Music royalties are an attractive investment asset for many reasons. Chief among them is the potential to deliver double-digit yields to investors.
And according to an analysis of the returns generated through Royalty Exchange last year, this is far more than just potential... it’s a reality.
We found that assets acquired on the Royalty Exchange marketplace on average delivered a 12.14% return on investment in 2019 on a six-month annualized basis. That’s an impressive yield hard to find elsewhere in today’s investment landscape. (See below for how we came to this figure).
Now of course that doesn’t mean that all investors on Royalty Exchange are enjoying 12% returns. Some are earning less, some more. It all depends on the assets they bought and how much they paid.
That’s why it’s also important to examine just how investors are finding and buying royalties.
The Auction House is where investors bid in live online auctions.
The Secondary Market, introduced late last year, is where assets previously acquired on Royalty Exchange are listed so investors can buy and sell amongst themselves.
We don’t yet have enough data to tell if there is any difference in returns between the Auction House and Secondary Market. So we instead looked at a feature we introduced earlier in 2019 called Standing Orders. This feature allows investors to place an “order” for royalties that meet certain criteria they define and our platform then matches to incoming eligible catalogs.
Only catalogs that meet a rather high eligibility requirement related to age and earning trends are eligible for Standing Order matching. Also, only members of Royalty Exchange’s All Access membership program can place Standing Orders. (Update 5/29/2020: All verified investors can now place Standing Orders on a limited basis)
Perhaps more notably, investors using the Standing Orders feature are placing and filling orders based only on the performance of the incoming royalty stream, not the content of the catalog. So investors don’t know the artists, songs, or genres of the catalogs used to fill their orders. They only know the age of the catalog, its last 12 months’ earnings, and the multiple they wish to pay for it.
With that, here’s what we found. The average returns generated from catalogs acquired through Standing Orders is over 50% greater than those acquired through auctions alone.
Return On Investment
Auction House Average
Standing Orders Average
While both sets of returns are more than respectable, this suggests that investors should focus their evaluation of royalty assets based on common factors like Dollar Age and earning trends over unique factors like name recognizability or musical taste.
For a far deeper analysis of this 2019 returns data—including information on returns broken down by asset type (Life of Rights vs 10-Year Term), platform (Auction House vs Standing Orders), and some interesting differences in closing multiples across both—read our January 2020 Insights report.
That report, and access to the Standing Orders feature, are available exclusively to All Access members. Click below to learn more about the program and how to join.
Behind the Data
We administer royalty distributions to investors for all transactions conducted on our marketplace. That means the royalty distributor sends payment to us, and we forward that to the investor.
We do this for two reasons. First, to take the administrative burden off the royalty distributor. (The easier we can make it for them, the more royalty opportunities we can make available to investors.) Second, it allows investors that acquire multiple assets on our platform to collect one, consolidated payment (with a full accounting) from us, rather than multiple checks with different accounting features from multiple distributors.
The added benefit of administering these payments is we can also measure and report aggregated returns.
The challenge is comparing returns across a wide variety of deal types. Catalog transactions take place at different times of the year. Distribution schedules vary from monthly to every six months.
So to create the most accurate reflection of aggregated returns across the broadest number of data points, we focused our analysis on six months of returns, and reported them here on an annualized basis.
For informational and educational purposes only.
Royalty Exchange is not an investment advisor and does not provide legal, tax, or financial advice. No information presented is intended to recommend any particular investment opportunity and is intended for educational purposes only.
Historic royalty income is no indication of future royalty income. Future royalty income is dependent upon future sales and licensing revenue generated by the sound recordings or compositions associated with any given asset.