Welcome to Music Rights Insider.
Today’s issue is a special one. We’re covering SongVest — the first online marketplace for buying and selling one of the coolest alternative assets out there, music royalties.
This is a great way to spice up your investment portfolio, or, if you’re an artist, to cash out on your hard work.
Let’s go!
Editor’s Note: This issue is a sponsored deep-dive, meaning Alts has been paid to write an independent analysis of SongVest. SongVest has agreed to offer an unconstrained look at their business & operations. SongVest is a sponsor of Alts, but our research is neutral and unbiased. This should not be considered investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We think you’ll find it informative and fair.
How’s the music royalty market doing?
In case you haven’t heard, lately there have been a few high-profile music rights sales:
- Justin Timberlake sold the rights to his song catalog to Hipgnosis Songs Capital in a deal worth $100 million.
- Bruce Springsteen sold his music rights for over $500 million to Sony Music Group.
Spotify launched in the United States in 2015, and since then, the adoption of music streaming services has surged. Music streaming represents 65% of the global revenue share, and there is a 21.9% growth in paid streaming services.
Not only is adoption growing, but it is accelerating. According to Goldman Sachs’ 2022 music industry report, “consumers are signing up for subscriptions like never before.” Since 2017, Spotify’s subscriber base has more than doubled. And in the first quarter of 2022, Spotify reported 182 million premium subscribers worldwide.
How big will streaming get?
Goldman Sachs is projecting a ‘New Era of Growth’ and is forecasting music revenue to more than double by 2030 — to the tune of about $131 billion.
By 2030, recorded music and publishing revenue alone is estimated to be over $100 billion – flattening off to around 6% year-over-year growth.
Why is this important?
If we look at music royalties as an alternative investment, they tend to have a higher yield than treasuries. At the time of this writing, the 10 Year treasury Rate is 3.03%.
Music royalty investments are traditionally overlooked because most investors didn’t have access to deal flow. The opportunity to purchase music royalties simply didn’t exist for most investors. But SongVest has provided a platform for fans and investors to buy and sell fractional music royalties.
As an alternative investment class, music royalties are uncorrelated with other asset classes. Royalties continue to be generated, collected, and paid out regardless of macro-economic conditions. Even while inflation rises or the economy takes a hit, we still listen to music. And music listening generates royalties.
I get really excited talking about this asset class. Here’s me on the Invest Like a Billionaire Podcast talking about what makes music royalties such a great investment to consider.
Music rights fund Hipgnosis has now spent $1 billion buying out music catalogs. We’ve been covering music rights as an asset class since 2020, and investors are starting to take notice.
How are music royalties generated?
There are several recipients of music royalties, including the songwriter (who can often be the recording artist).
- The songwriter often writes a song and partners with:
- A publisher, who then proceeds to publish or admin the songwriter’s catalog;
- The record label is involved because they release the recorded music of the song to the general public and monetize it on streaming services, paid download services, and other channels;
- And then, there is the artist who performs the song on the master recording.
Music royalties can also come from a variety of different sources:
- Performance royalties (e.g. radio broadcast)
- Mechanical royalties (earned through the reproduction of copyrighted works in digital and physical formats)
- Print (e.g. sheet music)
- Sync Licensing (e.g. when a song is used in film or tv)
- Non-interactive Digital Performance (e.g. SiriusXM)
Different organizations can pay these royalties; and these royalties can be packaged and sold, through what SongVest calls a “SongShare“
What is a SongShare?
A SongShare is a Regulation A+ SEC Qualified Offering which legally allows SongVest to fractionalize music royalties into shares you can purchase.
SongVest aggregates all of the royalties per quarter, reconciles them, and pays them out via ACH transactions directly to the investor’s bank account.
The income is securitized from the contract between the seller and SongVest. The investor’s right is to receive income from the underlying contract. The term of the contract is normally life of copyright, seventy years after the death of the last author. SongVest monetizes the royalties that are being paid through that contract.
This issue of securities has been registered with the SEC and was designated qualified for sale to investors. These are royalty revenue contract income participation memberships, and are not equity participation securities per se. You will own a share in revenue stream from royalties contracts; these are not shares in SongVest as an enterprise.
Additionally, SongVest is launching a secondary market where SongShares can be openly traded. This will provide all SongShare holders a platform to trade their SongShares. 👀
How do SongShares work?
There are several steps involved to launching a SongShare.
- Royalty Agreement: SongVest performs an analysis of the royalty streams for the song or the catalog. SongVest generally reviews the past three years of data and presents the rights holder with a valuation range. Once the rights holder decides what they want to sell their catalog for, SongVest can go straight to purchase or offer a VIP auction. A royalty agreement is signed.
- VIP Auction: Investors bid on SongShare units via SongVest’s VIP Auction to set the price of the units for purchase. All available shares are laid out at a starting price, and the market decides the best price. For example, when all of the shares are allocated at the initial price, the price of the SongShare can move to a higher-priced tier, which moves the initial shares out. Investors then have to bid at the next higher-priced level.
- SEC Qualification: After the auction, SongVest submits the final bid price to the SEC for qualification.
- SongShares Sale: VIP Auction bidders have the opportunity to purchase their reserved number of SongShares before the general public.
- Investor Payout: Once the SongShare is qualified and the SongShares have been purchased, they will show up in the investor’s SongVest dashboard. SongVest handles the Letter of Direction and assignment from royalty payers. SongVest collects payouts and distributes to investors quarterly.
Chosen & evaluated by SongVest
Historically, it is not easy for investors to participate in royalty streams from rights holders. So, how do deals get to SongVest in the first place?
SongVest’s CEO, Sean Peace, is a music royalty vet and SongVest has nurtured a deep network of artists, managers, and music industry connections who trust SongVest to fairly value their rights and take their rights to market.
Evaluating a catalog
SongVest generally reviews the following aspects when evaluating an existing catalog:
- What rights are being sold? Types of rights often include writer’s share, publishing, master, et al. SongVest still offers catalogs via a normal auction where investors purchase 100% of that asset. In this case, SongVest isn’t splitting the asset up at all. The first question is: As an investor, what right am I buying?
- What is the specific type of income? An investor might only be buying the performance rights, writer’s share, mechanicals, or others. For example, it’s possible that investors are buying the writer’s share, and only one of these types of income.
- Who is paying the income? This can be a distributor, a performance rights organization, etc.
- What is the term of the contract? Usually, everything sold on SongVest is life of copyright. But shorter-term assets are possible.
- What are the last 12 months of royalty payments?
- What does the trend look like? Are royalties going up, down, sideways?
Are the royalty stats accurate?
All of the royalty income is provided by the royalty payor, the organization paying the royalties.
SongVest gets the detailed data, and we get to see — by song — the specific details of all royalties paid out by that organization. SongVest performs a deep review of the song details to determine macro trends within the catalog.
Public streaming data is also cross-referenced via Chartmetric, a data platform that provides comprehensive streaming data for music industry professionals.
Pricing a Catalog
Catalogs are generally priced via a Multiple, a metric used to price music royalties and catalog assets. A multiple simply means reviewing the last twelve months of data and assigning a multiple to it. The result is the valuation of the asset.
For example, if the royalties of an asset over the last twelve months are $10,000 and the multiple is 10x, then the valuation is $100,000. The multiple can range from the low end of 5x to a high end over 20x, and varies depending on the type of royalty income and age of the catalog.
Large investors like Hipgnosis, Sony, or Primary Wave are buying catalogs at a higher multiple — generally 12–20x. Investors of this size are generally interested in acquiring large, high-profile catalogs from legacy artists.
Conclusion
SongVest structures music royalties to provide investors access to a growing, alternative asset class and they may provide investors with a long-term royalty stream — normally life of copyright. Historically, typical multiples on music royalties ranged from 5x to 20x.
If this sounds like your cup of tea, now may be a good time to invest at SongVest because the current multiples are much lower than what the larger investment funds are paying for the same type of asset.
Where the larger investment firms are often paying a 12x–20x multiple on their catalogs, SongVest investors have an opportunity to access the same type of asset class for somewhere between 6x–10x.
If you are interested in bidding on music royalty auctions, check them out and create your free account at SongVest.com.
