A couple of weeks ago, Round Hill Music, a pioneer in the acquisition of music catalogues and in maximising their value, announced the sale of Round Hill Music Fund, its London-listed fund. The buyer was Concord, one of the fastest growing music company, which took everyone by surprise a few years ago by acquiring the Imagem catalogue.

The deal — which still needs to be ratified by the company’s shareholders at a general meeting in October — is worth a whopping $468.8 million. The irony is that Round Hill is known for being a buyer, but this time, the company was a seller, and what it was selling were some of original catalogues bought over the years and consolidated into the London-listed fund. It was their first fund, which became listed in the UK following an IPO in 2020.

Round Hill said that the deal with Concord was necessary because the shareholders in the fund had the feeling that the catalogue was under-value and through the transaction, that they had “an opportunity to realise the value of their RHM Shares for cash at a significant premium, and a value greater than the highest price at which the RHM Shares have traded since the Company’s IPO in November 2020.”

In other words, investors wanted their money back, with a premium. For Round Hill, it was a “bittersweet” moment. When you deal with private equity funds, you known the rules, and sometimes the goals are not aligned.

But this is not the end of the road for Round Hill Music, the company founded in 2010 by Josh Gruss, Neil Gillis, and Richard Rowe. They rapidly became known for being very able at raising money and quite voracious at acquiring catalogues of all sizes and in all music genres. Their biggest coup was the acquisition of Carlin in 2017 for $250 million.

Neither Gillis, nor Rowe are still with the company, which is led by Gruss. Before launching Round Hill, Gruss was previously a partner at Gruss & Co., a private investment firm based in New York City. He also worked at investment bank Bear Stearns & Co. Before his career in finance, he worked at Sony Music, Atlantic Records and Clear Channel’s Live Music Division.

Creative Industries News‘ Emmanuel Legrand sat with Gruss to talk via zoom about the recent developments affecting the company and what kind of future he saw for Round Hill. One thing for sure — Round Hill is still hungry for action: this week, the company announced the acquisition of an agency managing neighbouring rights. Life goes on.

What is it exactly that you are selling to Concord?

Josh Gruss: So just to give you some background on what we are selling to Concord — as far back as 2011, we began fundraising for our first private equity fund and that grew into about $200 million. Ultimately nine years later, in 2020, we went public on the London Stock Exchange when we needed to get liquidity for what we call Fund One investors. We’re now on our fifth fund. And so what is being sold to Concord is just one of our portfolios and it’s the portfolio that was originally a private fund and became publicly traded in London. It represents maybe around a third of our assets.

So what is currently left of Round Hill?

Josh Gruss: We still have these private funds. So all in all, there’s about $900 million worth of assets that are held privately that are not part of what we’re selling to Concord.

What’s your day-to-day focus after the selling of the fund?

Josh Gruss: Our day-to-day focus, going forward will be continuing to manage those funds, and raising more equity, more capital in order to do more catalogue deals in the future.

So you’re not backing off from acquiring more catalogues?

Josh Gruss: No, I mean, there are more deals that we will soon announce. Look, our job is to go out and buy these catalogues responsibly, to add value to them, and to make the revenues grow. And in one way or another, we need to get liquidity for our investors at some point. We did that. We had two bites at the apple with that first fund. We IPO’d it and then, you know, will sell it to Concord. So that’s two different sets of investors that had a round trip on those same assets. I think you’ll find that with most funds, at some point, they’re going to have to do something to get liquidity for their investors. We’re one of the few funds that have proven and executed on buying them, growing them and selling them.

Let’s rewind a little bit. Can you explain the reason why you got into this business and what made you believe, in the early days, that you were indeed making an investment proposition that would be of interest to people who had money to invest?

Josh Gruss: Well, the proposition has always been that this is a very safe and consistent cashflow stream if you buy the right music, if you buy the right copyrights, the right songs,, the older catalogues. Streaming growth is part of the story, of course, but probably the most interesting element for investors might be the non-correlation. Music and how it performs really has little to do with how other asset classes in the general economy perform and investors really like that. It creates very durable cash flows. It throws off a lot of cash. For those investors that look for yield, this is a compelling investment. So those are the basics that we tell investors.

In the eighties and also in the nineties, basically you couldn’t get the JP Morgans and the Goldman Sachs of this world interested in this type of investment. What changed that mindset?

Josh Gruss: When we started waving the flag about this asset class — and I would say that Round Hill pioneered the notion of institutional investment into this category — I noticed the same thing you just mentioned, that here was no private equity fund dedicated to the space. There’s been very little institutional involvement. It was primarily just the strategic companies that transacted in the space. I don’t know the reason why. There definitely had been examples of some people like Marty Bandier, Charles Koppelman and Stephen Swid who had done some corporate activity in this space [with SBK], but there were very few examples. So Round Hill waved the flag on the space for many years and no one really paid too much attention to it until streaming started taking off in 2015. And then, certainly, when Hipgnosis came around, they poured so much money into PR and raising awareness around what they were doing that it started to catch on in terms of other institutions paying attention to it. The music space is interesting in that way. I haven’t seen too many examples of when private equity has gotten into the space and has been super successful. Sometimes, the finance guys, they just don’t quite get the music space that well, but they still like the yield, the return on investment that is provided to them, I suppose.

The major change compared to a few decades ago, is that if you were BMG, backed by Bertelsmann, you could find money. But if you were Josh Gruss and walked into a bank or an investors’ office and said, I need a billion, that would be a different conversation.

Josh Gruss: Yeah. I agree. I had to take hundreds of meetings and explain what is a very complex business structure. I’m talking about the music ecosystem in general. It is a mind numbing type of 101 education when you’re doing it. It’s not easy to explain the music side of things to those investors, which is, you know, a challenge for everybody. Round Hill is now one of the few companies where you can see, and especially with the public entity, very transparently the value that was created. You can see where it IPO’d, where it exited, what the dividends were that were paid out, and you can see what the total return was.

The catalogues acquisition market went into a frenzy a few years ago. Is there still material to acquire or have we reached a plateau?

Josh Gruss: That market’s still as rich as it was a couple of years ago in terms of trading opportunities. There’s almost like an endless supply of copyrights to go after, especially with reversions. There’s also sometimes several bites at the apple on the same songwriter. There’s the publishing piece, there’s the writer’s share of publishing, there’s the artist royalties, there’s the neighbouring rights.. If you’re talking about a famous band, there’s Stevie Nicks and Lindsey Buckingham, but there might be three or four other band members to go after and get a piece of the Fleetwood Mac artistry. And then there’s new music that’s coming out all the time, some of which will do well and be the catalogues of the future. I would say there’s always a lot of opportunities that abound. That being said, the majors really control the vast majority of repertoire overall, and you’re never going to be able to buy anything from them. So that is a limiting factor.

There’s still some major catalogues left such as The Rolling Stones, Pink Floyd or Elton John, to name a few. Are you going after these catalogues?

Josh Gruss: Not right now, not in particular. One thing that Round Hill likes to do is to have a lot of diversification in any one of these portfolios that we have. So in the London listing, for example, there are 51 catalogues. If we spent somewhere around $350 million in that portfolio over the years, you have the choice of having 51 catalogues with an average deal size of $ 7 million or so — some bigger, some smaller, but on average 7 million. I think Sting’s portfolio went for around $300 million. So you could put it all in one bucket, and get The Police and Sting’s repertoire, but the problem is that if your whole bet is placed on one artist, it doesn’t give you very much diversification. The problem with those big names — I think the Queen catalogues were worth over a billion dollars — is that there aren’t too many funds that have a billion dollars. Most of the investors behind those big funds wouldn’t be happy if all the eggs went into one basket.

There have not been major deals announced at local or regional level, with artists that do not necessarily have a global footprint, but a pretty strong footprint either in their country or the neighbouring countries. Why is that?

Josh Gruss: I think it’s a couple of things. Take France. They have certain laws that make it very hard, much harder to transfer the rights of a songwriter. In the case of Germany, even with Austria and Switzerland, the local music market is very, very local. Plus you have BMG that has such a long history there that they pretty much absorb all the opportunities or the good ones that come out of Germany. I think that the main reason would probably be that a guy like myself, being American, I have no idea what local German music is. I would have to rely on someone else to tell me what is timeless music out of Germany and worth buying. And I think that that it’s hard for me to trust someone else with those types of decisions. I have to know from my background and my gut instinct whether music is going to be timeless or not. If it’s not going to be timeless, it’s not really worth investing in. .

How would you define Round Hill music today? Are you a music asset management company? Are you a music publisher? Are you a rights management company? All the above?

Josh Gruss: Definitely all the above — we’re a rights manager, we’re a publisher because we do our own administration and really act like a BMG or a Concord and are set up with the same services as those types of companies. But the structure of our business is that we rely on these private equity funds. So we’re private equity manager as well. But once you peel back the first layer of the onion, we look just like a creative music company.

You might want to build something over a long period of time, but your investors might not have the same strategy or the same vision.

Josh Gruss: Exactly. You’ve just hit it on the nail on the head. One super drawback for us and our private funds is that they need to make their money back at some point. And our funds typically have a 10 year life. So the fund legally is supposed to get liquidity for the investors within 10 years. By taking our first fund public, it allowed us to continue to manage those assets, but enter into what could have been a much longer timeframe. Even on the London side of things, it’s publicly traded, but it’s not really permanent capital because every five years you have these continuation votes. That’s a mechanism that allows investors to just kind of say, ‘okay, this isn’t really working’ and figure out a way out. Even in a public scenario like that, it has aspects of a private equity structure. Your investors might decide that five years has been enough.

That was the case with Andre de Raaff with Imagem. Everything went well until his main investor, the Dutch pension fund, decided to sell. Is that something that concerns you?

Josh Gruss: I mean, that’s just part of business, right? The investors are the ones who call the shots. If I went and raised a billion dollars from someone like Warren Buffett, he’s gonna call the shots and he might say, okay, let’s build a company together and say I’ve got a billion dollars. He can always come to me and say ‘I’ve had enough and let’s sell’. So unless Josh, Merck or Andre are the majority shareholders, they’re not going to really be able to control the situation.

Part of your revenues go through the global network of collecting societies. Is the system working efficiently enough in your opinion?

Josh Gruss: I think the PRO system has a lot of flaws, but it pays those checks on a regular basis. There’s probably leakage along the way and, you know, now that BMI is a for profit, maybe there’s more leakage from certain places than we had ever thought. But these are old institutions, so there’s a path that’s been paved that helps us collect royalties from different places and you can take advantage of the complexity, right? There are a lot of different ways to set up your collection structure. For example, if you’re collecting directly in Germany, you’re going to pay less in commissions than if you sub-published through BMG or someone else. I’ll also mention the MLC in the states, the new mechanical licensing collective. That’s really been a game changer for how digital royalties are collected in the US and that’s only been up and running for less than two years.

Have you noticed an uptake in revenues coming from mechanicals since the creation of the MLC?

Josh Gruss: Yes. So, all in all, that was positive.

What do you think of the BMI situation? Do you understand that some people, especially songwriters, have questions about the society if it gets sold to private investors?

Josh Gruss: I don’t know what’s going on behind the scenes, but it’s pretty clear to me that if they want to be fort profit, then what yesterday was paying through to songwriters a hundred percent of what’s available after BMI’s overhead, it could be just 90 percent of what comes through after overhead. And that’s a difference. I don’t think that would sit well with publishers and songwriters if all of a sudden, you know, 10 percent of their income is being kept by BMI, which for close to a hundred years had been not for profit. I really don’t love that. You have ASCAP, which is always available as an alternative, and will always probably be not for profit because it’s not owned by anyone. It’s sort of set up by songwriters, and has a board of songwriters, whereas BMI has this long history of being owned by broadcasting companies.

If Concord buys from you a portfolio of catalogues, none of the money from that transaction goes back to the songwriters that are part of the catalogues. Is that fair?

Josh Gruss: Of course it’s fair. They sold it.

Well, you could argue that it’s still their work that creates the value that allows to sell at multiples, and that they could be entitled to a cut on the deal.

Josh Gruss: Well if I build a house and sell it, should I get residual proceeds when the next guy sells it just because I built it? That’s not really how it works. I’m not anti-songwriter or anything. It’s a piece of property that that they own — intellectual property. It has to be sold and bought, just like any other property, not have special allowances because it’s a songwriter who created it.

Which catalogue or piece of music you would like to own that you don’t own already?

Josh Gruss: Well, I can say that we’ve bought 200 catalogues. Many of my hopes and dream category came to life and became a catalogue I was able to buy. I do have an emotional tie to these assets. And so it is sad for me to have be selling some of them in this Concord situation. But I’d say over the last 13 or 14 years I was able to buy most of my target list. Sometimes I see a competitor buying something that I really love and I go, Oh darn I couldn’t get that one. Sting was the one that I always thought it would be great. He’s just phenomenal. I think Bon Jovi would be interesting. Richie Sambora sold part of his catalogue to Hipgnosis, but what about Jon Bon Jovi? That’d be a good one.

How do you see the market evolving and how do you see Round Hill evolving in this market?

Josh Gruss: I think that we’ve established a reputation to be the premier investor in this space because we do it the right way. We have the administrative capabilities. We’re not just passive investors, like some private equity fund looking at these catalogues just like a bond or a piece of paper. We cover all the creative aspects. But we’re also finance people who underwrite these kind of deals and are able to execute from start to finish. It would be nice to have a company structure with a real long-term focus, and supportive investors. That would be ideal, and maybe there’s a way for Round Hill to take our assets and transition them into a structure like that. Besides that, the future for us is raising more funds and just continuing doing what we’ve been doing.

I’m sure it’s also painful to see all these little gems of songs leaving the house.

Josh Gruss: Exactly. Bittersweet.