We all enjoy music, maybe not the same styles but in some form the invisible notes that journey from the speakers to our brains at the speed of sound always manage to shift our state; heels click, heads move and hips shake. Minds are inspired.
Creating music, especially good music is the signature of masters at work. This is why good music is in such high demand and commands such a high value.
The ownership of music is managed through royalties or rights of ownership, royalties give the owner a claim of ownership and respectively on the earnings of the music they own royalties to.
Jeff Schneider President and CFO of Royalty Exchange and myself Jim Reynolds reviewed the Royalty Exchange platform and their investment offering. Every investment has its own specific risks, those who are interested in this type of passive income need to do their full due diligence.
What is the investment proposition at Royalty Exchange?
Our proposition is simple… we’re an online platform for buying royalty assets. Royalties are basically a cut off the top of music earnings. Imagine for instance if you could earn a half a penny for every iPhone sold regardless of Apple’s manufacturing or marketing costs. That what royalties offer, but in our case primarily for music.
Music royalties offer stable, consistent returns that are not correlated to the stock market or government regulation. However until now, there hasn’t been a way for private investors to acquire royalties. Royalty sales traditionally have taken place in private, backroom deals reserved for institutional investors. Our platform allows royalty owners to place their royalties for sale via an online auction platform that’s fully transparent and adheres to open market standards, where anyone can bid on them.
How long has the platform been in operation?
The company was founded in 2011. The current ownership acquired it in 2015, and rebooted the platform at the end of the first quarter last year.
How many auctions did has it held to date?
Since the reboot we’ve held over 90 auctions since March 2016.
Can you mention some of the most popular auctions you had on the site?
Some of the more notable include rights to music performed by Barry White, Dr. Dre., Chris Brown, The Eurythmics, Bee Gees, and others, as well as music written for TV shows like Dora the Explorer and movies like Dumb and Dumber.
Can you tell us more about the management team of Royalty Exchange?
Our CEO is Matt Smith and I’m President and CFO. I discovered Royalty Exchange as an individual investor looking for a way to acquire music royalties. I liked the platform so much that I partnered with Matt to buy it and take it over.
What are the key information in each Royalty Exchange auction?
We provide all the historical financials related to each royalty listed, usually going back several years, with the last 12 months highlighted. For catalogues, we’ll provide a detailed breakdown of royalties earned by song. We also provide downloadable spreadsheets of the raw data and, if applicable, track lists and streaming media to the music in question.
What is the fee structure, to register, bid, sell, buy and maintain a royalty?
There is no fee to register or bid. Some sales require a one-time fee from the entity that distributes royalties for the buyer to set up an account with them that can range from $50 – $500.
Is the P/E ratio of royalties a good way to value a royalty on sale?
Typically royalties are valued based on a multiple of their past 12 months earnings. Keep in mind this isn’t a “buy low, sell high” strategy, but rather a consistent cash flow strategy. So royalties with a longer history of consistent royalties typically sell at a higher multiple than those without.
What is the average price to present income ratio (P/E) ratio for royalties are sold for?
Since there is no “average” type of royalty sold, it’s really hard to assign an average sales multiple. We typically see multiples anywhere from 3x to 10x.
Can investors purchase a slice of a royalty? i.e crowdfunding of royalties?
Not today. Currently our auctions are one-to-one with a single winner-take-all buyer.
Once a royalty is bought can an investor hire an agent to promote it?
If they royalty is for the publishing or the master recording, then sure. But typically our investors are more interested in passive income. In our model, an investor can buy the songwriter’s share of a catalog that’s already being actively managed by a professional publishing outfit. So they do the work while the investor enjoys the returns.
Fighting copyright fraud both through technology and legislation is making great strides, is this taken into account when calculating potential future revenues?
Not for calculating future revenues, but certainly for calculating risk. As you know, risk is another factor in how any asset is valued, which can affect the price as much as anything else. But overall the industry has largely gotten past piracy issues, and is now in the beginning of a rebound thanks to the widespread penetration of listener-friendly legal digital services. The growth of streaming is an example of this. Spotify alone has 40 million monthly paying users. That’s a long way from the original Napster days.
How long does a royalty last and is this the same in all countries?
It depends on when the music in question was created. For music created after 1972, it typically lasts for the lifetime of the author plus 70 years.
What are the main risks/threats to a piece of copyright material?
Like anything else, past performance is not an indicator of future success.
There are also a few legislative efforts and litigation in progress that could affect music payment rates going forward. But at the end of the day, investing in royalties is very much a case-by-case effort. You’re not investing in an entire industry. You’re investing in a particular song or catalogue. A strong song/catalogue will not be as affected by changes to the industry as a weak song/catalogue will.
To learn more about Investing in music Royalties:
Visit Royalty Exchange to learn more about how music royalties can create a passive income stream. Special thanks to Jeff Schneider for his time and detailed answers.