- US body upholds 2018 judgement on royalties

- Ultimate outcome is a 44% rise in streaming rates

- Impact on cash more significant than revenues

Shareholders in music royalty investment firm Hipgnosis (SONG) started the week with a small celebration after a positive US ruling on streaming fees.

The shares climbed 3% to 111.5p following news the Copyright Royalty Board had dismissed an appeal by streaming services against its decision to increase US royalty rates for songwriters and publishers.

END OF THE ROAD

To rewind briefly, the CRB decided in January 2018 that the amount streaming services should pay for songwriter rates should rise by 44% from 10.5% to 15.1% between 2018 and 2022.

Several streaming services including Spotify and YouTube appealed against the CRB’s ruling in March 2019, so the increase was put on hold and Hipgnosis hasn’t accounted for any withheld revenue since 2020.

The period covered by the ruling includes the pandemic, when demand for music streaming exploded due to repeated lockdowns.

Hipgnosis founder and chief executive Merck Mercuriadis said the CRB had ‘delivered a strong message not only to the digital service providers like Spotify but also to the recorded music companies about the importance of the songwriter in our industry’.

‘We still have plenty of room for improvement before we have a rate that's genuinely fair and equitable, but this is an important step on the road to finally, properly recognising the value that songwriters bring to the industry and the lives of the billions of people all over the world who rely on great songs to enrich their lives’, Mercuriadis added.

EXPERT VIEWS

The reason Hipgnosis shares didn’t quite hit the high note after the ruling is that the result was already fairly widely expected.

Also, while the US market represents a big chunk of Hipgnosis’ revenues, some of that includes video streaming which is not included in the ruling.

Analysts at Liberum estimate that if US streaming revenues account for around 50% of the group's overall total, the increased royalty rate would add just 1% per year to its top line.

However, there should be a one-off increase in the company’s NAV (net asset value) to reflect the withheld revenue.

Stifel analysts also expect a modest lift in the firm’s NAV but suggest the benefit to the firm’s cash balance is more important as, with no increase in costs, the revenue should convert 100% into profit and cash.

Meanwhile, the CRB is already working on songwriter payments for the period from 2023 to 2027 so there may be more good news to come.

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Issue Date: 04 Jul 2022