Should you invest in music?

Ed Sheeran earned more than £7 million in royalties from “The Shape of You.” Wouldn’t you like to get a piece of that?

Dolly Parton is still collecting royalties from her song, “I Will Always Love You,” according to Billboard magazine.

It was originally recorded in 1973 and stayed high up on the charts throughout the eighties. Then Whitney Houston covered it for the movie The Bodyguard in 1992 and it reached the number-one spot again to become one of the best-selling singles of all time.

From a financial point of view, these music royalties have provided steady passive income for several decades. That’s a very good return on investment.

In 2019, the 2.5 million artists represented by the International Confederation of Societies of Authors and Composers earned $10.10 billion in total royalties.

So there is a large pool of assets to invest in. And putting money into music royalties is as easy as singing a song.

Investors who want to have regular passive income can buy a percentage of royalties on The Royalty Exchange.

Founded in 2011, the Royalty Exchange auctions the rights to music, both for what is created today, and for rights going back well into the past if they become available.

The owner of the royalties puts their work up for auction, with a stated minimum bid. Once the royalties are purchased, the money earned by the music goes into an escrow account and the royalties are then paid every quarter or every six months. Buyers get a dashboard where they can keep track of their purchases and earnings, and they pay a 2.5 per cent buyer premium and another 2.5 per cent for the management and payout of the royalties.

Why do the owners of the rights to music decide to put up part of their property for sale? Sometimes, the creators of music want to get an advance on their future earnings. Perhaps they need income, or simply have purchases to make.

For example, in 1997, David Bowie sold bonds backed by royalty streams to a certain number of his hit songs. This gave him a large advance on earnings, which he used to buy the rights to the rest of his music that were owned by his manager.

He then sold more “Bowie bonds” to get more cash on hand.

How can you tell if a given piece of music will generate an ample stream of royalties?

Sometimes the most commonplace tunes are the biggest earners. For example, the song “Happy Birthday To You,” earned $2 million per year to its owner Consider that the song “Happy Birthday” owned by Warner Chappell Music for decades generated $2 million per year for decades. If it was performed in public, a payment of $700 in royalty was due. A lawsuit in 2013 put an end to the royalties however, as it was shown in court that the song finally had entered the public domain.

Obviously, well-known singers past and present generate the most royalties, because their songs are played the most.

Choose according to how often songs are played currently, particularly if you think that they will become timeless classics.

 

 

 

 

 

 

 

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