A look inside the world of buying & selling music royalties
This week we explore the world of music royalties — how song rights get bought, sold, and passed around like a hot potato.
Let’s dive in!
What are music rights?
There are two types of music rights — master rights (also known as songwriter rights) and publisher rights.
Master recordings are the actual raw sound waves involved in a song, whereas publisher rights are for things like lyrics, melodies and chord progression. Investors can own both, a portion of both, or a single one of these rights, depending on what the owner (almost always a musician or record label) is offering.
Song rights owners are entitled to royalties, which are paid out by various agencies and collected each time the song is played or reproduced in some capacity. Yep, this means even your crappy high school band playing Nirvana songs out of mom’s basement to an audience of one is technically supposed to cough up to Courtney Love and Larry Mestel, who owns of the higher profile publishing rights exchanges.
Now, obviously royalty rights owners won’t be able to successfully chase after every penny owed to them; especially since the technology for identifying infringement is still a half-step behind. It should come as no surprise that enforcement is a lot tougher than it used to be.
However, given the evergreen importance of music in society, it’s easy to see the potential for portfolio growth with a few savvy music investments.
A history of music royalties
Music and publishing rights have existed for a seriously long time. Musical copyright law came to fruition in England in 1842, and French copyright began in 1829, with the formation of SACD, a French society establishing collective rights management for authors which is still around today.
Yes, that’s right. Musicians began earning money for their works 50 years before the invention of the phonograph.
Although composer rights have been around for nearly 200 years, the multiple streams (pun intended) of royalty collection we see today didn’t exist. Since mass dissemination of music wasn’t prevalent up until 1950, one of the only ways for musicians to earn money was to sell the rights to their music.
Songs in the public domain
You are probably somewhat familiar with how copyright protection works for musical properties. An artist records an original song, the label secures the copyright, and then receives royalty and distribution rights based on the contract.
But after a while these rights to royalties expire. And once these songs, melodies, and lyrics enter the public domain, it’s fair game.
For example, Twinkle Twinkle Little Star is now available for anyone in the world to use. In theory you could release a ripoff called Twinkle Twinkle Big Star, which sounds exactly the same as the original, claim it as your own, and never get into any trouble at all.
While it might seem disheartening that rights to music royalties do eventually expire, it’s actually pretty irrelevant to the value of this investment class.
Why? Two reasons:
- Copyright laws are constantly changing and evolving, often in favor of rights-holders, and more importantly…
- Expiration takes a very long time. Songs released this year won’t be in the public domain for another hundred years, when you’ll either be dead or living on inside a virtual cloud.
I know many, myself included, are waiting with bated breath for the year 2064, when many of The Beatles’ classics enter into the public domain.
The big misconception about fair use
TRUE OR FALSE: You can legally use small bits from a recording as a sample in your song, since samples under 15 seconds are considered “fair use.”
Though many artists get away with using brisk or barely recognizable samples in their published works, this is still technically stealing. The ‘thief’ is meant to either pay the original owner royalties, or buy the rights to that sound sample.
Lil Nas X samples another sample
When Lil Nas X wrote Old Town Road, he legally purchased the beat from BeatStars, a marketplace for buying and selling beats. The problem is that, while the Nine Inch Nails banjo sample cost him just $30, the person he bought it from (another producer named Young Kio) did not have permission to use it before uploading to BeatStars!
This means it was played millions of times without approval. In fact, it’s likely that either Lil Nas X or Sony had to pay the band a substantial sum in back royalties after the song became popular worldwide.
The Verve gets sued by The Rolling Stones
Another interesting example is Bitter Sweet Symphony by The Verve. The soaring strings from that track forms one of the most iconic melodies of all time, yet the original melody is actually from The Rolling Stones’ song The Last Time.
Richard Ashcroft and The Verve initially got permission to use a few notes of The Last Time’s melody for their single. However, upon hearing Bitter Sweet Symphony, the Stones’ manager felt too much of the sample had been used, and sued Ashcroft.
As a result, for years all rights, earnings, and potential royalties were stripped from The Verve, and given to the Rolling Stones — a band that probably didn’t even need the extra cash. In 2019, after a long and drawn-out fight, royalties were given back to The Verve.
The Avalanches can’t keep track
The Avalanches are an electronic band that formed here in Melbourne in the early 2000s.
Known for songs with heavy sampling, including the famous Frontier Psychiatrist, they reportedly used a whopping 3,500+ unique samples from a litany of obscure records in order to stitch together their famous and beautiful debut album, Since I Left You.
But because they didn’t think the album was going to be successful, they kept extremely poor records of the sample’s sources. When the album had success, The Avalanches were snowed under with copyright issues due to sheer number of samples used.
As a result, they were required to revisit every single sound and create a list of exactly where each one had been obtained before the album could be released internationally. To this day there are likely hundreds of samples used on that record that nobody knows the exact origin of, and which are owned by somebody who never got paid!
(Side note: The Avalanches just released a new album which is fantastic!)
Who typically buys music rights?
If you’re trying to buy the rights to Metallica’s entire catalogue, or Eminem’s Marshall Mathers LP, you’re likely already taking baths in 100-dollar bills.
Typically, handovers for rights of this magnitude are operated by music publishing enterprises — either those dedicated to distributing, selling and acquiring rights, or the more traditional record labels which provide artists with studio time, publicity and so on.
Some recent high-profile transactions include:
- Primary Wave, who just last week purchased a majority stake in Stevie Nicks’ catalog, reportedly valued at $100 million. ????
- Concord Publishing recently acquired the rights to Imagine Dragons’ back catalogue, also for $100 million. ????
- Hipgnosis Songs Fund, a British music IP investment and song management company founded in 2018, is trying to splurge over $500m to buy the rights to popular singles Single Ladies by Beyonce, Baby by Justin Bieber and Umbrella by Rihanna. ☂️
- Bob Dylan, who quite recently sold the rights to his discography to Universal at the ludicrous price point of $300 million. This comes to about $50k per song, and as Byron Kaye worked out, because Dylan’s music is kind of boring (sorry, but it is) “approximately $150 million per chord.” ????
Bob Dylan sold his back catalogue for $300 million, which comes to $50,000 per song or $150 million per chord.— Byron Kaye (@byronkaye) December 7, 2020
- Finally, Scooter Braun, the music mogul who purchased Taylor Swift’s first six albums, flipped Swift’s masters to Shamrock Capital just two years after purchasing them. Swift has been loudly critical of the deal, calling Braun a duplicitous bully, and claiming she was never given an opportunity to buy the rights to her own music before Braun scooped them up. ????
The most expensive catalogs ever purchased
It’s hard to get a completely accurate read on the value of a music catalog, particularly when the biggest artists in the world have music assets worth hundreds of millions. Many exchanges between artists and publishing/investment firms are undisclosed lump sums.
But in terms of expensive sold discographies, the two artists that immediately come to mind are The Beatles and Michael Jackson. The two have an interesting link — Jackson actually bought publishing rights to The Beatles’ entire catalogue for $47 million in 1985.
This ended up being an absurdly good investment for Jackson, as The Beatles’ assets were valued at $1 billion by the time he died. Paul McCartney has been actively trying (and succeeding) to reclaim some of the rights to the catalogue under the US Copyright Act of 1967, which other countries obviously don’t recognize. It all gets very messy.
And to make things even more complicated, Sony owned half of the rights to Michael Jackson’s music. After Jackson died, Sony paid $750 million to Jackson’s estate in order to buy out the remaining 50% stake. (Again, a great investment, as the Beatles catalog alone is worth well over $1 billion at this point.)
While most radio-friendly bands and high-charting singles end up being owned by those within the music publishing industry, the Swift example above demonstrates scope for investors — either hedge funds, private firms, or ultra-high net worth individuals, to get their feet wet buying and selling of music rights.
If you look beyond these huge headlines, you can find all sorts of examples where the rights to a song might change hands without the original artist getting involved at all.
For example, movie studios often purchase the publishing and master rights songs used in films. Electronic & hip-hop artists routinely purchase small sample melodies directly from the label, instead of having to cough up full royalties to the original composer later (I bet The Verve wish they did this).
Savvy traders, investors and composers are able to purchase and sell rights to smaller, older tracks, melodies and lyrics in the hope of gaining a profit. This type of investor generally operates through an online market or by making direct deals with independent artists or publishers.
How to buy and sell music rights
Okay Mr. or Mrs. Future Music Mogul, so you want to buy some music.
How on earth do you do it?
For those of you willing to invest liberally and in more renowned catalogs, your first port of call would be to simply contact whoever currently owns the rights. As we have discussed, publishing houses and record labels are generally the rights owners, although independent musicians will obviously own a majority stake themselves.
In theory, getting in touch with the right people can be as simple as a google search or a well-placed phone call. Once a trade is agreed upon, draw up a contract and you’re good to go.
Fun fact: I wanted to use this Breakbot song for the launch of my podcast last week. I emailed his French record label, but got absolutely nowhere, and ended up buying another (decent) track that was probably written by a robot. The experience inspired this week’s issue.
When looking for more layman-type investments is where online marketplaces come into play. The most prominent of such marketplaces is RoyaltyExchange, an aptly named platform that allows investors to bid on ‘auctions’ for various rights, which are outlined in the listing’s details.
It’s basically eBay for music rights. You can get purchases anywhere from 1k to over a million dollars depending on buyer demand and artist prominence.
You can also sell music you have purchased directly from a publisher — be it an expensive catalogue of Ed Sheeran songs, or twenty bucks you paid some kid from Ohio to acquire his royalty-free ambient track.
Other music rights marketplaces
There are other marketplaces resembling Royalty Exchange that specialize in smaller samples. The aforementioned BeatStars is a well-known marketplace for buying & selling samples. There’s also Tracklib — a subscription service where you can clear samples of real music.
There are also royalty-free music platforms such as Artlist. And of course you can always make direct sales with publishers, artists and whoever else might be clamouring to purchase your savvy ten-year investment.
If you invest in samples, you can also end up selling the rights to library curators and sample pack developers, as these are heavily in demand and becoming more so due to the ease of firing up your laptop and writing songs with minimal if any knowledge of musical theory.
Problems with buying and selling music rights
There are two main issues with investing in music rights.
Music rights valuations
First, it’s difficult to properly value a music catalogue, particularly that of a lesser-known artist or sample.
We all know the value popular musicians bring. If you invest in their rights, know that you’re probably going to make a decent ROI. But to get your foot in the door you have to give up a sizeable lump sum that most aren’t willing or able to provide.
The valuation of a smaller band’s work can be stressful, as precedent isn’t always reliable and popular taste can swing wildly and unpredictably. You are looking for music, samples or artists that will continue to provide value, both via short-term royalties, and future appreciation.
It’s important to have an understanding of metadata. There’s no point buying music rights if you can’t enforce them.
Improperly tagged music not signed up to the relevant royalty collection agencies can net substantial losses — earnings that simply disappear into the void due to laziness or a lack of diligence on someone’s part. Knowing that the metadata is properly sorted gives you extra avenues of income and a superior understanding of the asset’s worth.
The Spotify problem
But the biggest issue by far is the “evil super-villain” of the music industry, Spotify.
Before we go any further, it must be said that as a consumer, I love Spotify. What they’ve done for music discovery is nothing short of incredible. I think Discover Weekly is one of the most valuable and well-executed features of the last 10 years, period.
Artists, however, tend to hate Spotify with a passion. Yes, they’ve boosted discovery through the stratosphere, but their payouts are extremely low. Considering digital streaming services are now the gatekeepers of the music industry, it stands to reason a lot of easy income royalties would be paid out by Spotify.
But this is only true if you’re already huge. Taylor Swift’s catalog would’ve earned around $2 million this year from Spotify alone. But small artists don’t fare nearly as well. Bands typically earn just $4 per 1,000 streams, or about 0.4 cents per stream (less than half a penny!)
Unless you are big, and I mean BIG, you aren’t making any real money from Spotify royalties. Heck, after a decade, even Spotify themselves is barely able to squeeze out a profit.
In a sense, there are some parallels with Uber and other market-making tech companies, which by democratizing the supply and running at a loss, have simultaneously introduced some fundamental societal shifts which we don’t yet understand the full implications of.
Licensing fees are the most lucrative form of earning for rights holders. You can sell one-time or ongoing licenses to film producers, musicians and whoever else wants permission to use the music you own.
The expense of this will be dictated by the profile of what you own, and the profile of the interested purchasing party. (For example, good luck charging a university student for using your music in a class presentation.)
However, if Nike approaches you and puts forth a pitch for your track in their next ad, you might be looking at $100k+ (Michael Jackson reportedly sold a license for The Beatles’ song ‘Revolution’ to Nike for around $500k).
Generally speaking, smaller single-use licenses (think short films, indie games, small YouTubers) generally range from $50-$500, and larger ones (television shows etc.) around $20-50k. These figures are just ballpark though — the price of a licensing fee is ultimately how much the buyer is willing to pay.
Other sources of revenue
Obviously we aren’t looking from a musician’s perspective, which include live gigs, sponsorships and merchandise.
In spite of the above issues with digital streaming royalties, catalog owners can expect to earn 10-20x annual net royalties upon sale of their rights; a multiple range which has increased over the past decade.
So why the increase given the rise of poor-paying streaming giants?
Well, even though each individual royalty pays out less, there are substantially more royalties being paid out as more people have access to a music library that they would otherwise only source from the radio.
This has occurred alongside alternate forms of royalties that still maintain relevance, including:
- Use in video games, television, online radio, and YouTube videos
- Corporate purchases (for use in commercials, training videos, etc)
- Cover songs and public performances
- Mechanical royalties from physical production. This is somewhat irrelevant now and mostly applies to on-demand streaming royalties, but occasionally rights holders will earn income from the reproduction of a CD, Vinyl etc.
Fractional investing in music rights?
I’ve harped a bit on the difficulty of fronting the millions required to get your whistle wet in a song that will stand the test of time and continuously bring in royalties.
But what if you could simply invest fractionally in one of these classic tracks at whatever price you feel comfortable? If you know me, you know I am obsessed with the world of fractional investing. Is there opportunity to own a portion of a song’s rights? Or are music rights somehow immune from the fractional ownership wave currently sweeping across the world?
It turns out there’s at least one site already allowing people to fractionally invest in music assets. It’s called MusicStockExchange, and claims you can buy individual shares — ranging from $1-1000 — that have unique dividends, simplifying the whole complex process and turning it into a familiar platform.
With that said, I cannot comment on the reliability of this website at all. It loads slow and some of the content looks to be out of date. The idea is there though, that’s for sure. With everything happening right now, you can bet I’ll be watching this space.
The world of music royalties is a relatively complex one. But just like any investment, with the proper research and belief you can make a pretty penny.
Music has been around since the dawn of humanity and will continue to be omnipresent within society. You can love music & listen to 50+ songs a day, or barely know who The Beatles are. Either way, music ain’t going anywhere anytime soon.
It’s such an important human expression. A complementary backdrop for so many of life’s endeavors.
Why not try to cash in?
- Alternative Assets subscriber Wyatt Cavalier, who writes great teardowns of fractional IPOs, has just launched a new Substack with actionable insights on fractional investment opportunities. Keep your eyes on this. ????
- Reader Jonas S. also pointed out a new marketplace to hit the scene: An Amsterdam-based company called Catawiki just raised €150 million for it’s curated marketplace of “collectibles, art, design, jewellery, watches, classic cars and more.” So much is happening in this space at the moment, it’s truly incredible.