Earn Passive Income From Other Peoples Music Royalties
Royalties are the currency of the music industry. It is the main way that artists continue to earn income from their work – today we are going to take an in-depth at how the market works and, best of all, how you can secure the royalties to many artists work to earn a long term, and lucrative, passive income.
TL;DR
- Uncorrelated investment – independent of public markets. E.g. not influenced by the economy or stock exchange
- Yields – royalties can often pay far higher returns than dividends and bonds
- Consistency – with many royalties you are almost certain of earning a return. They have been shown to offer a high level of consistency in terms of earnings and payments
- Increased reach – royalties are on the rise thanks to technology and user behaviours (Think streaming platforms)
- More opportunities – modern productions are frequently creating more rights holders for each piece of work
How Do Invest And Make Money With Royalties?
“Michael, we’re not going to fight about this okay?”
“Paul, I think I told you, I’m a lover, not a fighter”
“She told me I’m her forever lover” said Paul “You know, don’t you remember?”
“Well, after loving me” Michael answered, “she said she couldn’t love another”
“Is that what she said?”
“Yes, she said it, you keep dreaming”
This rather playful exchange was between Paul McCartney and Michael Jackson for the 1982 song “The Girl Is Mine”
Fast-forward three years and the same artists were locked in all together different, and less playful, exchange. The reason?
In 1985 Michael Jackson had paid $60m for a back catalog contain 4,000 songs. That catalogue contained 250 songs by Paul McCartney and John Lennon, as well as hits by Elvis, The Rolling Stones and Bruce Springstein.
Stories such as these are not isolated incidences, as the news around Taylor Swifts back-catalogue and her rather public falling out with Scooter Braun in the last year testifies.
None of this is particularly new, artists have been selling off the rights to their work for decades. What is new is that in recent years these stories have moved from being content for celebrity papers and become viable investment opportunities for the masses.
Thanks to the creation of royalty marketplaces such as Royalty Exchange and SongVest, anyone can take the opportunity purchase the rights or a share of the rights to many songs and back catalogues.
“Investing In Music Royalties… is pure passive income. You’ll make money while you sleep from it. It doesn’t require any proactiveness” – Cherie Hu – Music Industry Financial Reporter
What Royalty Exchange, among others, have done is miniaturised the process allowing anyone – not just multi-millionaires – to potentially own a share (and earn income) from artistic success.
If you own the rights, then anytime it is played on radio, on a streaming platform, or in a stadium, you earn your share of the royalties. This will be an income generating asset that will hit on you. There has never been more platforms and avenues for music royalties and there has been a resurgence in earnings in this area in the last 5-10 years.
Royalty Exchange for example, has recently listed the rights holders for Jay-Z and Alicia Key’s “Empire State Of Mind”, The Doobie Brothers “Black Water” and Dirty Dancing’s “(I’ve Had) The Time Of My Life”
The key word above is rights holders.
It does not need to be a famous artist that we are all familiar with. Musical work from writers, composers, producers and more are often credited with working on a particular song or catalogue and they personally own a particular share of the royalties. Throw in the fact that the modern music has changed considerably and where, in the past, there would be on average three persons with rights to a song, that average is now touching ten.
It is democratising music and allowing more people who have a key role in a songs success to be attributed and earn from that effort, thus it creates more opportunities, for us as investors, to stake in a songs long term success and earnings.
- Empire State Of Mind – Sold for $190,500 and made $32,733 in 2019. Multiply that by 10 and the owner has made nearly 200k
- (I’ve Had) The Time Of My Life – Makes an average $47,008 ever year. The rights holder owns this for the lifetime of the artist +70 years – for an initial investment of $493,500, that particular detail has made someone very rich
How To Get Started With Music Royalties
The reasons for a party looking to sell their rights to a song or catalogue are many. More often they are simply looking to cash in their dividend now on future earnings, or they want to buy a house or they need money now for living expenses.
Artists and music insiders are often strapped for cash, particularly in the Indie and DIY communities, and are needing funding for new equipment, financing tours or films or other activities that are felt will further their careers.
It doesn’t really matter to us what the reasons are – what matters to us is whether the particular song or catalogue is a viable investment with strong future earning potential.
Things to Consider When Investing In Music Royalties
Not all music catalogues are created equally.
As you would expect, the likes of Royalty Exchange provide a detailed royalties history behind their listings and it is important to look closely at the long term trends.
One hit songs, particularly in certain catalogues like hip-hop, can see stark declines in royalty revenues a few years after release.
The answer to what may prove best may lie in TV and Films. As an example from Forbes, a voice over actor and producer, Christopher Arias, sold his performance royalties for the theme music for “In Touch With Doctor Stanley”, a TV show. The Investor only paid 5x the royalties and has seen a steady consistent return since then. (see below)
So if you can secure the rights too or predict a song or catalogue that may get synched in future to a movie or TV show, you could be looking at a very healthy return on your passive investment.
Another route to consider maybe to look at the rights to K-Pop and J-Pop catalogues considering their rise in popularity in recent years, with the rights likely to be a lot cheaper than some of the examples above.
How Much Does It Cost To Get Started Investing In Music Royalties?
In 2017, Royalty Flow (the stock listed arm of Royalty Exchange) was offering shares in Eminem’s Pre 2013 back catalogue. The shares were $7.50 each with a minimum purchase of 300 shares ($2,250). This granted access to 15-25% royalty stream from Eminem’s work between 1999 and 2013, including monster hit albums such as The Eminem Show and Marshal Mathers LP.
During that period, the royalties generated by this catalogue were $82m and Royalty Flow paid $18m for the catalogue.
The interesting side note in all of this is that Eminem neither endorsed or had any involvement in any of this.
On a more standard basis, the sale price for is usually between 10x and 16x the last 12 months earnings but can be as low as 5/6%.
So purchasing the rights to Rihanna’s “Don’t Stop The Music” is likely to be out of reach for most of us, there will be, with a bit of research, listings that are more attainable and will still provide a steady passive income for the foreseeable future.
It is also worth keeping an eye out for the listings that allow you to purchase a stake rather than 100%, similar to the Eminem example, above which can make it more attainable for new investors.
Aside from the cost of investment, the remaining factors that you need to consider are that you will likely also need to pay a 2.5% buyers fee and a 2.5% management fee (for the management and payout of the royalty).
The last thing to point out is that not all listings are for lifetime perpetual ownership. Some will come with a term period, like Rihanna’s above, which last 10 years. This is not necessarily a bad thing, but it is something you should be aware of before getting involved.
Learn more about Music Royalties
If you are interested in learning more about investments in royalties, the three main players to look at are:
Royalty Exchange – an online royalty marketplace where you can bid on royalties in many industries such as music, film, TV, books, IP and more.
SongVest – described as the stock market for music. You can buy and sell royalties while fans can also help finance future projects through a crowdfunding model in return for a percentage of the royalties.
Lyric Financial – was created to help musicians have the money they need to finance their careers and pay the bills.
ANote Music – sell and invest in music rights. Trade and manage a portfolio of royalties