Off-Key

Merck Mercuriadis convinced pop stars and Wall Street that music was the next hot asset class. It worked out for everyone—but him. 

By Devin Leonard

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Episode Transcript

Speaker 1 (00:00):
Off key. Merk Mercuriatis convinced pop stars and Wall Street
that music was the next hot asset class It worked
out for everyone but him by Devin Leonard read aloud
by Mark Leedorf. If you find corporate financial filings to
be less than scintillating, you might try thumbing through the

(00:22):
twenty twenty one annual report of Hypnosis Songs Fund, which
at times resembles an issue of Rolling Stone. There you'll
encounter glamorous full page portraits and interviews with artist producer
Mark Ronson his face tilted in semi profile like a
Hollywood star, former Fleetwood Mac member Lindsay Buckingham guitar in
his hands, Eurythmics co founder Dave Stewart tipping his fedora,

(00:47):
and Latin music superstar Shakira her golden tresses swaying in
the breeze, or more likely animated by an in studio fan.
What do all these hit makers have in common? They
sold their songwriter libraries to Hypnosis, a Guernsey based investment
fund started three years earlier by Merk Mercuriatis, whose own

(01:07):
portrait head shaved outfit characteristically all black, also appears in
those pages. A consummate shoulder rubber, who endeared himself to
rock stars and pop idols with his appreciation for their
deepest cuts. Mercuriatis had negotiated these deals, along with ones
for Neil Young, Barry Manilow, Blondie's Debbie Harry, and Chris Stein,

(01:29):
as well as a flurry of other artists, for as
much as or more than tens of millions of dollars each.
It was all for the publicly traded fund, which, as
he was fond of putting it, was the first one
on the London Stock Exchange to invest solely in a
new asset class, songs. Mercuriatis liked to say that in
the streaming age, when more people were paying more for

(01:50):
music than ever, an investment in songs was as safe
as one in oil or gold. Especially the hits Hypnosis
was stockpiling. There will never be another Eurythmics. Sweet dreams
are made of this Sheikh's good times or journeys. Don't
stop believing, all of which he boasted, were among the
sixty five thousand, four hundred and thirteen songs Hypnosis would

(02:12):
acquire for two point two billion dollars. This trove, he pitched,
would only become more valuable, As Mercuriatis noted on a
podcast in twenty twenty one, there were roughly thirty million
streaming subscribers when Hypnosis made its debut in twenty eighteen.
Now he estimated there were four hundred and fifty million.
What would Hypnosis be worth when the number reached two billion,

(02:35):
which Mercuriatists predicted would happen within the next decade. Streaming
was just one source of revenue. Every time one of
its songs was played on the radio or performed live,
Hypnosis would get a royalty payment. Mercuriatis promised that he
and his team would also pursue sync deals, that is,
get its songs featured in movies, TV shows and commercials.

(02:57):
Then there was persuading contemporary artists to cover its older songs,
as Miley Cyrus did in twenty twenty with Blondie's Heart
of Glass, which the Hypnosis founder said led to an
additional surge of streaming money from TikTok. It was an
irresistible sales pitch. Hypnosis attracted otherwise risk averse investors such
as the Church of England's pension fund, and in twenty

(03:19):
twenty one, Mere Curiatis joined forces with Blackstone, one of
the world's largest investment companies, to create a private Hypnosis
catalog acquisition fund. Blackstone promised to put up one billion dollars.
We look forward to working with Merk and his team
to continue their exciting journey, Cassim Abas, a Blackstone senior
manager set at the time. For a while, many of Hypnosis'

(03:43):
competitors in the catalog acquiring business accused it of wildly
overpaying for songs. Eventually they joined the fray, as Universal
Music Group did when it purchased Bob Dylan's treasure chest
of more than six hundred songs for an estimated three
hundred million dollars in late twenty sees. Such deals would
have been unthinkable pre Mercuriatis. For those of us who

(04:05):
sell these catalogs, Merk was like boom time, says prominent
music industry attorney John Branca, who represented artists such as
Enrique Iglesias and deals with Hypnosis. It was a remarkable
comeback for Mercuriatis previously chief executive officer of Sanctuary Group,
a publicly traded UK based music company that released albums,

(04:27):
managed artists and booked tours. And for a time boasted
a similarly glittered roster that ranged from Kiss to Dolly
Parton to Wu Tang Clan. In two thousand and six,
it lost ninety seven percent of its market value after
its earnings plummeted, and it removed its executive chairman as
questions were raised about the company's accounting practices. Mercuriatis resigned

(04:50):
that same year, tainted by his company's collapse. Now he
was back on top, Mercuriatis was not only redefining the
music publishing business, but also so vowing to use his
newfound power to win more money for songwriters, who he
argued had been historically underpaid. He accused the big three
music companies Universal, Sony Music Entertainment and Warner Music Group

(05:14):
of sitting on mountains of songs while doing little to
help composers, because the companies made most of their money
from royalties collected from owning the original recordings of the
records they released. In November twenty twenty one, four months
after the publication of its star studded annual report, Hypnosis'
share soared to an all time high, But within a

(05:35):
few years everything would unravel, as Mercuriatis became engulfed in
accusations of mismanagement, conflicts of interests, and accounting shenanigans, not
unlike those that had surfaced at his old company. He
stepped away from Hypnosis in July twenty twenty four and
now sees dark forces behind his tumble from grace. So
does the Eurythmics. Stuart, who served as an advisor to

(05:57):
mer Curiatis in better times at Hypnosis and views him
as a martyr. I could see it all happening. Stuart
says he was a threat. Bob Lefseett's, author of an
influential music industry newsletter, isn't so sure. Left Sets, who
briefly worked at Sanctuary decades ago before Mercuriatis joined, says
shrewder minds in the business predicted what would happen at

(06:20):
Hypnosis from the start. Anyone I discussed it with, I'm
talking about the absolute top tier. People knew this was
going to fail because Sanctuary failed. Left Sets says it
wasn't like anybody sat there and said, oh, this is
a great idea, this is going to work for merk.
Mercuriatis has long positioned himself as a champion of musicians

(06:42):
He fell in love with music at age five and
realized it would be his calling several years later, when
an older cousin came to live with his family in
their sleepy northern Quebec town, arriving with a stack of
albums that included Black Sabbaths, Paranoid, Curtis Mayfield's Superfly, and
several of Pink Floyds's trippy early nineteen seventies discs. I

(07:03):
knew from that moment I wanted to be in music,
he says, sitting beneath a large photograph of Aretha Franklin
at Cavatina, an industry haunt in West Hollywood, dining on
his standard breakfast of six grapefruit halves. He realized early
on that he didn't have the talent to shred the
guitar like Jimmy Page, but as he read books about
his rock deities, he noticed there were other kinds of

(07:25):
people involved in their careers suits. He inundated Virgin Records,
a label bold enough to sign the gleefully nihilistic sex
pistols with letters, until executives there took note and parked
him in the marketing department of its Toronto office. He
was nineteen, and soon discovered the thrill of driving through
Montreal in a limo with boy George and Culture Club

(07:47):
and being surrounded by fans who ripped the roof off
the car. Over time, he grew tired of working for
a label, longing instead to look out for the interests
of artists, so in nineteen eighty seven he went to
work for Rod Smallwood and Andy Taylor, founders of London
based Sanctuary Group, which managed the British metal band Iron Maiden.

(08:07):
Mercuriatis became fast friends with his new bosses and close
to Bruce Dickinson, iron Maiden's longtime howling lead singer. He
was my best man, Mercuriatis says, I was his best man.
He's godfather to my kids. I'm godfather to his kids.
Smallwood and Taylor declined to comment. The band's manager confirmed

(08:28):
Mercuriatis's relationship with Dickinson. Propelled by Iron Maiden's success, Sanctuary
went public on the London Stock Exchange in nineteen ninety
eight and acquired multiple labels and management companies. Mercuriatis was
named head of its US operations in two thousand and four.
Years later, he became Sanctuary CEO. At the time, it

(08:49):
was riding high on hit albums by Morrissey and the
Strokes and sell out tours for Iron Maiden and Metallica.
While Mercuriatis was in charge, the company also oversaw the
careers of Guns N' Roses, The Pet Shop Boys, Elton
John and Beyonce. In a March two thousand and five
interview in Billboard, he predicted his company would be among

(09:09):
those that dominated the music industry in the next half century.
Shortly afterward, however, Sanctuary issued a warning that it would
suffer significant losses because it had grown too rapidly. Its
stock cratered, and its board ousted Taylor as executive chairman,
saying it couldn't vouch for some of the company's accounting
on his watch. Mercuriatis, who resigned too, blames illegal file sharing,

(09:33):
which devastated album sales for Sanctuaries Woes, and says he
had little to do with its finances. I was the
CEO because I had the relationships with the artists, he says. Creatively,
I was making the decisions about what the record company
should do, what the management company should do. But in
terms of it floating on the stock market, that was
all done by the finance people. A confidential report prepared

(09:57):
in two thousand and six for the board by kPa
and the law firm Slaughter in May, however, pointed to
several transactions involving Mercuriatis where Sanctuary appeared to have improperly
booked certain items as revenue when it was under pressure
to make its numbers. In one case, it did so
with one million dollars from Creative Artists agency that Mercuriatis

(10:18):
had confirmed in an email was actually alone from the
talent agency. In another, Sanctuary build guns and Roses frontman
Axel Rose three point four million dollars, but it never
bothered to collect the money, counting it as revenue too.
CAA declined to comment. Rose didn't respond to a similar request.
Then there was a dubious transaction involving five million dollars

(10:41):
in services received from the owner of a music management
firm Sanctuary was in the process of acquiring. The report
highlighted an email sent by Mercuriatis in which he seemed
to be instructing his fellow executives to fib about the exchange.
You can just make it up. Consultation on tour production,
merchandise etc. Mercuriatis says the information in the reports is inaccurate.

(11:05):
In two thousand and seven, Universal bought Sanctuary for forty
four million pounds about eighty eight million dollars or twenty
pence a share, less than a third of what its
stock had been worth six years earlier. Mercuriatis says he
fell into a deep funk after twenty one years at Sanctuary.
He had virtually nothing to show for it. That was depressing.

(11:26):
He says. There were reports at the time that Mercuriatis
would be joining Irving Azov's front line management, but that
never materialized. Instead, he fell out with some of the
clients he'd retained from Sanctuary, including Rose, who publicly severed
ties with Mercuratis in two thousand and six, and Morrissey,
who eventually fired him. Mercuriatis then sued Morrissey. They settled.

(11:50):
Morrissey didn't respond to requests for comment. Still, Mercuriatis observed
a power shift in the music business. Gone were the
days when the charts were dominated by acts that wrote
and performed their own material. Now many of the biggest
stars relied on hit making songwriters, some of whom he
now began to manage as he restarted his career after Sanctuary,

(12:12):
including Diane Warren, composer of weepy power ballads such as
Celine Dion's Because You Loved Me and shares If I
Could Turn Back Time, and Tirius Nash aka the dream
co writer of pop anthems including Beyonce's single Ladies Put
a Ring on It and Rihanna's Umbrella. As talents like
Warren and nash became hot commodities in their own right,

(12:35):
they too needed a manager to massage their egos, get
their songs in the hands of the most appropriate singer,
and negotiate royalty splits with the other composers they often
shared songwriting credits with. Mercuriatis also believed songwriters were getting
short changed in the streaming era, with for example, four
fifths of Spotify revenue going to record labels, while those

(12:56):
on the songwriting side had to content themselves with the
remaining twenty. His response to these changes was Hypnosis, which
would allow the public to invest in hit songs while
also boosting riches for songwriters. He took the name from
the storied London design studio responsible for album covers including
Pink Floyd's the Dark Side of the Moon. When the

(13:17):
company went public in July twenty eighteen at the London Exchange,
he trotted out Niall Rogers, founder of nineteen seventies disco
band Chic. Rogers, brought along his guitar and performed the
Sister Sledge hit we R Family, which he co composed.
Investors couldn't buy enough shares, and the initial public offering
raised two hundred and two million pounds. It was a

(13:39):
triumphant moment for Mercuriatus, who'd manage the fund and handle
its deal making via a separate advisory firm known as
The Family, which he owned along with his three daughters,
who also held executive positions. That same day, he announced
what would be the first of Hypnosis's many acquisitions, and
it was a show of force, the twenty three million

(14:00):
purchase of a seventy five percent interest in Nash's three
hundred and two song collection, including not just those he'd
co composed for Beyonce and Rihanna, but also Justin Bieber's Sorry,
Mariah Carey's Touched My Body and jay Z and Justin
Timberlake's Holy Grail. It was one of the few times
the fund would disclose what it had paid for tunes,
but Mercuriatis was just getting started and clearly wanted to

(14:23):
get the attention of songwriters. Soon after, Mercuriatis called Mark Stuart,
the brother and manager of songwriter Tricky Stuart, who frequently
collaborated with Nash on many of his biggest hits. He goes, hey,
would Tricky be interested in selling? Mark recalls the Stuart
brothers had known Mercuriatis for years and considered him a friend.

(14:44):
Even so, Mark says he called some other potential buyers
and started a bidding war, but Mercuriatis prevailed with the
highest offer. Mark won't reveal the sum, but he says
it was the kind of big number of buyers historically
had been reluctant to pay for catalogs, particular clarly by
black writers. The argument would be, well, this is not
Billy Joel, it's not Evergreen. Mark says, when Merk came around,

(15:08):
He's like, no, I think the songs of Beyonce and
Rihanna and Kanye West they're as important as the songs
of Queen. Word got around and Mark started hearing from
other people with songs to sell. Everybody that I've ever
known that had some assets accumulated over the years, and
who did not know Merk would call me because everybody
knew we were friends, going hey, man, can you introduce me?

(15:31):
He says. It didn't hurt that Mercuriotes could also charm
artists by quoting chapter and verse when it came to
their discographies. The amazing thing about Merk is that he
can almost recite the lyrics back to you, says Eurythmics
Dave Stewart, who sold his catalog to Hypnosis in twenty
nineteen and joined the family's advisory board along with Rogers

(15:52):
and Nash. Plus, he adds his vinyl collection is bonkers.
Mercuriatis was the talk of the music industry, gracing the
cover of Billboard and posing in newspapers and magazines on
both sides of the Atlantic. He wasn't the first person
to negotiate catalog deals. The big music companies had been
doing it for decades, while smaller privately held firms such

(16:15):
as Primary Wave and Round Hill Music had also long
been in the game, but none of them could match
Mercuriatis's volume of deals. Armed with cash from repeated equity
raises and millions of dollars in debt. He orchestrated the
acquisitions of twenty nine catalogs in twenty nineteen and seventy
two in twenty twenty, including Ronson's and Shakira's. What I

(16:37):
immediately knew when I met him was that he is
a true music connoisseur, Shakira wrote to Bloomberg BusinessWeek in
an email. Ronson describes his deal with Mercuriatis as a
no brainer, while Hypnosis stayed mum about the amounts it
was paying. Industry people say the sums would have been
previously unimaginable. Before Mercuriatis, catalogs often traded in the range

(17:00):
of ten times earnings. Hypnosis stunned the industry by paying
twice that it was definitely north of twenty for a
lot of people, Mark says, and definitely for Tricky's catalog.
Mercuriatis says his average deal was significantly lower, but round
Hill CEO Josh Gruss says he saw much the same
when bidding against Mercuriatis in twenty twenty for the catalog

(17:22):
of Richie Sambora, the former bon Jovi guitarist and co
composer of Livin' On a Prayer and wanted dead or alive.
I really wanted the Richie Sambora deal, Gruss says, I
love bon Jovi, Yet each time he called Sambora's attorney
with an offer, he says, Mercuriatis topped it. When Mercuriatis
beat round Hill's offer of twenty one times the catalog's earnings,

(17:45):
Gruss decided to keep bidding to see how high his
competitor would go. It got to twenty seven or twenty
eight until I stopped playing that game. He says, he
really didn't care what it cost. In an email, Sambora,
who Mercuriaties now manages, said he sold to Hignosis not
for its bid, which he said wasn't the highest, but

(18:05):
for his kinship with Mercuriades. He had a strong idea
of where bon Jovi and my songs with them fit
into the history of music. Mercuriatis disputes Gruss's account of
the transaction and bristles at the notion that Hignosis ever
overpaid for anything. He says that there were many times
when he wasn't the highest bidder on deals, and that

(18:26):
each one was vetted by the family's internal investment team.
While he negotiated it and then submitted to independent valuation
firms before being presented to the fund's board for final approval.
It wasn't unusual, according to Mercuriatis, for either the valuation
firms or the board, led by chairman Andrew Sutch not
to sign off if they were uncomfortable with the amounts.

(18:46):
Members of the former Hignosis board said through a spokesperson
that there were extremely strong checks and balances in place.
Former employees of the Family recall the situation differently. The
management company was based on in London, and early on
its staff was skeletal. Some employees didn't see much of Mercuriatis,
who they say operated for the most part out of

(19:08):
Los Angeles, and even less of his three daughters. Two
former Family executives who declined to be identified because they
feared retaliation from their former boss, say that its employees
struggled to keep up with the flow of deals and
that the investment team knew that if they didn't sign
off on Mercuriatis's numbers, they'd receive angry emails from him.

(19:28):
They say that the valuation firms didn't push back either,
and that the funds directors were largely Supine Merk dominated
the board when it came to deals. One of these
executives says there was never any discussion about them. Mercuriatis says,
this is the sort of thing you'd expect disgruntled ex
employees to say. Hypnosis' largest competitors, Universal, Sony, and Warner

(19:51):
remained on the sidelines for a while, some of their
top executives making thinly veiled references to newcomers who were
driving up catalog prices regardless of the financial risks that
might be involved. But eventually it became clear that if
they wanted to keep their marquee songwriters in house, they'd
have to offer similar sums. In late twenty twenty, Universal

(20:12):
made headlines by purchasing the Bob Dylan catalog. The following year,
Sony paid reported two hundred and fifty million dollars for
the works of Paul Simon and five hundred million dollars
for Bruce Springsteen's compositional and recorded music. Not everybody was
comfortable with the numbers Hignosis was assigning to catalogs in
twenty twenty one, such in Sugar. Then, an analyst at

(20:34):
Steefel Financial downgraded the fund's shares after noticing its penchant
for immediately marking up catalogs in value after closings, even
though he argued it had nothing to justify these hikes.
He says this enabled Hignosis to issue more shares and
buy more songs. You could go to your investors and say, hey,
look at what a great job I'm doing. Give me

(20:55):
more money, Suger says, as far as he was concerned,
this was a sign that something was a miss at Hypnosis.
We'll be right back with off key. Welcome back to
off Key. Mercuriatists dismissed Sager's critique at the time as

(21:16):
almost hysterical. If anything, he says now, Sager's reports were
little more than a campaign by Stefel to cozy up
to one of Hypnosis' competitors. His version of the truth
serves his purpose, Mercuriatis says. Sagar says he stands by
his research. Stefel declined to comment. As long as Hypnosis'

(21:36):
shares continued to rise, Mercuriatis could afford to make light
of his skeptics. He told investors he had an enviable
pipeline of deals worth more than a billion pounds. He'd
signed multiple letters of intent with songwriters promising to buy
their catalogs due diligence permitting that kept them tied up
and unable to do business with his competitors. Numerous people

(21:58):
in the industry, however, say that in twenty twenty one,
Mercuriatis began having trouble completing many of those transactions. People
would call me about that too, says Mark Stuart. You know, hey,
can you call merk I'm trying to close out round Hills.
Gruss says he heard from unhappy would be sellers. We
had a lot of deals come to us from that list,

(22:20):
people that had been given the run around by Hypnosis
for like a year. He says. The only reason Mercuriatis
says he didn't close twenty or thirty of these deals
is that they flunked the due diligence process. However, in
September twenty twenty one, his catalog buying spree ended after
the fund decided not to issue any more shares in
the short term. He says this was no big deal.

(22:44):
Hypnosis was sitting atop two billion dollars worth of tunes,
dozens of which had been streamed more than a billion
times on Spotify, but perhaps a bit more prudence might
have helped. The following year, interest rates spiked and the
fund's annual five percent dividend was no longer as alluring
to investors. Hypnosis shares plunged, essentially cutting off its main

(23:06):
source of deal making currency. Mercuriatis wasn't out of options yet.
In October twenty twenty one, flanked by one of his
celebrity advisors, Dave Stewart, he signed his agreement with Blackstone
to create a private catalog investment fund with a mission
similar to Hypnosises that would also be family managed. It
appeared to be a sweet transaction for Hignosis's founder. Blackstone

(23:29):
acquired a fifty one percent interest in the management firm
in a deal that valued it at more than one
hundred million dollars. Since Mercuriates owned about sixty percent of
the family, he was now much richer and still the
firm's CEO. It wasn't clear that Blackstone fully grasped what
it was getting into with the family. A former family

(23:50):
executive recalls a meeting in which someone from Blackstone asked
what the culture at the management company was like, why
don't you ask the chief culture officer the family executive
reply referring to Mercuriatis's daughter, Rosa, who held the title
of Chief Creative Marketing and Culture Officer. The executive recalls
puzzled Blackstone people, saying they hadn't been able to figure

(24:11):
out what Rosa did. Employees at the management company say
they'd never been able to get to the bottom of
that either. Mercuriates says his daughters did a great job
and Rose's duties were no secret. Blackstone declined to comment.
Mercuriats was now doing double duty advising a public fund
and a private fund. Technically, the public fund was on

(24:33):
equal footing with the private one and entitled to invest
as much as twenty percent and any deals Blackstone and
Mercuriates consummated, But since the public company was no longer
an acquirer, all the deals Mercurates negotiated now went to
the Blackstone backed fund. In twenty twenty two, they included
deals with country star Kenny Chesney, the Leonard Cohen estate,

(24:55):
and pop stars Justin Timberlake and Justin Bieber, who were
also songwriters. The names were big, but the number of
deals was small compared with previous years. At Hypnosis, I
think that What happened was Blackstone went through the pipeline
and just realized that the valuations to which he'd agreed
were too high, says steifel Sager, so they didn't actually

(25:15):
acquire anywhere near the amount they thought they would. Mercuriotis disagrees.
He says, in terms of dollar amounts, that the deals
he did through the Blackstone supported fund were bigger than
those he'd done before. Meanwhile, the public fund's investors were
watching unhappily as their hypnosis shares withered. They grew only
more exasperated after noticing Mercurioatees had purchased a twelve million

(25:38):
dollar mansion in the Hollywood Hills that came with a gym,
an infinity pool, a screening room, and a wine cellar.
Other investors smelled opportunity. Tom Treeener, executive director of Asset
Value Investors, a London based activist firm, saw a disconnect
between the value of Hygnosis's shares and what the fund
was probably worth. According to hipp Gnosis's by laws, investors

(26:02):
would have the opportunity in October twenty twenty three to
vote on whether to continue the fund in its current
form or wind it down. And sell off its assets.
We thought that was a key inflection point. Treeener says,
so av I bought up Hignosis shares and began stoking
an investor rebellion. Hignosis tried to head off the insurrection

(26:23):
by announcing in September that it had approved a plan
to sell twenty nine of the fund's one hundred and
forty nine catalogs, including the works of Barry Manilow, Rick James,
and The Dream, for four hundred and forty million dollars
to buy back shares and pay down debt. The transaction
called for unloading these assets at a seventeen point five
percent discount to what they had previously been valued. The

(26:45):
prospective buyer, the Blackstone controlled private fund Mercuriotis, says the
plan was crafted with plenty of shareholder input. Other investors, however,
denounced it as a sweetheart deal. Such the fund's chairman
said he would be bowing out, as did Andrew Wilkinson,
head of the board's audit committee, and soon Hypnosis said

(27:06):
it was suspending dividend payments to avoid breaching its debt covenants.
In October, shareholders, led by Trainer, overwhelmingly voted not to
continue Hignosis in its current form, spurring the board to
appoint new members who they believed to be more suitable.
The choice for chairman was Rob Naylor, former chairman of
hignosis competitor round Hill, who had recently overseen the successful

(27:29):
sale of that company's public fund for about six hundred
million dollars. Round Hill continues to operate several privately held funds.
The new board members set out to provide more transparency
to investors. The fund published a list of how well Hignosis'
top fifty five catalogs were performing. It turned out some
of those with the fastest growing revenue had previously been

(27:51):
on the list to be offloaded to the Blackstone Fund.
The challenge now for Naylor and the rest of the
board was what to do about Mercuriaties. The Hygnosis founder
says he had an option to buy the fund if
investors fired him. All he had to do was beat
any reasonable offer. He had Blackstone behind him. Why should
any other potential buyers spend millions of dollars on due

(28:14):
diligence If Mercuriatis and Blackstone could top their offer by
a penny and walk away with Hypnosis' songs. Mercuriatis played diplomat,
saying he was willing to waive his option as long
as the board kept him on as the fund's investment adviser.
For Naylor and the other directors, this was out of
the question. In January twenty twenty four, they called an

(28:35):
extraordinary general meeting in which shareholders voted almost unanimously to
provide prospective bidders with a twenty five million dollar fee
to cover their due diligence costs. That way, they wouldn't
take a financial hit if they lost out to Mercuriatis
and Blackstone. Meanwhile, the board continued to discover unflattering information

(28:55):
about the way Hypnosis was managed by its founder. The
most scaped accusations could be found in a March twenty
twenty four report on Hypnosis by shot Tower Capital, a
US investment bank hired by the board. Shot Tower cut
the worth of the Hypnosis holdings by twenty five percent,
saying that its management company had overstated revenue and earnings,

(29:17):
and that it had failed to put adequate systems in
place to collect royalties. The report also noted that Hypnosis
had frequently stated in public disclosures that it owned one
hundred percent of catalogs when in many cases it had
purchased only revenue streams, which is a bit like being
entitled to rent from a building but not owning the
actual real estate. It meant Hignosis didn't have the right

(29:39):
to negotiate TV and AD deals for these songs. Mercuriatis
calls the shot Tower report a hatchet job commissioned by
the board to tarnish his name, enabling its activist supporters
to cheaply scoop up more Hypnosis shares unloaded by its
longtime investors who were now fleeing. If so, it seems
to have fallen flat. The funds stock spiked as reports

(30:02):
circulated that other companies were gearing up to bid for Hypnosis.
He also says shot Tower managing partner David Dunn knows
full well that Hypnosis didn't overpay for catalogs, because Dunn
himself is an adviser to the late James Brown's estate
and had tried to get him to buy the legendary
soul singer's catalog at a price he couldn't afford. He

(30:23):
has first hand knowledge that we are almost never the
high bid. Mercuriatis says, Naylor declined to comment. Dunn says
he stands by his report. The Board also brought to
light new information about a lawsuit filed in London's High
Court by two of Mercuriotes's former business partners who'd accused
him of stealing the idea of hypnosis from them in

(30:44):
twenty seventeen. One was aon step Manahan, a producer and
one time Christina aguileera collaborator. The other was Afram Gergaeo,
a Swedish fund manager who in twenty twenty one was
convicted for his involvement in one of the country's most
notoriarious pension fraud schemes. No, you couldn't make it up,

(31:04):
but the Board now disclosed that the pair had obtained
litigation financing to come after Mercuriatis and Hypnosis. Mercuriades says
the suit is nonsense, but when the Board asked him
to indemnify it from any losses from the case, he refused.
Mercuriatis says the board's disclosures about the case were simply
more attempts to smear him. There were signs that the

(31:25):
battle was taking its toll on Mercuriades, fearing he was
becoming a distraction. He stepped down as the management company CEO,
even though he remained chairman. In April, conquered a music
company backed by investment giant Apollo Global Management submitted an
offer for Hignosis, and a bidding war ensued between the
fund's new suitor and Blackstone. That was fine with shareholders.

(31:49):
They didn't mind if Blackstone ended up with Hignosis, They
just didn't want to give it away at a discount,
as they feared Mercuriatis might try to do. In July,
investors approved the sale of Hignosis for close to two
point two billion dollars to Blackstone, shortly after the management
company announced Mercuriatis was stepping down, ending his relationship with Hypnosis.

(32:11):
He was, no doubt millions of dollars richer, but once
again sidelined. Mercuriotis says he was vindicated by the price
Blackstone paid for Hygnosis, pointing out it's the same amount
spent by the fund on catalogs under his leadership, proving
it didn't overpay for them. He says he was further
vindicated in November after Blackstone had Hypnosis's catalog portfolio independently valued.

(32:35):
It had been only four months since its purchase, but
the catalogs were now said to be worth even more,
almost two point four billion dollars. Some say the market
for catalogs has cooled, especially now that Mercuriotis is no
longer a player. According to a recent shot Tower report,
valuations of music publishing deals have been generally flat since

(32:55):
twenty twenty one, but the huge ones continue. Sony paid
proximately one billion dollars for Queen's catalog as well as
name and likeness and merchandising rights in twenty twenty four,
and more recently four hundred million dollars for the recorded
music and name and likeness rights of Pink Floyd. There
is no price as far as I'm concerned for Pink Floyd,

(33:17):
said Sony Music Group chairman Rob Stringer in an interview
last fall at the Bloomberg screen Time conference in Los Angeles.
What price is a Picasso? It sounded like something Mercuriotes
might say. Letting go hasn't been easy for the Hignosis
founder these days. When he isn't defending himself in the
lawsuit filed by his two former partners, he's managing a

(33:39):
number of artists, most notably Sambora. Mercuriades says he's still
close to many of the musicians he persuaded to sell
their catalogs to him. I speak to them every day,
he says. They all want to know whether I think
they should do something or say yes to something or not.
Pop producer DJ Mark Ronson says he's in frequent contact

(33:59):
with Mercuriot. I'm probably closer to Mirk now than before
I did the deal. E Rhythmics Stewart says he can't
imagine Hypnosis without its founder. I think all of the
artists who signed probably still talk to Mirk, he says.
It's not like Blackstone is a whiz with knowing about
songwriting and they're suddenly going to go call me up

(34:19):
and say, hey, Dave just had a great idea. Mark Stewart,
the music manager, says this is exactly the outcome. He
warns all the songwriters he manages to expect when they
sell their catalogs. Look, when you do a transition like this,
you have to let go, he says, because it's going
to get real corporate. This is not some Kumbaya moment

(34:40):
with music and guitars. This is an asset. It's going
to be traded and sold fifty million times, so when
you let it go, you need to be happy with
the cash. Blackstone is publicly optimistic about owning hits by
artists such as The Dream and Shakira, but Hypnosis took
off when streaming was rapidly scaling up, and now growth

(35:02):
has slowed. There's talk in the industry of a new
Spotify tier geared towards superfans, offering ticket sales and limited
edition vinyl, but it's hard to see this becoming a
boon for catalog owners. Even so, money continues to pour
into the asset class that mercuriatis popularized. In March, Pop
House Entertainment Group, a Swedish investment firm co founded by

(35:24):
Abbas bjorn OVAs, said it had raised more than one
billion dollars for a fund going after music rights deals.
In the private equity tradition, Blackstone could probably always flip
the songs it owns to another buyer. Blackstone has also
seemingly tried to distance itself from its former business partner,
consolidating Hypnosis' assets along with the management firm once known

(35:46):
as The Family, into a single company known as Recognition
Music Group. But according to Sambora, Mercuriatis isn't finished. He's
hoping to repurchase Hignosis's multi billion dollar song collection in
the next few years. Mirk has a desire and a
plan to one day buy the catalog's back and reunite
all the songwriters. And if anyone can pull that off,

(36:07):
he can, Sambora said in an e mail which mere
Curiates forwarded to BusinessWeek. Mere Curiatis says of his former
partner Blackstone, if and when they are ready to sell,
I too will be ready. Music industry commentator Lefsetts says
he still gets calls from mere Curiatis, whom he calls
a nice guy, but Lefsetts doesn't see him doing anything

(36:28):
like hypnosis any time soon. Can he open a record store?
He asks? Sure? Can he start a label? Sure? Can
he get significant money to operate in the music business?
Absolutely not. With Dasha Afanasieva, Jonas Ekblom, and Lucas Shaw