The original concept of eBay was simple: create an online auction where sales are conducted consumer-to-consumer or business-to-consumer. An item is uploaded, bids are placed, and the final, largest offer wins.
Imagine a similar idea: an online auction platform, but for music publishing. A website where singers, songwriters, producers, and anyone with consistent royalty income can auction off a portion of their catalog. This is the service provided by Royalty Exchange, and it allows musicians and music creators access to investors who are willing to buy a piece of their music publishing in a completely new and innovative way.
Recently, headlines were made when a background singer who sang on Charlie Puth and Wiz Khalifa's super smash hit single “See You Again” auctioned away the rights to a share of his future royalties received from the 8x Platinum record. With the opening bid at $30,000, the unnamed singer put up for sale 100% of the seller’s interest in the non-featured performer's share of domestic royalties and 30% of the international royalties. In the 12 months prior, the seller had accumulated $11,732 in performance royalties from the record. The auction's closing price was a strong $102,000.
Per Rolling Stone, "The new owner will incur the majority of 'See You Again' royalties from satellite radio and digital streaming. The nonprofit royalty distribution organization AFM & SAG-AFTRA will pay out the royalties once a year at the end of April, while Royalty Exchange will take a $99 per year admin fee."
For a little over 100K, the buyer now has a new residual stream of income from the best-selling single of 2015 and one of the biggest videos in YouTube history.
In an effort to learn more about the website and how royalty auction business is conducted, I reached out to Royalty Exchange for an interview. Antony Bruno, Director of Communications, was happy to give further insight into the company and how it has changed the way artists and investors interact in terms of music publishing.
"Artists have always sold their publishing. There’s even been a long history of more financially focused investors investing into the music business. You see large private equity groups or family offices funding labels. These things happen, but it always happens on what’s called the institutional level, where a big investment company would spend a lot of money on a big publisher. Always with these larger layers.
"What we’re doing is applying the same idea of that to private investors; an individual with a lot of money who's not a part of a big investment company [but] who wants to buy part of music royalties. That opens up an opportunity to songwriters and other artists, who may not be large enough to attract a institutional company to their catalog, but therefore can look at a private investor. It opens the door to a lot more people being able to participate in that than could before. We like to call it democratizing access to investment to artists in the ways that weren’t available to them otherwise."
Royalty Exchange is open to the public. Anyone can sign up to be an investor and participate in the auctions, but an extensive verification process is carried out. This ensures only serious investors who have the income to make such an investment can place a bid; business men and women looking for new avenues to bring in revenue. Artists can feel secure in knowing they’re being protected. Investors are also protected, as Royalty Exchange is meticulous in their efforts to confirm there are no restrictions on the royalties in any way that would harm the buyer. There’s a due diligence given to musician and investor, making the site a perfect space to handle business without the worry of fraud.
At least $2,500 in revenue must be generated over the previous 12 months for the royalty to have any real value to potential investors. Antony explained how older songs are more valuable—the longer a record's history of earning royalties, the more interesting it becomes to investors—but there are exceptions, like “See You Again.” A massive hit obviously has far more value than newer songs with less fanfare. There's money to be made for the bigger songs, but even more is possible when allowing time to pass. Thinking of publishing with the intent to sell can be a long-term game, and years can further increase the worth. When dealing with business-minded investors, the thought process behind investments is a little different.
"These are not music industry people, for the most part, that are buying royalties. They’re people who have investments in all kinds of different things. What they look for, when they want to evaluate anything that they’re going to invest in, whether it be music or otherwise, they look to see what the history of earning this thing has. The longer history they can look at, the more comfortable they feel about investing money in it. In their minds if it earned money for the last 10 years, it’ll probably continue earning money for the next 10. If they look at something with only six months worth of earnings, that’s far riskier. This might go away in six months. They aren’t looking to tell you what to do. They don’t want to work a catalog. They don’t want to go out and get your music placed with brands and such. This is a rich doctor in Chicago who has a $100,000 dollars he wants to invest. He’s going to buy a royalty stream and cash checks for long as he owns it. He’s going to leave you alone; the ultimate silent partner."
The silent partner doesn’t own the copyright—they don’t own the music—but they are getting a portion of the revenue stream created by the publishing. Songwriters and producers are the predominant artists using Royalty Exchange as a marketplace to sell a portion of older works. Selling publishing with companies in the past was usually an all-or-nothing negotiation; they wanted everything. One of the benefits of going through Royalty Exchange is that the company allows owners to sell only a percentage of their publishing or songwriting. You can give away slices without serving up the entire pie.
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Antony shared a story of an older songwriter who came to them owning both his songwriting and publishing. It was a smaller percentage of a somewhat older hit—not super old, but around 10 years. There’s always the possibility of the song being covered, sampled, or used in a Budweiser commercial, so he didn’t want to sell it all, but he was looking for immediate income to help kickstart a new business venture. The flexibility of going through Royalty Exchange allowed him to sell his songwriting share but keep his publishing. Dividing the pie, rather than keeping or losing it all.
In 2013, the year Royalty Exchange launched, Coolio auctioned off his entire music catalog—”Gangsta's Paradise,” along with 122 other songs. Despite peaking in the early-to-mid '90s, there was a time Coolio was making $23,227 yearly from royalties. By the time his catalog was sold, his royalty stream from the previous 12 months was $7,225 and the closing bid for the entire catalog was $41,000.
Legal troubles weren't the reason he sold; the rapper had bigger ambitions and needed a bigger source of income to assist with funding his newfound passion as a chef. This isn’t uncommon, either. Older artists whose moment in the sun has ended will often use their royalties and Royalty Exchange as a way of acquiring a larger lump sum of cash for new endeavors.
"Maybe they want to diversify [their income] a little bit. Typically, if you’re older, you're reaching retirement and you don’t want to rely solely on royalties for your retirement. You can take a portion of your royalty stream and get a lump sum. We had this exact situation happen with the son of a songwriter. He inherited his father’s royalty stream. He’s retiring so he split 25% of the share he got from his dad’s work, took that money and bought an annuity; a retirement account. So now he has 75% of the royalties from the song coming in and now he has a completely new source of income coming in for his retirement. The royalty is now diversified. We see that sort of thing quite a bit. In any business, why would you want all of your income to come from just one thing? That’s very risky."
Royalties are based on usage, so without usage, the royalty has little to no value. The music doesn't depreciate until it no longer brings in revenue. Antony admits that many investors will purchase based on the amount of money the royalty has made consistently over time, but on occassion, people will bid and pay more for a song that they know and recognize, or have some sort of personal attachment to.
"These guys own bonds and stocks. They want to buy an investment that will make them money but also something that will be cool to talk about at parties. Actually, something that happened a couple of months ago, not for a hip-hop song but a country song. The guy has been on our platform, looking at different things. He sees this auction and jumps on it. The songwriter selling the royalty wrote the song for a band, and the band was his daughter's favorite. His daughter got engaged at the band's concert a couple of months ago. He got into a little bit of a bidding war over the song and paid more for it than another investor would. But the reason he did it was so he could give the royalty of the song to his daughter as a wedding present. So now his daughter will earn royalties from the song, and she can say she owns a piece of a song by her favorite band."
Music publishing knowledge is critical for anyone involved in the music industry. (For those who need a crash course into understanding the basics, this DJBooth guide to understanding publishing is a perfect starting point.) Rappers, singers, producers and songwriters need to be well-informed, or risk making a mistake similar to 22-year-old producer Lil Voe, who unknowingly signed away his publishing and the official credit to SahBabii’s summer smash, “Pull Up Wit Ah Stick.”
When Lil Yachty made a comment about not knowing who handles his publishing, it was a huge red flag. Yachty has songs on the radio and in commercials; knowing who handles his publishing and the percentage he’s retaining for these songs is the deciding factor of his royalties and revenue streams outside of album sales, touring and merch. When you see the impact of a platform like Royalty Exchange on artists past and present, there’s no question they hold great power for the future.
Artists must see their publishing percentage and royalty stream as a promising, lucrative source of income. Fame will wither long before their publishing, which can be the door to financial stability or the foundation for future endeavors. There’s more than one way to make a long living off of music.
Royalty Exchange is building an avenue where the music meets investors. It's shining light on a part of the business that was once handled in the dark. It's now possible for artists and fans alike to view royalties in an informed light. Not only can we follow auctions but we can see what is being sold, and how much revenue the royalty has been accumulating. There's a lot of great information immediately available and accessible for anyone who desires a transparent look into publishing.
The business is changing, and the best changes are those that benefit everyone.
By Yoh, aka RoYohlty Exchange aka @Yoh31