Make money by investing in royalties
Do you fancy making money out of other people’s songs, films, books or technology?
That’s what would happen if you invested in someone else’s royalties.
Royalties are big bucks when it comes to making money in the music world, and you can jump on that bandwagon with the right know-how. Here are a few top tips on how you can make money from the sales of music, books and films by investing in royalties.
- What are royalties?
- Some people sell their royalties
- How do you buy royalties?
- How does buying royalties work?
- Types of royalties
- Should you invest in royalties?
Noddy Holder, lead singer of 1970s glam-rock bank Slade, once said that his song ‘Merry Xmas Everybody’ is his pension.
He’s right. That record on its own should keep him in clover for the rest of his life.
This is because he co-wrote it with fellow Slade member Jim Lea and they get ‘royalties’ every time it’s played, covered or sampled (in a commercial project). The two wrote a number of other hit singles which are also regularly played around the world (a couple have been on TV ads in recent years and that’s great money) so the royalty cheques keep coming in for all of these tracks and provide a very nice income for both of them.
Royalties are a wonderful way of making money for years without effort.
It’s not just musicians who have royalties either. Authors, scriptwriters, inventors and others benefit from resales of their products and ideas.
You would think that this promise of money every time your record is played, your book is sold or your gizmo is bought would be something any creator would want to keep hold of. But not always.
Musicians, for example, might find it hard to raise the capital they need to kick-start their career or even push it along. Those that can’t get a loan from the bank will look for other ways to raise some cash. This is where their royalties become a potential immediate earner for them.
For investors, owning music royalties or other rights could mean a decent income for life – if they pick the right one.
Buying and selling music royalties is now easier than ever thanks to a slew of new websites that have recently popped up offering music exchange platforms.
The Royalty Exchange, for example, matches potential investors to royalty owners who are looking for quick cash. It’s a good starting place if you’re thinking about snapping up royalties whether it’s through music, film, TV, books, solar energy, pharmaceutical, intellectual property, oil, gas and more.
The Royalty Exchange has been helping artists and investors collaborate since 2011 and has so far held over 600 auctions, raising over $65m!
Potential investors bid for royalties of various products from song rights to technology rights. They buy them for a set period of time, depending on what the creator is willing to let go.
Lyric Financial is a competitor, which gives musicians short-term advances on their royalties in exchange for fee.
The way it works is fairly simple once you break it down.
For example, take a songwriter/producer who wants to earn some money through their music. They would try to sell off their royalties to potential investors and buyers. Whilst the songwriter/producer would still own the rights to those tracks, he or she would share part of their income with an investor whenever they’re played on the radio or streamed online.
You bid for some of those royalties rights and if yours is the highest bidder, you win. You then get royalty cheques either quarterly or twice a year, depending on the agreement, for a certain period of time.
If you buy through The Royalty Exchange, they charge a buyer premium and also for the management and payout of your royalty stream, at a previously agreed rate.
There are different types of royalties to consider investing in. This can range from performance income to digital.
Songwriters and producers earn royalties every time their music is performed in public, whether this is via radio, TV, clubs, bars, restaurants, concerts or online. The royalties are collected by performing rights organisations then distributed to the songwriter and producers.
This is why it can be a good idea to invest in an American songwriter or producer, as the US is the largest digital music market in the world. According to the European Commission, in 2010 almost half of US record companies’ revenues were from digital sources. The figure in Europe is a mere 20%, with the market still more reliant on physical sales.
Mechanical royalties are based on the number of recordings sold and given to the songwriter, producer, and recording artists. This is usually paid to them via the record company, which earns the cash from the Mechanical Copyright Protection Society for UK artists.
This is when music is used in connection to visual images such as TV adverts, films, video games and TV programmes and is separate to mechanical royalties as that only generates earnings through the number of sales.
This is pretty straightforward and earns money when music is performed publicly through broadcast on television, radio and TV.
Songwriters, artists and record companies earn money through other royalties when music is used in mobile ringtones, streaming, stage productions, print music, toys and other novelty items. So every time a Justin Bieber fan buys a new all-dancing all-singing action figure, those who have bought his royalties will be earning some cash.
Music royalties are very much an alternative investment and relatively new for ordinary investors. If you pick the right product you can enjoy regular returns for some time and it could be a good investment for older people and those looking for an annual income from the investment rather than looking for growth.
It’s a relatively low-risk investment (note: ‘relatively’ as nothing is certain) and it can keep earning you money for a very long time. Most of the royalties have a very long life span of 70 years or more even after the death of the songwriter – which is why Michael Jackson’s worth rocketed after his death. Billboard claims that MJ Inc. earned revenue of no less than $1 billion a year after the singer’s death, including music sales of $494 million. The international superstar’s royalties increased by a massive 70% in that year alone, and no doubt the royalties will continue to earn the brand big money.
If you can negotiate a long-term royalties interest, it could pay for you and your children for some years.
On the other hand…
The amount of money that can be made from royalties is not always huge, and it can take years to see any real return on your investment. Not only that, with most songs and other products there is generally a slow decline in income as singers are forgotten and the records get played less, making less money. However, there is usually at least a bit of income for some years. In fact, you could find that the income will spike every now and then if there is new interest in the song or film you have royalties in. However, you can’t depend on this – it’s very much the luck of the draw.
As with most types of investments, you need to think through the likelihood of a particular song/film/book/gizmo lasting for many years. Is it a long-term winner, or has its star already started to wane? It’s up to you, but if you already have money invested in more traditional products it’s worth considering investing in royalties as an interesting alternative!
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.