Is buying shares in songs a smart investment? [op-ed]
There an old adage that Hollywood and prostitution are the only two recession-proof industries, and while this may or may not be true, music publishing has also proven to be remarkably resilient, especially given the bumpy ride that technology has afforded it over the past few decades.
It survived home taping in the 80s, CD burning in the 90s, Napster, and MTV forgetting what the ‘M’ in their name stands for in the 2000s, torrents of torrents in the 2010s, and, most recently, the vast devaluing of music through Spotify and similar streaming services that offer up the history and future of music for ten bucks a month.
With music no longer selling physically, and money persisting as an important facet of survival, artists, labels and everyone else in the music chain have been forced to find new and inventive ways to make a crust.
Selling shares in song catalogues on the stock market is one such way that is gaining steam, but is this an investment worth making for the buyer?
Royalty Exchange, which started in Denver in 2011, leads the pack in providing this service – with artists such as Drake, Justin Timberlake, Beyonce, and Dire Straits all selling slices of their catalogues.
No doubt as the 2020s reveal themselves as the spiritual mirror of the 1920s, the market will become flooded with competitors, prices will be driven down, and stocks in music will become very lucrative, old sport. (Hot historical tip: Sell well before October 24, 2029 if you plan to invest).
The premise behind Royalty Exchange is simple: depending on what the seller is offering, you bid for a percentage of a song, the entirety of a song, or a catalogue of songs, and receive quarterly royalty payments based on how much money the song/catalogue earned during that period. Depending on the deal, you will make money every time a song is streamed on Spotify, Apple, or YouTube, anytime it is performed live, anytime it is played on the radio.
You get royalties from use in advertising campaigns, film trailers, soundtracks, TV spots, whenever it is blasted over the speakers at an NFL game. As with any other stocks, you can buy low and take a chance on a relatively unknown artist, hoping they will blow up and fund your first yacht, or buy into a perennial best-seller and look forward to steady, solid returns.
All stocks on Royalty Exchange are auctioned off, with a reasonable starting price based on the prior 12 month royalty period.
As with every investment, it pays to read the fine print.
The rights to Jay-Z and Alicia Keys’ ‘Empire State Of Mind’ for $190,500 seems at first like a wise investment (all prices henceforth are in US dollars, which I won’t convert due to laziness reasons) but this is only for the public performance rights, and only for a period of ten years. Meaning, you’ll only earn money when the song is played on the radio, in nightclubs, at public venues, and when a film or TV show that features the song is aired on television.
That’s still a great deal. The last twelve-month period saw these rights net the owner $32,733, so assuming this rate continues, you will have made a $327,330, or a profit of $136,830 (minus a broker fee of 15%, plus a one-off $500 payment for administration of royalties).
Given this song was basically written to be played in New York nightclubs, and over the cone speakers at every single sporting event in the five boroughs, you have to imagine this will continue to be a good investment. The song also features in The Great Gatsby, Sex and the City 2 (which manages an impressive balance of racism, sexism, and homophobia) and Men In Black 3 – all of which are probably being aired somewhere in the world as I type. It also features in episodes of Glee and Grey’s Anatomy, the fifth Bring It On film (I bet you didn’t even know there was a fourth, or a sixth for that matter), and on numerous ESPN sporting broadcasts.
Recently, the lifetime public performance rights for Dirty Dancing’s ‘(I’ve Had) The Time Of My Life’ went for a whopping $493,500, but given it makes $47,008 every calendar year and the buyer will own the rights for the lifetime of the (still very alive) songwriters, plus 70 years – that one purchase instantly made someone rich(er). After all, that movie gets replayed on TV a lot.
Now, I realise a six-figure injection is out of reach for the majority of people. But the savvy trader can still buy rights to an enviable catalogue of songs for an achievable price. Shares in the public performance rights to a catalogue featuring hits by Beyonce, Drake, and Lil Kim went for $27,200, and currently makes $4,400 a year.
Given the meteoric rise of J-Pop and K-Pop, the rights to a catalogue of hits currently sitting at just $13,000 (with a day to go) seems like a good punt.
What’s in it for the artists? Well, we’ll let the website FAQ explain.
“Selling a portion of your royalty stream to private investors allows you to raise many years worth of royalty payments upfront without giving up control over your future earnings or going into debt. It allows you to diversify both your risk (protecting you against potential royalty shortfalls in the future) and your income stream (by allowing you to use the money to invest in new revenue streams).”
So there you go. The flipside of this, for the purchaser, is that many of the hit songs up for sale may have already had their day in the sun. The last twelve-month period on which the pricing is based, may very well have been the only time a song will make any money.
Investor Alex Guiva dropped $110,000 for a cut of royalties from Cardi B’s smash hit ‘Bodak Yellow’, after seeing it had made 33% of that amount the previous year, and was expected to keep rising. Instead of the estimated $48,000 he calculated he would make in the first year, he now makes $14,000 a year. It’s still a profit, but sometimes songs are massive hits, and then disappear just as quickly as they arrived.
Then again, some music is timeless. The rights to a catalogue featuring 377 songs from Sesame Street sold for $580,000 in 2017. It is odd to think of such songs, songs that are ingrained in the childhood of many hundreds of millions of us, being a purchasable commodity to be floated on the stock market. But it makes sense that they are worth that much. They were probably undervalued, too, given Sesame Street’s fifty-year run shows no signs of slowing.
C is for commerce. That’s good enough for me.