Frequently Asked Questions about Buying Royalties

What are royalties?

Royalties are payments made from one party (sometimes referred to as the "licensee") to another (the" licensor") for the right to make use of an asset. The asset can be virtually anything -- from music, to tangible assets like minerals and oil or intellectual property like trademarks and patents. Royalty payments are often calculated as a percentage of the revenue generated by the asset's use.

What am I buying?

When you purchase an asset on Royalty Exchange, you are buying a share of future royalty revenue generated by that asset. Details about the royalty stream you are purchasing and the asset that generates it will be available in the Financials section of the listing you are viewing.

Do you provide revenue data for each royalty stream?

Yes, royalty revenue history will be made available on each listing page. Only earnings relevant to the asset for sale will be presented.

For example, if an asset is for 25% of the seller’s royalty stream, all financials presented will reflect 25% of the historical earnings. A spreadsheet with raw royalty data will be provided for your review and analysis.

View current listings here.

How long is the term of a royalty stream investment?

Investment terms vary depending upon several factors, including the type of royalty-generating asset and the share of the royalty stream being sold. Each listing will state the investment term for the royalty stream.

When and how will I receive royalty payments?

Royalties are generally paid on a monthly, quarterly or biannual basis.

Royalty Exchange acts as the administrator for all assets purchased on the marketplace unless there is a direct exception noted on the listing stating that the buyer must directly collect from the paying entity.

You will receive your first royalty payment in the first distribution period after the reassignment of the stream.

How do I get started?

The first step to purchasing on Royalty Exchange is to create an account, which can be done by filling out our registration form.

If it’s your first time purchasing, just fill out our verification form to get your account verification process started. Once verified, you can place a bid simply by clicking "Make Offer."

What happens if I win an asset?

If you are the winning bidder, Royalty Exchange will send you an invoice for the closing funds. Buyers are obligated to send closing funds via either ACH or bank wire transfer to Royalty Exchange within two business days of purchase, and we’ll hold the funds until the royalty distributor confirms the transfer.

May I license an asset once I purchase its royalty stream?

That depends on the asset purchased. Investors who buy only the rights to the royalty revenue generated by the asset, but not the underlying copyright, do not have a right to license the asset elsewhere.

However, occasionally a listing may include full ownership of an asset, in which case an investor may license the asset as desired.

How are royalty payments taxed?

Royalty Exchange does not give tax advice, but we expect that the income generated by royalty payments will be considered ordinary income for federal income tax purposes.

Tax and amortization matters are quite complex, so investors should consult with their tax advisors.

Can an owner amortize or depreciate the cost of the music royalties over time?

While we don’t provide investment or tax advice, we believe music royalties can be amortized as a depreciable asset over time.

But you should consult a tax attorney for details on calculating an amortization schedule.

Amortization of intangibles is governed primarily by sections 197 or 167 of the Internal Revenue Code of 1986, as amended.

How do I verify the legitimacy and legality of a transaction?

Royalty Exchange verifies the ownership of each asset with both the current owner and the organization responsible for collecting and dispersing the royalties it generates before it is listed on our site.

Do I have to be an accredited investor to purchase?

No, in order to participate on the market you just need to be independently verified by Royalty Exchange. Once verified, you may bid freely on any of the assets listed in the marketplace.

May I purchase if I'm not a U.S. citizen?

Yes, non-U.S. citizens may invest in royalty streams listed on Royalty Exchange. However, please consult your financial or tax advisor to determine the tax implications of receiving U.S.-based income.

Can I invest in royalties with my IRA?

Yes. You can hold royalties in your own IRA if it is managed by a "self-directed IRA custodian” and fully funded in advance. If you don’t have one already, you can choose to open a self-directed IRA with our partner Alto IRA, which specializes in alternative investments. For more information, read the article here.

Are performing rights organizations (PROs) involved in pricing and rates of music? Are they incentivized to drive rates up or down?

PROs do not set rates, but lobby the organizations that do. PROs historically lobby for higher rates in order to issue larger payments to members, as well as collect a higher fee per their commission.

PROs typically deeply oppose anything that would cut rates or create rate wars between the PROs.

Who determines royalty rates?

In the music industry, royalties rates are determined differently depending on the type of royalty involved.

Sound recording royalties are typically negotiated with the record label involved. Composition royalties are set either by a negotiation with publishers, or for compulsory licenses by the Copyright Royalty Board.

To learn more about each, please read our Music Royalties Guide.

How are royalty earnings affected by inflation/deflation?

In general, music is relatively uncorrelated with the economy and interest rates. No one entity has total control over music pricing. It’s an ongoing negotiation between labels/publishers and music retailers/services.

If I purchase an asset that has international royalties, am I taking currency risk?

For assets administered by Royalty Exchange, payments are made in U.S. dollars. In many cases, international royalties are collected by U.S.-based organizations and paid to Royalty Exchange in USD, even when the underlying usage occurs abroad.

In some cases, Royalty Exchange may receive royalties in a foreign currency and convert them to U.S. dollars before distributing payments to buyers. Regardless of where conversion occurs, investors receive payments in USD via Royalty Exchange’s payment processor.

While exchange rates can affect the USD value of international royalties prior to payment, investors do not manage foreign currency directly and are not required to receive or hold non-USD funds.

How should I be valuing these assets?

There are several factors to consider when evaluating music royalty assets. They include the age of the underlying works or tracks, average yearly income, historical earnings, usage, location, and connections to evergreen artists and/or labels and publishers.

As with any investment, it’s important to conduct your own research and ensure an asset aligns with your individual goals and risk tolerance.

Read our Buying Music Royalties 101 Guide here.

Is there any source of data that tracks overall music royalties by year?

Because there are so many different types of royalties and different organizations tracking them (not to mention differences in international royalty rules), it’s difficult to find just one source for all their yearly collections. Here are a few places to get a general indication:

Individual PRO annual reports (ASCAP, BMI, SESAC, etc.)
SoundExchange
IFPI annual report
RIAA annual report
Billboard Publishers Quarterly

Frequently Asked Questions about Buying Royalties

Music Creators

Investors

Company