(Bloomberg Businessweek) -- In recent years, some of the biggest names in the investment industry have sought to transform music catalogs into money-making assets. Most have pinned their hopes on streaming revenue and licensing songs for ads. But billionaire Conni Jonsson, founder of the world’s third-largest private equity firm, EQT AB, is making a bolder bet: that fans will fork over hundreds of dollars to engage with artists’ likenesses and stories. And specifically, that ABBA enthusiasts around the world will pay up to $270 a ticket to enjoy four hours of the band’s hits over lamb stifado in a faux Greek taverna.
Pophouse Entertainment Group AB, an investment firm that Jonsson co-founded a decade ago as a side gig, has just acquired the licensing rights to this “immersive dining experience” for an undisclosed sum from Bjorn Ulvaeus, an original member of ABBA. Ulvaeus, who is also a Pophouse co-founder, created and debuted Mamma Mia! The Party in Stockholm eight years ago. With plans now in the works to expand the show into Australia, the US and Japan, Pophouse is hoping to replicate the success of ABBA Voyage, a 90-minute virtual reality concert it invested in which has sold over two million tickets since 2022.
The music business is at an inflection point. Large record labels have struggled to capitalize on the streaming era, and private equity firms such as BlackRock Inc. and KKR & Co. Inc. are sitting on catalogs they spent billions acquiring during the pandemic years. Just last month, Apollo Global Management Inc. pumped $700 million into Sony Music Group, which is itself in talks to acquire Queen’s music catalog in a deal that could total $1 billion, Bloomberg News reported in May. In the realm of live music, KKR recently beat out Blackstone to purchase the European concert promoter Superstruct for $1.7 billion, while Blackstone bought a stake in the Ambassador Theatre Group.
Now, their challenge is to turn rights into profits.
Traditional investors are betting that demand for back catalog hits will pay off in the long run — that “streaming growth will bail them out and give them a decent return, like a utility,” Jonsson explained during an interview near his summer house in Stockholm.
As active chairman of EQT, which has $273 billion in assets under management, Jonsson is well aware of how efforts to financialize the music industry have failed. A classic cautionary tale is that of Guy Hands, founder of Terra Firma Capital Partners, who purchased the EMI music label in 2007 for $5.8 billion only to watch his investment implode during the financial crisis. Hands personally lost $227 million and in 2011 ceded the company to Citigroup, which had loaned him $3.2 billion to finalize the deal. (The following year, the bank sold EMI’s recorded music division to Universal Music Group.)
More recently, the London-listed Hipgnosis Songs Fund Ltd. became the latest high-profile investor to stumble. Launched in 2018 by former band manager Merck Mercuriadis, the company made its reputation by snapping up music catalogs, including those of Shakira and Neil Young. But rising interest rates brought its acquisition spree to an end. After public battles with shareholders and artists, the fund is now being bought by Blackstone for $1.6 billion.
Even so, Hipgnosis is credited with being the first of a new breed of specialized music investors — one whose strategy is to extract as much cash as possible from iconic artists’ back catalogs through complex copyright deals. Along with US firms Concord Music Group Inc. and Primary Wave Music Publishing LLC, that’s what Pophouse is aiming to do.
In addition to ABBA, the Stockholm-based company has struck deals with the estate of the late DJ Avicii, the rock band KISS and 80s icon Cyndi Lauper, who told Bloomberg she was drawn to Pophouse’s energy and ideas. With the help of Ulvaeus’s music industry connections and expertise, Jonsson’s goal is to build a portfolio of about 10 global artists who could benefit from the “ABBA toolbox,” whether that’s a biopic, a sing-along dinner party or something completely new. In addition to generating their own revenue, the hope is that these artist-focused experiences will also boost back catalog value.
“People have started to see what you can do with intellectual property if you control the right rights,” Jonsson said.
Part of the 64-year-old’s confidence lies in his decades of experience in finance. In addition to his work at EQT, which he founded thirty years ago with the backing of Sweden’s powerful Wallenberg family, Jonsson has also invested in the entertainment, real estate, hospitality and green energy sectors through his family office, Qarlbo AB.
Another source is his belief that, when it comes to the music business, traditional private equity firms are in over their head. “If you are too financial or if you’re too big, loud, noisy and aggressive, I don’t think that would work,” Jonsson said of rival investors.
Music rights are enormously complicated and can involve dozens of stakeholders, any of whom could hold up a deal. Investing intelligently in the sector requires a “completely different type of due diligence” than traditional M&A contracts, Jonsson said, adding that because there’s no transparency into how royalties are paid out, it’s impossible to “figure out what was actually bought.”
As “every catalog has a bespoke contract” untangling ownership issues requires time and attention. For Pophouse’s KISS deal, Jonsson said, it took about two months to nail down what rights the rockers actually held. Eventually, along with the band’s song catalog, the company bought “the name, likeness, their merch, everything” — an arrangement he described as “unique” in the market.
Ola Sars, who co-founded Beats Music and now runs his own streaming company, Soundtrack Technologies, also takes a dim view of private equity’s ability to navigate such hurdles. He expects that the fallout from Hipgnosis and the impact of higher interest rates will see these investors retreat from the sector.
“My thesis is that generic private equity is out. There’s just too much competition. They’d rather invest in the funds instead of buying catalogs directly,” he said in an interview.
Should that happen, it could clear more room for Pophouse to grow. In 2022, Bloomberg News reported that the firm was making plans to raise €750 million ($834 million) for a new music-specific private equity fund. That process is expected to reach its final close toward the end of the year, according to a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it. Jonsson declined to comment on the new investment vehicle or the fundraising efforts.
Another possible outcome is that record labels and publishing houses, which have taken a largely passive approach to music industry transformations, will become more aggressive in capitalizing on the assets they already hold. That would make sense to Jonsson and Sars. Not only are the big labels best positioned to buy rights, they said, they’re also best positioned to pay what Jonsson calls “the right price” for them.
This transition may already be underway. Instead of “focusing completely on breaking new artists, breaking new stars,” Jonsson has noticed major labels starting to recognize the value in their back catalogs.
They are, in other words, learning from the competition.
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