In this article, we'll talk more about how music royalties can help you make money. Why should you put money into it? How can they offer high returns and a steady flow of cash compared to other types of investments?
Cash Flow Benefits of Music Royalties
Music royalties are set up so that people who own the music rights receive regular payments. These payments can happen monthly, quarterly, or every six months.
This regularity is like getting rental income from a property. It gives you a steady flow of cash that you, or any partners you have, can count on.
Since we talked about rental income, comparing music royalties to real estate offers the same level of consistency. Think of those people who own rental properties. They get rent payments from tenants, which gives them a steady source of income.
In the same way, music royalties are the rent payments, they are paid to the people who own the rights to the music when it is performed in public, streamed, or played on the radio.
Also, streaming services make the consistent cash flow even more appealing. Streaming services are one of the main things that have helped keep music royalties stable.
Now that other formats are slowly declining, like CD sales and downloads, streaming helps balance it out. In fact, streaming extends the longevity of songs where physical sales relied heavily on first few weeks sales figures, songs that are decades old are now earning more consistent income than ever thanks to constant listenership on streaming platforms. The stable streaming income helps lower the risks that come with changes in other music formats.
This steady income stream gives investors faith in the long-term strength and durability of music royalties as an asset class. Plus, stability is strengthened by the "stickiness" of music habits, which means that people will keep listening to their favorite artists, and the artists will keep getting royalties.
Yield Comparisons
Music royalties have shown that they can give very high annualized returns, often higher than those of more traditional investments.
As an example, Royalty Exchange has an average return over the last few years of about 12.6%. These returns are a lot higher than the returns on more common investments like government bonds, which are usually a lot lower.
The yield on a 10-year Treasury note is about 3.9% right now, while the average yearly return on the S&P 500 is 10.47% over the past 20 years.
Music royalties really do bring in more money than people think. Based on real-life deals where investors make a lot of money, they are reliable.
A 45-track catalog from The Misfits, including hits from "American Psycho" and "Famous Monsters," was bought on Royalty Exchange in 2020 for $52,118. This price was 10.5 times more than what they made in the last twelve months. The person who invested held on to the catalog for 1.89 years and made $11,425 during that time from quarterly royalty payments straight into their bank account. They sold the catalog to another investor for $75,999 in August 2022, which netted them a 58.4% return on their investment.
Here's another case study of a successful royalty catalog sale on Royalty Exchange. One of the site’s most successful sales is Harry Styles' debut album where the domestic royalties in 2021 was purchased for only $85,000. Then in 2023, the investor put it back on the market and found a buyer that paid $214,500 for the listing. Imagine earning 175% in just a year and a half! The original buyer earned over $33,000 in royalty payments while holding it before selling it to the most recent buyer.
Moreover, in times when interest rates are low, when traditional fixed-income investments like bonds don't give investors much in return, they look for other assets that can give them higher returns without taking on a lot more risk.
Music royalties are a great fit for this niche because they offer good returns that are less affected by changes in interest rates.
Large asset managers and private equity firms are now more interested because they see the chance for stable, high-yield returns. Hipgnosis Songs Fund and BlackRock's Alignment Artist Capital are two companies that have put a lot of money into music catalogs because they know that streaming services will always bring in money.
Also, you can factor in the rise in popularity of streaming services in this as well. As it continues to grow, it will likely lead to higher royalties in the years to come.
Diversification Benefits of Music Royalties
There isn't much of a link between music royalties and traditional financial markets like stocks and bonds. In other words, their performance is not directly affected by changes in the market as a whole.
Unlike stocks, which can be affected by economic changes, music royalties are based on people regularly listening to music. Meaning, the money made from music royalties stays the same no matter how the market changes.
This lack of correlation is a big benefit of diversification. Investors can lower their risk in the market and increase their overall returns by adding music royalties to their portfolios.
When the market goes down, when traditional assets might not do as well, music royalties can be a safety net that keeps the money coming in. They are useful for investors who want to find the right balance between risk and reward in their portfolios because of this.
Even when the economy is bad, people still want to buy music. For example, the music industry did very well during the COVID-19 pandemic, even though many other industries were having a hard time. This was mostly because of the growth of streaming services. People kept listening to music, which meant that people who owned the rights to the music kept getting paid royalties.
The stability of music royalties is supported by data from the past. Many industries were hurt by the Great Recession, but music royalties kept their value. This strength comes from the fact that people listen to music no matter what the economy is like.
Also, streaming services have helped keep income stable by giving businesses a way to make money that can be used over and over again.
Investing is Not Limited to Music
You’d be surprised that investing on Royalty Exchange isn’t limited to singles and albums.
The award-winning animated film franchise, "Shrek," had its 785-track catalog’s royalties sold for $205,663. Quentin Tarantino’s 1991 cult hit, “Pulp Fiction,” had its royalties also sold for $232,500 in less than a year, after the seller’s initial purchase for $189,000 in June 2023. The initial buyer made a 21.8% ROI in just 9 months and collected $12,503 in royalty payments while holding the catalog!
Conclusion
Investors who want to diversify their portfolios and get into a unique asset class should look into music royalties. But, just like with any other investment, it's important to know both the pros and cons of music royalties before you start. The music market isn't always stable, and as tastes and trends change, so can the value of a catalog.
Check out the hundreds of music catalogs that are up for auction today, and see how you can invest your money wisely and earn a huge ROI. Register now to get started. Invest in music today and reap the benefits of earning passive income from music rights whose value is independent of macroeconomic markets.
We’ve prepared this guide on Royalty Investing Made Easy to help you get started with investing in music royalty catalogs. This is the best guide for understanding why music royalties are one of the best passive income ideas of 2024 and sign up now to begin your journey into music royalty investing. Discover why so many investors today are using Royalty Exchange to buy royalties to expand and diversify their portfolio. Get your hands on your favorite music catalog today!
Frequently Asked Questions (FAQs)
What are the benefits of music royalties?
There is almost no link between music royalties and other financial markets. This means that the royalty streams are not very affected by changes in the overall market. It's a great way to protect yourself from the cyclical risk that most other business sectors have.
Are music royalties good investments?
Regular cash flow from music royalties gives you a good return, making them a great source of passive income. They let investors get money from the investment's value at any time during the holding period without having to sell it.
Why are music royalties an attractive asset class?
With market volatility and interest rates still going up, investors are looking for assets with stable, long-term yields. Royalties from music are a reliable source of consistent returns that are not linked to traditional asset classes like stocks and bonds.
