In one of the live auctions this week, for example, an owner is selling the royalty rights to a collection of songs including Grammy-winning "Empire State of Mind" by Jay-Z, a version of the song by Alicia Keys and songs by various other artists, including American Idol alum Fantasia Barrino. The listing notes that the track of "Empire State of Mind" up for auction has been used in dozens of TV series, movies and in Major League Baseball, National Football League and National Basketball Association telecasts. "Each time a past (or future) series or film airs on TV with 'Empire State of Mind,' a public performance royalty is generated," the auction listing says. "As the winner of this auction, you'll collect these public performance royalties for the song."
The auction opened with a starting bid of $110,000. The high bid stood at $148,500 on Wednesday, with the auction scheduled to end on Thursday. The winner will get rights to the royalty stream for 10 years, with a rate of return that Royalty Exchange estimated to be about 16.25 percent based on the age of the songs included, their royalty histories and other factors. Royalties for the collected songs amounted to $32,733 over the past year, the listing notes. Auction winners also pay a one-time $500 administrative fee to Royalty Exchange.
Other auctions, which generally run about three days, have been won with bids of a few thousand dollars, while others have exceeded half a million. Among Royalty Exchange's most successful auctions happened a year ago, when the estate of songwriter Tony Geiss, who wrote many of the songs on the TV show Sesame Street, sold off the royalties tied to his works on the platform, yielding a winning bid of $580,000. As was specified in Geiss's will, the proceeds from the auction went to 10 charities, including the New York Public Library, Doctors Without Borders and the Wildlife Conservation Society.
Bruno noted that because Royalty Exchange chiefly deals with music, people sometimes get the impression that the auctions are "novelty investments" and not something for serious investors. He acknowledged that people sometimes do invest based on their emotional ties to certain songs. He related the tale of a father who invested in the royalty of a song loved by his daughter, whom he gave it to as a wedding present. But Bruno also said the music investments are not frivolous.
Investing in music royalties is more akin to investing in a REIT or even an annuity in terms of the yield and income derived, he said.
"The investment is completely sound," he said. "Our investors are wealthy individuals who are looking for an alternative investment uncorrelated to the stock market or even the bond market. ... This is an income-producing asset, delivering income regularly over its lifetime."
The growth of the music streaming industry, with platforms such as Spotify, Apple Music, Amazon Music Unlimited and Google Play, is one trend that could enhance the value of music royalties, according to industry analysts. Goldman Sachs, for example, issued a report last year that predicted the global music market would grow from $56 billion in 2016 to about $119 billion in 2030. In the same report, the firm's analysts predicted 14 percent of the world's smartphone users will be streaming music in 2030, compared with 9 percent today.
Royalty Exchange has also been broadening its reach, introducing private syndicate sales this past summer that facilitate the auctioning off of large music collections to accredited and institutional investors. The first sale was for the catalog of Grammy-winning alternative rock band Cage the Elephant, followed by the sale of the Dire Straits catalog last month. Under the private syndicate program, holding companies are created to buy music catalogs and investors then buy shares of those entities, which grant them a proportional share of the royalty income they generate, according to Royalty Exchange.
The online platform expects investor interest to continue to grow because of the uncorrelated cash flow and high yields they provide, Bruno said.
"Royalties are a cut off the top—you get paid first. It's not like a dividend, where it depends on the vote of a board of directors," Bruno said, adding, "What would you rather have, shares of Apple or a penny for every iPhone sold? That's what makes this an interesting investment."