Music Royalties

[TexasCanuck]

Hello everyone,

Great forum, I hope I put this in the right section if not feel free to move it.

I am curious if anyone has done any investing in music royalties through Royalty Exchange or elsewhere?

I have been doing a lot of research on it and it seems like an interesting alternative asset that has low correlation to the stock/bond market. It also has nice regular income that can last decades (assuming the right catalog is purchased)

Unfortunately some of the down sides are that most music catalogs royalties are naturally declining, but more established songs (platinum hits) have a much slower decline and leveling off after their initial release.

Its also not as liquid as stocks/bonds , although Royalty Exchange is hoping to change that. Finally, from the research I have done it is treated as regular income(similar to interest income) so no long term capital gains/dividend rates on the royalties or the sale of the asset.

Typically people are valuing these on a Discounted Cash Flow basis so you can get an idea what they are worth. Based on the past asset sales most sell from anywhere from 5X to 12x last 4 quarters royalties.

Anyways that's my research for the past 9 months or so. Anyone else have any experience or knowledge in this area?

Troy

 

[Sunset]

I always thought it was a rich man's area, does this now mean a person can buy a share of say the Beatles catalog ?

 

[TexasCanuck]

Well yes and no, lol

Royalty Exchange has 2 different avenues.

They are securitizing royalties and selling them as stock shares. Starting with Eminem's catalog and adding from there. They call it Royalty Flow. I analyzed the SEC filings and initially it seems pretty dilutive and not that appealing, but you can get in for as little as $2500 for the IPO and then when its listed you can buy a single stock if you like

The other avenue that I am into is purchasing the royalties directly. They range in cost form $20,000 to $250,000 depending on the royalty income and quality of the catalog. Not cheap for sure but not crazy expensive if you stick to the lower end.

Troy

 

[ERD50]

Why would someone want to sell their future royalties? From what I understand, the legislation that Sonny Bono got through when he was in Congress made a hit royalty stream a real gold mine for multi-generations.

Kind of hard for me to picture that an entertainer with a strong royalty stream would need to trade that future stream for cash today. Unless you make them a deal they can't refuse?

IOW, hard to imagine there are any bargains here. But maybe it's a bitcoin thing, sell it to someone else who thinks it is worth more, and on, and on?

-ERD50

 

[TexasCanuck]

Well there are a ton of reasons from my research as to why they sell. A lot of the sellers are not celebrities and humble song writers. Some sell to diversify since this is there only asset (music assets). Some do it so they can get a lump sum to start a new musical project. Some do sell because they see little future upside for the asset, especially if it is for a mediocre song or a poor catalog for TV production music. There are a million more reasons from what music writers say.

Royalties are paid to song writers from what I've seen and researched. The actual singers of the song (didn't write them) don't get royalties for singing them, from everything I have read. They make their money from concerts, merchandise, other public performances.

LOL, yeah could be bitcoin or block chain, greater fool theory. That's why I was hoping there was someone with experience that could talk about it.

Troy

 

[JoeWras]

David Bowie started a lot of this. He had some cash problems. But he may have also known he had health problems. Might want to blow the dough now before parting this earth. Not everyone wants it all to go to the estate.

My BIL lived in a guest cottage for a songwriter. She was 50% writer on a #1 hit song in the 80s. She lived very comfortably on that one royalty... well at least until 15 years ago. But she was not rich, just comfortable and basically ERed on that one song.

It is an incredibly lucrative deal if you hit it right. But you have to hit it right. Get to #1, and get it on greatest hits collections, or streaming lists.

 

[NYEXPAT]

Years ago, I used to run with Jason Bonham. I think he got something like $250k/yr from "Stairway to Heaven". I see he is worth 20 Million today!

 

[Bamaman]

The music industry would be the last p!ace I would make an investment. I live in a music writer town, some of which have been very successful. But the writers also produce new acts, work as sound engineers, studio musicians and teach music business at our university.

Even the writers don't depend on royalties to live.

 

[ERD50]

OK, I guess there could be some legitimate reasons for these to exist. Not transparent enough for me, but I guess it could be a bit of fun for some "play" money in the portfolio.

You might own the rights to some song that went cheap, then got picked up as a commercial jingle, and the cash starts flowing in! Ya never know.

IIRC, Merv Griffin wrote the "Jeopardy" tick-tock theme while they do the final - he created the show, and got a royalty every time it was played. Smart guy!

Wow, if this is true:

Merv Griffin's $80 Million Lullaby & More Tales of Music Royalties | Mental Floss

Jeopardy! Theme Makes a Non-Trivial Amount

Jeopardy!'s memorable theme song "Think!" was originally composed by show creator Merv Griffin as a lullaby for his son Tony; in 2005 Griffin told the New York Times that he had tossed the tune together in less than a minute. It might have been the most lucrative minute on record, though. In the same interview, Griffin estimated that the royalties from the theme had put somewhere between $70 and $80 million in his pockets.

-ERD50

 

[pjm-7]

This kind of thing is a bit out of my league. I'll leave this to the bigger, more knowledgeable players. I know a few years back that TIAA had rights to James Brown's music.

 

[marko]

Outside of having a neighbor who's a well known artist I know very little about the industry. I did look into the site and saw that whatever you invest yielded 10% to 18% on a trailing 12 month royalty.
Unless you're really into the business end, what you don't know is if you're buying last year's results/royalties on a song/album that nobody wants now.

 

[Birdie Num Nums]

Why would someone want to sell their future royalties? From what I understand, the legislation that Sonny Bono got through when he was in Congress made a hit royalty stream a real gold mine for multi-generations.

Kind of hard for me to picture that an entertainer with a strong royalty stream would need to trade that future stream for cash today. Unless you make them a deal they can't refuse?

IOW, hard to imagine there are any bargains here. But maybe it's a bitcoin thing, sell it to someone else who thinks it is worth more, and on, and on?

-ERD50

Some didn't know they had "sold" off their music publishing royalties. Like when manager Allen Klein set up the American company Nanker Phelge, that sounded like the Rolling Stones' UK of the same name, and they signed some document giving all their 1960s songs to what they thought was their company, but turned out to be Klein's (ABKCO), which still owns them to this day. Why the courts never saw that as fraud by their manager, I dunno. There are countless examples of how artists' music publishing got into the hands of others in nefarious ways.

Then there's the tale of CSN&Y drummer Dallas Taylor, who sold all his future royalties to Stephen Stills to allegedly fund his drug addiction at the time.

Royalties, at least in the olden days, was your retirement. But, with the massive decline in record/CD sales, those royalties have declined enormously. See the book "Appetite for Self-Destruction: The Spectacular Crash of the Record Industry."

Many artists today rely on live performances and merchandising instead to make their money, and less on record sales and music publishing.

 

[Birdie Num Nums]

...IIRC, Merv Griffin wrote the "Jeopardy" tick-tock theme while they do the final - he created the show, and got a royalty every time it was played. Smart guy!....

-ERD50

Paul Anka likewise made a fortune writing the "Tonight Show with Johnny Carson" theme song--it being played nightly for 30 years. It got to the point where some lead stars of TV series would write the theme for the same reason: to make a good chunk of change every time an episode was aired, particularly in rerun syndication. Kelsey Grammer for "Frasier" is a good example. But I seem to remember reading that the copyright law was changed so that after so many airings of an episode, the royalties for the theme song ended.

 

[ownyourfuture]

Not even sure if this is related, but my sirius xm sub. ended on Jan 18th.
A week or 2 previous, I received an email from them stating that the United States copyright office had approved a 37.00% hike ? and that my bill would change because of it.

I already deleted the email & I cancelled my sub. so don't hold me to any of this

 

[Sunset]

Not even sure if this is related, but my sirius xm sub. ended on Jan 18th.
A week or 2 previous, I received an email from them stating that the United States copyright office had approved a 37.00% hike ? and that my bill would change because of it.

I already deleted the email & I cancelled my sub. so don't hold me to any of this

Keep ignoring them, and eventually siriux xm will offer you to return for 6 months at $5/mo and waive the registration/initial fee.

 

[Texas Proud]

Why would someone want to sell their future royalties? From what I understand, the legislation that Sonny Bono got through when he was in Congress made a hit royalty stream a real gold mine for multi-generations.

Kind of hard for me to picture that an entertainer with a strong royalty stream would need to trade that future stream for cash today. Unless you make them a deal they can't refuse?

IOW, hard to imagine there are any bargains here. But maybe it's a bitcoin thing, sell it to someone else who thinks it is worth more, and on, and on?

-ERD50

You would be surprised... I was working in the trust dept when David Bowie's music was being sold... it is a way for them to get quick cash now.... but still hang onto the assets....

You can use any asset that throws off a steady stream on money for an asset backed security...


https://www.apexfinancialadvisors.com/music-securities/

 

[marko]

Keep ignoring them, and eventually siriux xm will offer you to return for 6 months at $5/mo and waive the registration/initial fee.

Off thread, but that's what I've been doing for the past 6 years. I pay something like $5.75 a month, call when the 'special offer' is due to expire, tell them it's too expensive and they renew my old rate.

 

[candrew]

Years ago, I used to run with Jason Bonham. I think he got something like $250k/yr from "Stairway to Heaven". I see he is worth 20 Million today!

Damn!

It appears that Jason has also done well on his own, though being John Bonham's progeny certainly hasn't hurt him, either. In addition to his own music career, Jason Bonham has also designed his own line of drumsticks along with having endorsement deals.

 

[JoeWras]

Many artists today rely on live performances and merchandising instead to make their money, and less on record sales and music publishing.

Yes, and I think this is why you see them endlessly touring. Some even propped up so they don't keel over. When the paychecks started hurting, time to hit the road. It coincided nicely with the "experience economy" where people are willing to pay absolutely insane bucks for the so called experience.

 

[Senator]

I invest in music royalties via ThePirateBay.

 

[TexasCanuck]

Music Royalties Update!

So it has been 3 years since I started this initial thread and got into investing in music royalties. I thought I would give an update on my experience these past three years.

For me, I have been really happy with my returns from owning royalties directly. I have averaged over 12% a year for these past three years. The income is pretty consistent with the occasional one-off payments for back royalty payments for companies that were not collecting royalties in the past (Facebook and TikTok for example) but are now.

Investing in music royalty assets has definitely increased dramatically this past year as more people look for uncorrelated assets and good yields. The pandemic had a minor impact on the returns due to no more live music performances, but streaming increased dramatically to pick up the lost income on the live performances.

It is harder and harder to find good royalty assets at a reasonable price given all the increased competition.

Royalty Exchange has really moved away from an auction format to a more Buy it Now format. This makes price discovery harder to attain, but since it is a sellers market they(music artists) love naming their own prices instead of leaving it to chance at an auction.

So far so good, I will give an update after a few more years.

 

[teej1985]

So it has been 3 years since I started this initial thread and got into investing in music royalties. I thought I would give an update on my experience these past three years.

For me, I have been really happy with my returns from owning royalties directly. I have averaged over 12% a year for these past three years. The income is pretty consistent with the occasional one-off payments for back royalty payments for companies that were not collecting royalties in the past (Facebook and TikTok for example) but are now.

Investing in music royalty assets has definitely increased dramatically this past year as more people look for uncorrelated assets and good yields. The pandemic had a minor impact on the returns due to no more live music performances, but streaming increased dramatically to pick up the lost income on the live performances.

It is harder and harder to find good royalty assets at a reasonable price given all the increased competition.

Royalty Exchange has really moved away from an auction format to a more Buy it Now format. This makes price discovery harder to attain, but since it is a sellers market they(music artists) love naming their own prices instead of leaving it to chance at an auction.

So far so good, I will give an update after a few more years.

This is really cool. Has it been fun to learn how to use Schedule E for the royalties?

 

[zinger1457]

Bob Dylan song his entire song catalog recently for ~$300M, it was reported he had been making ~$15M/year off the royalties, not a bad deal.

 

[EastWest Gal]

In 1989 DH produced a CD of original New Age music. It was used in some film in South America and in Germany. We got a couple of checks for 25 cents.

 

[deserat]

To the OP,

Thanks for reviving the thread with your experience - it is indeed an interesting idea. It reminds me of the ads that have singers singing about "I have a structured settlement and I need cash now." People want cash today and are willing to sell their known cash-flow instrument to gain a lump sum today (the opposite of buying a SPIA or pension). It seems like a similar idea in that whoever would be selling the royalty rights would want the cash now. For the structured settlement conversion, a simple NPV would probably suffice (plus some fee for doing the conversion). I would be interested to know how they would 'price' the royalty streams of income as it is based on song popularity, etc, outside of the examples discussed here with regard to known times the song would be played and highly variable. What is also interesting is how that is tied into video view monetizations, etc.

Thanks again for posting about this.