Betting on Music at the Royalty Exchange
The song’s the thing
I’m a failed songwriter. The nearest I got to rock ‘n’ roll success was in the late 80s when the band I played bass in, Green, released White Soul on European mini-major label Megadisc. My song “My Sister Jane” got a lot of radio play and made it onto the BeNeLux indie charts.
Then last year, my power pop band The Lilacs actually had its best year ever after a 20-year hiatus. Our EP The Lilacs Endure, produced by Richard Lloyd and recorded at the legendary Studio 19 in Nashville, miraculously found the magic ears of Rodney Bingenheimer, the “Mayor of the Sunset Strip.” Rodney played it multiple times on his amazing show on Little Steven’s Underground Garage channel on SiriusXM. The royalties I received for my song “I Saw Her First” resulted in my first check from BMI since the last of the My Sister Jane money trickled in during Spring 2001.
Press play to hear a narrated version of this story, presented by AudioHopper.
But now, I get checks every quarter. And not $10 or $15, but $300 or $400. Every time someone streams “All Me” by Drake or “Lovin It” by Ariana Grande or “Rawlings” by Chief Keef or “Bye Bye Birdie” by Lil Uzi Vert, I get a few micro pennies.
“OMG! Kurse, are you saying you cowrote or even produced songs by these great artists half your age?”
I only wish. Unfortunately, I had nothing to do with creating these amazing tracks. But a company called Royalty Exchange has enabled me to participate in their monetization.
The idea has been around at least since the 90s. Early in my journalism career I covered the debut of the Bowie Bond, in which investor David Pullman had packaged all of David Bowie’s songwriting and mechanical royalties into an asset-backed security and sold slices of it for a total of $55 million. Bowie used some of that dough to buy out his former manager Tony Defries’ share in his RCA masterpieces like Ziggy Stardust and Aladdin Sane.
Other artists followed suit. Financial types are always looking for yield, and even if the cash flow decreased as the songs aged, the fact that the asset would continue to throw off money regardless of how stocks and other securities performed made it a non-correlated asset, which is always valued on Wall Street.
Now, through the efforts of Royalty Exchange, ordinary investors can get in on the game.
“Before Royalty Exchange, music royalties were only bought and sold privately among a small group of industry insiders,” the company’s Director of Communications Antony Bruno told Rock & Roll Globe. “We felt that a transparent marketplace that allowed anyone to participate would attract more buyers, more sellers, and ultimately raise the value of music royalties for everyone. And that’s what happened. Our marketplace has redirected both power and value to the investors and creators who previously were left out of this opportunity.”
Royalty Exchange doesn’t buy or sell these streams – like ebay, it’s a marketplace platform. Originally founded in Raleigh, NC, in 2011, the company attracted some attention with sales of “Gangsta’s Paradise” and hits by Three Doors Down. But the company was underfunded and sporadic in its communications. That changed in 2016 when a more professional team from Denver bought Royalty Exchange and upped its game. The site went from selling an asset every few months to listing at least one new auction a week and running a thriving secondary market where successful bidders on previous auctions can re-sell their assets.
Owning something you love
Some of the assets that have transacted on the site are well known enough to command hundreds of thousands of dollars. The Doobie Brothers song “Black Water” went for $160,000, and the producer points on REO Speedwagon’s High Infidelity went for $179,500. (I bid on it, but am sick to this day over having been outbid by 10 grand.) While songs comprise the majority of offerings, there are also other sorts of streams available – royalties from showings of Star Trek, the incidental music on Good Morning America, and even stuff like the rights to “Cherry Garcia” and a piece of the licensing for Listerine.
Some of these small royalty streams are quite reasonably priced. Maybe you’re buying the third songwriter on an artist’s lesser hits, or the second engineer who got one point from a better-known artist.
In practice, it’s an occasionally frustrating experience. There’s just not a ton to bid on, so these goofy Macklemore songs end up going for half a million bucks. No thank you. But there’s also really good stuff, like a slice of the Misfits catalog available right now for about fifty grand.
I’ve managed to acquire slivers of about 600 songs, and as with investing in art rather than shares of IBM, it’s just such a pleasure to own an asset I can actually enjoy while it sends me a quarterly check.
I’ve created a Spotify playlist of all my tracks, and I’m constantly struck by the how strong many of them tracks are. Surrender to the hypnotic trance of Mux Mool’s electronica hit Get Better John or enjoy the sheer brilliance of the wordplay in Masta Ace’s Alphabet Soup. I’ve got my own songs up there, too, from Green and The Lilacs, but also a cover of my song “Monica” from joyful Chicago pop quartet The Returnables.
There’s even a weird form of fellowship that occasionally emerges from all this song investing.
I have become friendly with Domingo after buying a lengthy catalog of songs that the ace producer had a hand in. In fact, that’s how I came to own a tiny piece of Drake’s hit “All Me.” Domingo didn’t write or produce that one. But he did produce the KRS One song “The MC” that Drake sampled for his hit, which appeared on the album Nothing Was the Same. Domingo told me that Drake’s willingness to credit KRS One was a class move. Not all artists are as eager to share their proceeds without a fight.
Other ways to invest in songs
I was also thrilled to discover almost the entire catalog of a band I already loved, Have Mercy. I pounced on it. I already knew their songs Let’s Talk About Your Hair and Coexist and a couple others and was thrilled that the leader of that group, Brian Swindle, was able to get the cash he needed to move on as a solo artist while some of the proceeds from his back catalog went into the hands of someone who appreciates his music.
A lot of these rights are for life, but many of them expire after 10 years. If a Have Mercy song winds up in a great movie or TV show and throws off a ton of cash for a long time, Swindle will be able to benefit from that as well.
Other companies have taken notice. The UK’s Hipgnosis Songs Fund Ltd (OTC: HPGSF) has been on a buying spree that’s hoovered up everything from Blondie to Barry Manilow. Then there’s the Mills Music Trust (MMTRS), one of the weirdest stocks in the world. The entire value of the company consists of a catalog of oldies, such as “Minnie the Moocher” and “The Little Drummer Boy.” The company doesn’t buy or sell or even do anything – it just collects royalties and pays ‘em out to investors. Its biggest shareholder is Paul McCartney. Because I believe in this category, I own substantial amounts of both Hipgnosis and Mills Music. But neither is anywhere near as rewarding as the adventures I’ve had bidding on Royalty Exchange.
“What’s really interesting is that when we first started this, the so-called experts in both the investment and music community looked at us a bit side-eyed,” says Mr. Bruno. “Nobody thought it would work. But today, there are not only a handful of competing marketplaces trying to copy what we’ve built, but you’re seeing huge billion-dollar funds emerge as well. In less than five years our idea went from fringe to mainstream.”
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5 thoughts on “Betting on Music at the Royalty Exchange”
You are the truest of true Music Men.
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Actually I worked on the Bowie Bonds deals. I was a consultant for David Pullman and later replaced David in house for Bowie’s Managers co Entertainment Finance spearheading several of these deals. Unfortunately the article is a bit misinformed, as these deals for the most part were found to not “be of value “ to Wall Street. The bonds including David’s underperformed and the cost of putting these deals together was quite high.
As far as the newer Royalty Exchange deals there have been several companies that got into this business in recent years and it is probably too soon to say whether there was value in doing these deals. Also only certain deals will work. Full disclosure, although I have discussed potential deals with Royalty Exchange and other such companies in recent years for various reasons no deals closed. One has to very carefully look at these deals as often times they just do not make sense to do, and at Times just can not be done.
As far as Hipgnosis, yes they have been buying up catalogs in recent years as well as others which has now driven the price up for catalog purchases (whether on the pub/ songwriter side or Master side) to very high multiples of income generated higher than I have ever seen and I have been an Entertainment Attorney for almost 35 years
Prof Insinna, thank you so much for this valuable insider’s perspective. Your authority here is clear, even from a couple comments on the site.