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Written by Ramsey Brown.
In 2020 alone, the total revenue of the recorded music industry amounted to 23.1 billion U.S. dollars. With streaming making up 56% of this figure, bringing in 11.9 billion dollars globally.
Music royalties are a recurring source of income, consistently being paid out to the rights holders. So, the astronomical cash flow accrued from streaming has naturally caught the attention of the investment world.
Because music is constantly being streamed, performed, and played, someone is constantly getting paid. Therefore, music investments are an attractive low-risk, high reward scenario for those who can get a slice of a creator’s intellectual property rights.
You’ve likely heard of big name artists like Neil Diamond, Bruce Springsteen, Shakira, and many others selling off their music catalogs, but why? Well, there are many different factors that go into an artist’s decision to auction off their music rights and assets.
It could be due to personal reasons, financial debt, difficulties with their label, or from the massive increase of companies and investment funds willing to drop hundreds of millions of dollars in exchange for artist's royalty profits and music catalogs.
These marketplaces allow individuals to bid on intellectual property rights that are auctioned off by artists, independent labels, and publishing firms. Generating about $40 billion in annual revenue with the expectancy to continue growing by 9% a year through 2030.
Firms like Music Royalties, Hipgnosis, and Royalty Exchange allow investors to purchase rights to music right over the internet. Some bids may be placed on an individual’s entire catalog or in some cases, a single album or song. Let’s take a look at some of these well-known royalty investing marketplaces below:
Music Royalties’s model is like a mutual fund. They have rights to different songs and unique artists, like Miley Cyrus’s “Wrecking Ball.” They sell shares to their funds. The royalties are then distributed to all the shareholders.
The Royalty Exchange allows an investor to make money on music by buying the exclusive rights to a catalog. For example, a Doobie Brothers catalog was valued at $160,000. They offer approximate returns on investment and then host auctions to sell the catalog. At Royalties Exchange, they also offer the same thing on movie royalties, and even sales royalties on products.
A Note Music offers a similar profile. Their music catalog includes many European musicians who provide excellent returns. You can buy individual shares of an artist's royalties by simply clicking on the information. They offer an easy-to-read chart of the price performed and a royalties distribution to date. It’s a simple way to get into the music royalties arena without needing to invest tens of thousands of dollars.
Hipgnosis is a U.K.-based fund that has a large portfolio of songs and artists. Everything is sold as a single share for the entire catalog. They have over 1,000 #1 hits and thousands of popular songs in the catalog. They offer calculators so that investors can see the value of their investments over time, allowing you to calculate the historical value of an investment.
Many of these royalty funds are private and typically have massive minimum investment amounts starting around $5+ million, so their target investors are extremely wealthy individuals, families, or other institutions.
But others such as The Royalty Exchange have made direct ownership of intellectual property much more accessible to the average person or investor. Royalty Exchange offers smaller deal sizes that range from $5k to less than $1 million.
They also offer passive interests in a catalog of songs, so the investor is only collecting the ongoing distributions. This can be thought of like “mailbox money”, where you sit and wait to collect.
For example, Royalty Exchange recently sold future royalties to Jay-Z & Alicia Key's Empire State of Mind for $190,500. Based on past royalties, the marketplace provides a “theoretical internal rate of return” on this ten-year investment of 9.9%.
For a period of time, the idea of investing in music royalties seemed like a foreign concept to many investors. However, music consumption has steadily increased over the years thanks to streaming services and social media which as a result, has increased the money generated from music as well.
All investors ultimately look for opportunities to earn something on their money, without the risk of losing their money — and music royalties have attractive yields in this regard. For example, in 2020, Royalty Exchange reported that the average annualized return on investment for catalogs sold on its platform was greater than 12%.
“Catalogs for large, well-known artists sell for multiples of about 15 times their average cash flow, generating annualized yields of about 5% to 10%, while smaller catalogs of less widely known artists are rumored to have sold for smaller multiples, generating yields between 10% and 20%.” - via Penta.com
Omari MC is not providing financial or investment advice throughout this statement, but one could assume after crunching the numbers on their own how lucrative royalty investments can potentially be.
On the contrary, it’s important to remember that royalty income fluctuates and is not a fixed return. A song’s popularity is likely to decrease over the years, thus the cash flow generated from the song will decrease as well.
Before making any large financial decisions or investment commitments, it’s always important to speak to a professional financial advisor first.
NFTs (or Non Fungible Tokens) have been a hot topic in the music industry and investing sector alike. For investors, music NFTs are a great way to buy the rights to a music composition. It is secured on a blockchain that grant the owner the right to music, album art or videos created to accompany music, or some other exclusive access to content.
Those rights can’t disappear into some legal case where the paperwork is lost. Since there’s a blockchain record of the transaction, it’s easy to prove ownership.
Music fans are a highly engaged audience. Selling music and related artwork via the blockchain is a way for an artist to forge a direct relationship with a fan base without the need for a record label or music-streaming service.
Though the concept of NFTs is still very new and much of it's potential has yet to be discovered — artists such as Grimes, Kings of Leon, 3LAU, and many others have already achieved groundbreaking success selling their own virtual music NFT projects.
However, ROI relies heavily on supply and demand. So, whether you're a collector, investor, or speculator trying to decide if buying music NFTs is the right move, understand there are no guarantees you'll make money.
With any music investment, it's important to do your research, study projects that have been successful, as well as the ones that were unsuccessful. Seek professional advice, and never dive into a large financial commitment or project without being 100% knowledgable on what exactly you are getting into.
However, for those willing to do a little trailblazing and put in the extra effort to study and understand the complex world of music NFTs, you could be at the forefront of an extremely lucrative trend that has potential to revolutionize the entire music industry.
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© 2023 Omari MC, LLC. All Rights Reserved.
© 2023 Omari MC, LLC. All Rights Reserved.