hence forth there should never be a negotiation that takes place that affects how a songwriter is paid without a songwriter at the table. Not a token songwriter – but a group of songwriters that bring to the table the consensus views of their entire community.

This is why one of the worst kept secrets in this industry is that I am working on launching a proper Songwriters “Guild”. It will behave much in the manner of the Screenwriters Guild, where every few years in Hollywood its representatives walk into the offices of the movie studios. They may congratulate the studios for the actors and actresses they have lined up for a movie. But they also make it clear that there is no movie to make if they don’t have the script – and remind the studios that they’re not getting the script unless they pay the writers properly.

The studios scream, they shout, they call them names, they even threaten to bring production to a halt. But at the end of the day they figure out a way to pay the writers more money… and, as they say in Hollywood, everyone lives happily ever after.

Hipgnosis will facilitate the “Guild” but it will be by and for Songwriters.

This is normally the moment when someone quotes a law from 1909 that deals with piano rolls… or tells you that it’s against the law for songwriters to organize… or some other similar tale that has allowed this crazy paradigm that has held the songwriter back to continue to exist.

My response to that is get out of our way: it’s 2021, not 1909. Homosexuality and marijuana are quite rightly legal – and soon enough, before you know it, the songwriter will be at the top of the economic equation, not held back by views and paradigms that are out-of-date and do not reflect the value of songwriters’ contributions fairly and equitably.

It won’t surprise you that the most important and successful songwriters agree with me and will be leading the Guild’s charge when we launch later this year.

I’ll finish where I started: by reminding everyone (for the third time!) that on this day, when we are privileged to be part of the glorious Ivor Novello Awards, that the song is the currency of our industry.

It is a day when we celebrate songs and songwriters – and where Universal’s IPO will demonstrate that there is more value (and money) in our industry than ever before… thanks to what starts, first and foremost, with songwriters.

It doesn’t matter whether we are record companies, publishers, managers, agents, promoters, radio tv et al. None of us should be able to sleep in good conscience at night until the true value of the songwriters’ contributions are recognized – and until they go from the bottom of the economic equation to the top.

The songwriter deserves to get paid more money!