Round Hill’s $263M Tips Music Royalties as 2018s Hottest Investment

Jan 19, 2018

Round Hill Raises $263 Million for Second Royalty Fund As It Completes Carlin Music Purchase (Reuters) / (Billboard)

Benom’s Take:

This week’s royalty news reminds me of a magic birthday wish I’ve had ever since I began my career in the music business.

My magic birthday wish would be to earn millions of dollars from my favorite music and art. In light of the Round Hill and Carlin Music deal, how about earning a cool $15 million in annual royalties?  

So here’s the best part about this magic birthday wish. A large portion of that $15 million will come from more passive royalty streams, such as public performances (streaming, radio, TV, concert venues, music festivals, bars, clubs, restaurants, etc.).

This is what many of us like to call, “mailbox money.” You don’t really have to do anything except register your songs, fill out a few forms and collect checks from ASCAP, BMI, and SESAC. Not to over-generalize, but once popularity and commercial activity hit a rhythmic stride, great and proven songs can basically do all the “work” for you.

For the investors and beneficiaries of Round Hill and Carlin Music, this magic birthday wish is a daily reality.

Last April, I wrote about the potential sale of Carlin Music. In that commentary, it was reported that Carlin wanted to sell for $250 million, a 16.7x multiple of the net publisher share (NPS) of royalties. In very simplistic terms, NPS is the total royalties less the songwriter’s 50% share. Sources tell Billboard that Round Hill completed the Carlin purchase close to that target price, at $245 million. That’s still just over a 16x multiple, so bravo to Carlin for hitting their mark.

At the same time, much credit goes to Round Hill, because they know how to play the funding and acquisition game. From its $263 million funding round for Round Hill Music Royalty Fund II, Round Hill was able to successfully utilize more than $100 million of that $263 million toward the Carlin purchase.

Round Hill also successfully completed the necessary due diligence regarding copyright reversions and terminations in the Carlin songs. As I mentioned in April, that was a big hurdle to completing the purchase. Round Hill has now cleared that hurdle to their satisfaction.

All of this activity proves how hot the royalty market is right now. The combination of Carlin’s 16x multiple sale, with the “investor appetite” to fund Round Hill, shows a booming demand for music catalog investments. Even on Royalty Exchange, the average closing multiple for music royalty auctions increased 20% over the course of last year. It makes for a lucrative seller’s market.

It’s not just classic catalog music that’s in demand either. Take a look at the latest reports surrounding Kendrick Lamar’s music publishing. Billboard is reporting that publishing royalty advance offers are coming in at between $20 million and $40 million.

A lucrative seller’s market is not to imply that investors are buying too high or not getting enough value. The value to investors is a very liquid, non-correlated asset that is steady and growing. As the Reuters article points out, Round Hill’s fundraising highlights the “...investor appetite for so-called alternative investments, such as wine and fine art, whose returns are, for the most part, not tied to the performance of financial markets.”  

If traditional financial markets tank, the public will still be listening to “Jingle Bell Rock” and “Santa Baby” during the holidays. Of course, no investment is 100% secure. Nevertheless, these royalty assets do add an exciting cash flow dynamic to investor portfolios, while also proving to be very lucrative for sellers. As long as one has a financial interest in songs and recordings that the public wants to hear, and that commercial establishments want to pay for, cash flow will just keep rolling into mailboxes and bank accounts all across the globe.

And now for this week’s other headlines:

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney. For more info about Benom, visit his website at www.professorplumbmusic.com.

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