The investing world is an ever evolving one and as long as various industries generate money, opportunities will always arise for the investor to pump in cash and get a good return.
One of the questions that has been a huge topic over the years is investing with regard to music royalties.
To be specific, “Are music royalties a good investment?”. This question is one that is frequently brought up in the music industry itself as well as the investing world.
Music royalties are a good investment because they depend less on the artist and more on the music rights. This asset class is highly liquid which makes it even more desirable for investors. Plus music consumption habits by the general public is something that is consistent because your love for the Beatles will still be pretty much the same even in years to come.
Furthermore, the music industry has become more diversified with a number of earning opportunities which provide investors with incentives to pump money into this industry.
Another aspect that makes music royalties a good investment is that they offer some security with earnings because they are consistent and not dependent upon the artists.
Music Rights
There are basically two types of music rights that you have to know for the purposes of this discussion.
Composition: songwriters and their music publishers own the copyright for the harmony, melody, and lyrics.
Composition copyright is basically obtained whenever an authentic and unique musical work is committed to a tangible medium — whether its a notepad or sheet music.
The Master rights are the rights that arise when a particular composition is turned into a sound recording. These rights are usually owned by the recording artist and the record label if there’s a deal in place.
Types of Royalties
Now that we have a basic understanding of the two types of music rights, it’s important to understand the various types of royalties that make investment a good idea.
Royalties from Streaming
Streaming services have drastically changed the music industry. Back in the day musicians relied on the sale of albums to generate income, but now they can also have their music on streaming platforms and take home a cheque.
Recording labels usually negotiate deals on behalf of their artists and license their music to streaming platforms that promise to pay them per stream.
The streaming platforms negotiate a global pay out rate, which is paid out according to the share of content of the material.
This makes investing in music royalties a good bet because this kind of income is pretty much passive and doesn’t require a lot of work. Streaming platforms can provide additional income and balance out the sales.
Digital Performance Royalties
These are digital royalties that are derived from non interactive digital streaming services that may also constitute internet radio.
These services are basically supposed to pay a fee to performing artists each time a sound recording is streamed/played on their services.
Public Performance Royalties
Now that you have a good understanding of digital performance royalties, let’s get into public performance royalties.
Public performance royalties are basically royalties that are generated and collected when a song, featuring a specific composition, is played in a commercial environment.
Essentially, the landscape of public performance royalties can be divided into two parts: the royalties paid out by streaming services and royalties generated by more conventional public broadcasters you’re used to like — radio, TV channels, venues, clubs, restaurants, and basically everything in between.
Why Royalties are a good investment
Lets get into the reasons why music royalties are a good investment:
Cost
Any good investment is one that can yield good returns with very little to a fair amount of costs.
Music has so many costs involved like recording, manufacturing and promotional costs but these costs are manageable compared to the money that music makes.
A ratio of 3:1 in most cases will be the Returns to Costs. Therefore, investing in royalties means the investor will have to deal with less cost but will reap good returns.
Investing in royalties means having rights to the music which leaves the investor quite insulated.
Risk Averse
The diversity that comes with music industry monetization makes it a worth while and less risky investment.
You as the investor won’t have to rely solely on album sales to get your percentage of the royalties. There are various ways in which music can be monetized such as Streaming platforms, licensing, performance income etc.
With any sort of investment risk efficiency can be achieved by diversifying a portfolio.
Simple
The music business is relatively simple and isn’t overly complicated which makes it a great investment because you can easily review and assess the performance of your investment without having to worry about a hundred other things.
Transparency
For any investment to be sound and easy to manage, it has to be one that is transparent and can be easily assessed.
Each element of the music business is one that can be easily reviewed and scrutinised in an effort to improve and grow the business.
For example, revenue streams can be easily singled out as well as costs and other information that relates to the business as a whole.
Liquidity
In financial terms, the royalty investment business is a highly liquid one which means that an investor can easily pull their funds out the moment they need to.
Market conditions may change or the investor may be confronted with an unexpected circumstance for which they may need the funds.
The ease with which the investor can withdraw their investment in the music business makes it a highly good and convenient investment.
Final Thoughts
There are a lot of platforms now offering the general public investors to put their money into music royalties that can then be traded like stocks.
This has provided a great opportunity for everyone.
As far as investments go, investing in music royalties is a good way to diversify your portfolio.
