“We want people to have access”

There’s a new way to make money in the music industry — and it involves betting on your favorite songs.

Earlier this month, investment platform Public offered retail investors the chance to own part of the rights to the Shrek soundtrack for the same price as an expensive cup of coffee.

The company bought the 768-song catalog outright, put it in an LLC, and then had that LLC go public so investors could buy shares for as little as $10 — something that became known as “fractional royalty investing.”

Investors can trade shares with other users of the public platform, but the company said it was likely, given the cash nature of the licensing asset, that buyers would be long-term investors.

“It really starts with this approach of being retail first and you’re seeing a big shift in the industry,” Keith Marshall, general manager of alternatives at Public, told Yahoo Finance.

Public co-CEO and co-founder Leif Abraham added: “We want people to have access to multiple sets of asset classes.”

Royalty investing has existed before, but it was largely reserved for wealthier institutional investors like hedge funds who could afford to shell out six figures or more for catalogs of songs.

“If we can make royalty liquidity broadly available, then we can make songwriters, artists, producers richer and expand the possibilities of what they could do with their careers and their art,” said Gary Young, CEO on the Royalty Exchange, a marketplace that connects those looking to sell their intellectual property (IP) with buyers.

Artists flooded the platform in 2020 to seek potential investors as an alternative way to make money by selling song royalties, which are revenue generators paid in exchange for IP or simply the use of that IP.

For an artist, their songs are their IP address and royalties are payments made to that artist when their song is played on the radio or streamed on music streaming services like Spotify (SPOT) or Apple Music (AAPL).

“Most people have some general idea that remuneration is part of copyright law. It’s something creators get based on things they’ve created,” Marshall said. “But at the end of the day, it just comes down to payment – ​​that’s the simplest way to look at it. It’s a means that someone has a legal right to get paid for content consumed.”

“The Next Big Thing”

There's a new way to make money in the music industry — and it involves betting on your favorite songs.

There’s a new way to make money in the music industry — and it involves betting on your favorite songs. (Getty Creative) (Guido Miette via Getty Images)

Song royalties can come in two different forms — master recordings or recordings of an actual song, and music publishing, which includes songwriting and composition copyrights such as lyrics and melodies.

Although publishing rights are often not worth as much as the actual recordings, they can still generate a significant amount of revenue over time with radio play, advertising, film licensing, and more..

“We want people to have access to multiple sets of asset classes.”Leif Abraham, Public co-CEO and co-founder

Public said “Shrek” royalties, which vary based on play frequency, generated an annual dividend yield of more than 8% in both 2021 and 2022. By comparison, the current yield on the 10-year Treasury bonds generate about a 5% return.

“It’s all about building this idea of ​​a balanced, modern portfolio, and that goes back to diversification,” Marshall said. “You’re really trying to build a portfolio with the least correlation between your different asset classes. This is where the music comes in. It is driven by the consumption of content that has nothing to do with the Fed’s moves on interest rates.”

This means investors can earn passive income independent of traditional markets.

“It will be interesting to see how these ‘fractionalisations’ play out,” said Royalty Exchange’s Gary Young. “This is probably the next big thing. It’s already starting to happen, but the question in my mind is “What’s the scale? And can people market many of these songs or catalogs of songs in an affordable way?”

“The perfect storm”

The affordability of the more famous catalogs will be the biggest hurdle, especially as more artists have sold the rights to their music catalogs for hundreds of millions in the past few years.

The dominance of streaming services has been a major factor in the increase in the value of these music rights, with experts saying that streaming has brought more stability to the industry as consumers have easier access to songs – leading to more returns for artists.

“The key is that the business has become predictable,” said Guillermo Page, a former record executive who worked for Sony and Universal. “[Investors] can trust the future of the business because it is growing. When you remove the uncertainty, it opens a new door for investors to come in and grab those assets.”

Page, who now teaches in the music program at the University of Miami, said the added catalog sales are also a huge boon for artists, especially older ones.

In December 2021, Bruce Springsteen sold his master recording and publishing rights to Sony Music in a deal worth around $500 million, according to multiple sources. That same year, the Red Hot Chili Peppers sold the rights to their song catalog for $150 million.

In 2020, Bob Dylan sold over 600 copyrights to Universal Music Group in a deal reportedly valued at over $300 million. Stevie Nicks previously sold a majority stake in her songwriting for $100 million.

“The older a song is, in general, the more consistent the revenue stream,” noted Young.

But even younger artists are cashing in on the trend. Most recently, Katy Perry sold the rights to her catalog of songs for $225 million in September, while Justin Bieber sold his entire music catalog for over $200 million earlier this year.

“This is the perfect storm for artists who can now maximize their returns from the sale of these assets,” Page said.

Alexandra Channel is a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].

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