Good times for Hipgnosis investors after landmark U.S. royalty ruling
– US agency upholds 2018 royalties judgment
– The end result is a 44% increase in streaming rates
– Impact on cash flow greater than turnover
Shareholders of a music royalty investment company Hipgnosis (SONG) started the week with a little celebration after a positive US ruling on streaming fees.
Shares climbed 3% to 111.5p following news that the Copyright Royalty Board had rejected an appeal by streaming services against its decision to raise US royalty rates for songwriters and publishers.
END OF THE ROAD
To briefly backtrack, the CRB decided in January 2018 that the amount streaming services would have to pay for songwriter tariffs would increase by 44%, from 10.5% to 15.1% between 2018 and 2022.
Several streaming services, including Spotify and YouTube, appealed the CRB’s decision in March 2019, so the boost was put on hold and Hipgnosis hasn’t recognized any withheld revenue since 2020.
The period covered by the decision includes the pandemic, when demand for music streaming exploded due to repeated lockdowns.
Hipgnosis Founder and Managing Director Merck Mercuriadis said the CRB has “sent a strong message not only to digital service providers like Spotify, but also to recorded music companies about the importance of the songwriter in our industry”.
“We still have a lot of room for improvement before we have a truly fair and equitable rate, but this is an important step on the road to finally properly recognizing the value that songwriters bring to the industry and the community. lives of billions of people around the world who rely on great songs to enrich their lives,” Mercuriadis added.
The reason Hipgnosis’ actions didn’t quite hit the high mark after the decision is that the outcome was already fairly widely expected.
Additionally, while the US market accounts for a large portion of Hipgnosis’ revenue, a portion of that includes video streaming which is not included in the decision.
Liberum analysts estimate that while U.S. streaming revenue accounts for about 50% of the group’s overall total, increasing the royalty rate would only add 1% per year to its revenue.
However, there should be a one-time increase in the NAV (net asset value) of the business to reflect the withheld revenue.
Stifel analysts also expect a slight increase in the company’s net asset value, but suggest that the profit for the company’s cash balance is greater because, without an increase in costs, revenues should convert 100% in profits and cash.
Meanwhile, the CRB is already working on songwriter payments for the 2023-2027 period, so there could be more good news to come.
Date of issue: Jul 04, 2022