The Hipgnosis Songs Fund told its investors this morning that it now expects a windfall relating to the US Copyright Royalty Board rulings on streaming royalties to be less than half the amount previously anticipated. As a result, it is withdrawing a proposed dividend payment to shareholders.
The news has, unsurprisingly, hit the fund's share price which dropped from 73.9p a share when markets closed on Friday to 65p a share when markets opened this morning - and represents a discount of nearly 50% from its peak price of 129.2p in November 2021.
In the US, the rates paid by the streaming services on the songs side are ultimately set by a panel of judges - aka the Copyright Royalty Board - because a compulsory licence applies with the mechanical rights.
The rates are set for five year periods. For the period 2018 to 2022, the CRB decided to instigate a number of staggered increases so that, ultimately, the services would pay over 15.1% of their revenues to songwriters and music publishers, rather than the previous 10.5%.
Many of the streaming services appealed that decision, resulting in a bitter legal battle between the music publishers and the digital companies. Ultimately the rate increases were kept in place, albeit with a few concessions for the streaming services on some of the other technicalities in the compulsory licence. A deal was then done between the publishers and the services for the 2023-2027 rates.
Once all of that was confirmed and the formalities were finally completed, some maths needed to be done to work out what the publishers should have been paid by the streaming services between 2018 and 2022 given the final rates. And then, how that compared to what had actually been paid during that period. And how much the music firms were therefore owed.
The publicly listed Hipgnosis Songs Fund, which controls a stack of valuable song catalogues, initially reckoned that once all the sums were done it could expect top up payments of $21.7 million.
However, its new estimate is more like $9.9 million. The previous calculation was seemingly too high because the amount that the streaming services were already paying was underestimated.
The Fund said in a statement to investors earlier today: "The board of Hipgnosis Songs Fund Limited announces that it was notified on 13 Oct 2023 that Citrin Cooperman, the company's independent portfolio valuer, has materially reduced its expectations of industry-wide retroactive payments in relation to the US Copyright Royalty Board's decision in relation to royalties payable to songwriters for the period covering 2018-2022 for its valuation of the company's portfolio as at 30 Sep 2023".
"As a result", it went on, "the board now expects to receive significantly lower retroactive payments in relation to [2018-2022] and therefore intends to reduce its ... retroactive accrual to $9.9m, from $21.7m as at 31 Mar 2023".
That being done, "the board has decided to withdraw the proposed interim dividend of 1.1325 pence per share announced on 21 Sep 2023 in order to ensure compliance with its revolving credit facility's fixed charge cover ratio covenant".
Investors have already expressed frustration at the Fund's share price, which is now even lower following this morning's news.
The board is proposing to sell some of the Fund's catalogue to another Hipgnosis entity, with plans to use the profits from the sale to buy back up to $180 million worth of shares and to make some payments on its credit facility, with the aim of boosting the share price.
However, not all investors back the proposed Hipgnosis-to-Hipgnosis deal, reckoning that the catalogues being sold have been undervalued. Meanwhile, investors are also getting ready for a continuation vote to decide whether the music rights owning Fund should continue to operate.