The topic of royalties has been gaining momentum over the last several years. At The Royalties Summit on May 6, Trusted Advisor united with business managers from tech, music, and entertainment to discuss the rapidly changing world of licensing, royalties, and ownership models.
Media is currently going through what we describe as a “gold rush,” as the industry has generated over $9 billion for royalties owners worldwide in just the last five years. We brought in Antony Bruno, Director of Communications at Royalty Exchange, to outline the forces driving this boom for royalties, and show how all creators can take advantage. As the world’s largest online marketplace for buying and selling royalties, Royalty Exchange reveals the factors that drive investor demand, the benefits of royalties for creators, and how to guarantee the most successful deal.
The Music Royalty Gold Rush: the landscape
Bruno states that while over $4B have been spent on music catalog deals just in 2019 alone, the revenue is largely generated from the royalty deals made with the richest one percent of artists. This is what Bruno refers to as the “tip of a very large iceberg,” which is why Royalty Exchange hopes to broaden accessibility to this industry through their online marketplace. Royalty Exchange is a platform that matches artists with investors interested in buying shares of music catalogs. The platform has raised over $92M+ for artists, with close to 30,000 registered investors, averaging about $70K per sale.
“What the data illustrates is that there’s a lot of activity happening in the royalty space, but at a much smaller scale than what we see in the headlines,” Bruno said. “Oftentimes the average royalty owner is not a big artist like Miley Cyrus or Jay Z, but one of their song writers or producers.”
What is driving demand?
So what’s driving royalty demand? Royalty Exchange states that the royalties marketplace is one of the few places in which investors can put a large amount of money into an asset that can then generate income at a high percentage rate. Here are some of the reasons investors are lining up to buy music royalties:
- Low interest rates = low yield
- Market volatility — music royalties as an asset are not affected by sudden changes in the market, the income generated stays constant
- Music industry momentum due to streaming
Royalty investors can come from large funds, but can also originate from family offices and individuals. Investors value catalogs based on four factors:
- Age: catalogs 5+ years old sell 20% higher than the median
- Source of income: streaming generates 62% of earnings for best selling catalogs
- Familiarity: investors pay 20% more for catalogs they know over those they don’t
- Trend rate: most catalogs see failing royalties over time; decay rates of less than 5% are considered attractive
Secrets to getting the best deal
Royalty Exchange states that the secret to getting the “best deal” is to have a plan, be selective, know your client’s worth, generate competition, use experts, and own the process.
“It’s important to own the process,” Bruno said. “If you are trying to sell a catalog, often the ones buying are the one’s controlling the process: they are the ones setting the first price, they are the ones letting you know when they’d get back to you. But you can define your terms, establish your deadlines, and more importantly, create the competition, to dictate the terms for what sellers need to pay you for the catalog at the end of the day.”
