The US Copyright Royalty Board disallowed an appeal by streaming services against a decision to increase mechanical streaming royalty rates for songwriters and publishers.
This increase, which is incremental between 1 January 2018 until 31 December 2022, will mean a 44% uplift in the mechanical and performance statutory minimum rates for streaming paid in the US. It will rise from 10.5% of streaming revenues prior to 2018 to 15.1% in 2022.
For the period since the appeal was launched in 2020, the majority of revenues have been paid off at the rate of 10.5%, according to a stock exchange announcement from Hipgnosis. It added that it had not accounted for any withheld revenues since 2020.
Questions over music royalty trusts following Neil Young's Spotify row
Ewan Lovett-Turner, analyst at Numis, said in a note today (4 July) that while the development is "certainly positive" for the music royalty trusts he does not expect it to have a "significant impact on NAV".
"We understand that the discounted cash flow valuation approach used to calculate the NAV already factored in the higher rate, because it was legislation, and therefore the rejection of the appeal will not lead to a wholesale change in the valuation basis," he wrote.
However, he added, the trust has seen a negative "variance against forecast" for its revenues because of money not received due to the appeal.
"We believe this positive impact for SONG [Hipgnosis] is about $8m per annum (with a wide margin of error) which is equivalent to $16m, 0.76% of NAV (1.3 cents) assuming it makes recoveries over a about a two year period."
Pandemic and lack of innovation blamed for fall in fund launches
Merck Mercuriadis, founder and CEO of Hipgnosis Songs Management, said the "CRB has 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".
Hipgnosis is sitting on a 13.9% discount, according to Morningstar data.
The other music royalty trust, Round Hill Music Royalty, may also be affected by the ruling, according to Numis. However, Lovett-Turner said he expects a similar scenario of the trust's NAV being largely unaffected.