Hipgnosis songs fund

Photo Credit: Hipgnosis Songs Fund

On the heels of multiple less-than-ideal developments, Hipgnosis Songs Fund (LON: SONG) has nixed a planned dividend due to a substantially reduced estimate of incoming Phonorecords III royalty payments. Following the announcement, SONG plummeted to a record-low price.

Hipgnosis Songs Fund today revealed the dividend setback and outlined the anticipated falloff in Phonorecords III compensation. On the former front, September 21st had seen execs commit to an “interim dividend,” amounting to “1.3125 pence per share,” for the period spanning April 1st through June 30th.

Now, though, this proposed dividend – which would have paid out on October 27th, seemingly coinciding with a pair of important investor meetings – has been put on ice. Explaining the news via a formal release, HSF communicated that its catalog appraiser had “materially reduced its expectations of industry-wide retroactive payments in relation to” Phonorecords III.

In August, the Copyright Royalty Board (CRB) officially finalized a previously issued Phonorecords III determination, setting in motion a double-digit mechanical-rate hike for on-demand streaming services for the 2018-2022 window.

Digital Music News has covered the Phonorecords III rate-setting process and the more quickly approved Phonorecords IV at length. But in brief, the Phonorecords III news meant, among other things, that players including Hipgnosis would receive retroactive payments for the use of their works on platforms like Spotify throughout the mentioned half-decade stretch.

“The Company owns nearly 25% of all Songs played over a billion times on Spotify,” Hipgnosis Songs Fund boasted in its most recent earnings report, also touting the accrual of “a total of $16.1 million for the CRB III retroactive revenue and a further $5.6 million for CRB III uplift during the financial year.”

According to the announcement message published by Hipgnosis Songs Fund (and attributed to outgoing chairman Andrew Sutch) today, however, the aforesaid investment advisor, Massarsky Consulting owner Citrin Cooperman, has sliced its forecast for retroactive Phonorecords III compensation.

(The IP-valuation methodology of Citrin Cooperman and the corresponding effects on Hipgnosis borrowing have long been the subject of investor discussion and analysis.)

“As a result,” HSF continued, “the Board now expects to receive significantly lower retroactive payments in relation to CRB III and therefore intends to reduce its CRB III retroactive accrual to $9.9m, from $21.7m as at 31 March 2023.

“Accordingly, in consequence of this unwinding of the CRB III accrual, the Board has decided to withdraw the proposed interim dividend of 1.3125 pence per share announced on 21 September 2023 in order to ensure compliance with its revolving credit facility’s Fixed Charge Cover Ratio covenant,” proceeded the Fund.

Plus, Hipgnosis Songs Fund said that it was in talks with “lenders to avoid any potential impacts of the unwinding of the CRB III accrual on future Fixed Charge Cover Ratio covenant compliance.”

Expanding upon the points and the above-noted impact of catalog valuations on HSF’s operational specifics, the Financial Times in a newly published piece questioned the Phonorecords III royalties dip and explored the broader importance of the company’s “latest self-inflicted catastrophe.”

Meanwhile, Reuters has touched on the plans of certain major Hipgnosis investors to vote against the suggested sale of a number of catalogs, including the rights to the work of Shakira and Barry Manilow, to Blackstone-powered Hipgnosis Songs Capital for $440 million.

Amid reports that other key HSF stakeholders would oppose the deal due to a perceived lack of transparency and a lower-than-ideal sale price, London-based Asset Value Investors, which is said to manage a five percent Hipgnosis Songs Fund stake on behalf of institutional clients, intends to vote against the proposal, per Reuters.

When the market closed, Hipgnosis Songs Fund stock was worth 67 pence (currently 82 cents) per share, reflecting a 9.34 percent slip from Friday, the initially highlighted record-low closing price, and a market cap of £893.61 million ($1.09 billion).