What Royalty Investors Look For In Catalogs (And What They Don’t)

  in Financing Guides

Dec 01, 2020

Seems like every week there's another news story about a big financial outfit buying up music rights. And we facilitate multiple similar transactions on our marketplace every week. 

But what are these investors looking for when buying music royalties? After all, most aren't music companies looking to expand their repertoire. They're financial companies seeking assets that will generate a return. 

As such, they evaluate catalogs a little bit differently than a label or publisher would. 

Since we've conducted over 1,000 transactions our our marketplace over the years, we figured we'd look a little closer at the data to see what investors are paying more for, and what they're not. Here's what we found out... 

Methodology

  1. We analyzed 239 sales since 2018, not including Private Syndicate transactions or non-music transactions, to see how different factors affected the median closing multiple when accounting for similarities (like age, genre, type of royalty, etc.). 

  2. We also examined all sales with closing multiples of 10 or more since 2018 to identify common traits, not including 10-Year Temporary sales.

Note: Because every catalog is unique, there remain many variables that are impossible to identify—such as investor’s personal music preferences—which create a certain randomness in the data. 

Terms: we look at both average and median data. The median is the halfway point of the list of data analyzed (ie: the point at which there are as many data points above that number as there are below). 

What’s Important


Longevity

Investors value stability, not volatility. The longer a catalog has been earning royalties, the longer investors feel comfortable that it will continue to earn royalties. It’s known in investing circles as “The Lindy Effect.” 

As such, we found that the average age of the songs included in a catalog is one of the biggest determining factors behind how much investors are willing to pay: 

  • Looking at all sales, catalogs older than 5 years attract a closing multiple about 20% higher than the median. 

  • Looking at the catalogs that sold at a multiple of 10x or more, the average age was 13 years, with the median age being 10 years. 

Source of Royalties

Because longevity is important, investors look for catalogs that generate royalties from sources they feel will continue. Top among these is streaming-based royalties. Streaming royalties are considered more sustainable than radio airplay or digital/physical sales. Sync royalties are interesting, but there’s no way to forecast whether past sync payments are likely to be repeatable in the future. 

Among the catalogs that sold for a multiple of 10x or more, streaming generated on average 62% of their royalties, with the median being 64% stemming from streaming. For those that sold for less than 10x, streaming generated only 44% of the earnings on average, with the median being 42%. 

Familiarity

Investors on Royalty Exchange have the option to place “blind” offers on catalogs that meet certain financial criteria, without examining the details of the music, songs or artist. Although we’ve demonstrated that investors buying catalogs “blind” like this on average earn higher returns, the closing multiples on catalogs where investors can review the song and artist details are 20% higher. 

Anecdotally, we’ve seen catalogs for superstar artists close at multiples far higher indicating that investors are willing to pay more for bragging rights to a certain song or catalog, or they feel that superstar artists are a safer investment. 

Cost

While multiple over a catalog’s last 12 months’ earnings is how investors typically value a music catalog, the absolute cost of the catalog is also a factor. Investors have shown a willingness to pay a higher multiple for a lower-cost catalog. 

Of the catalogs that sold for a multiple of 10 or higher, the average transaction was $56,800, with the median being $28,000. 

What’s Not Important


Genre

There was no obvious preference for one genre over the other in our analysis. The list of catalogs that sold for 10x or higher range from Hip-Hop to Country to R&B to Rock to Electronic. So long as the average age is 10 years or more, and still generating streaming activity, investors are willing to acquire the royalties. 

Copyright

Very few of the transactions on Royalty Exchange include the copyright (either publishing or sound recording). So there’s not enough data to conduct a proper analysis. However, based on the results of the few catalogs sold that did include the copyright, there is no indication that the copyright caused a notably higher sale multiple than those without the copyright (with all other factors being equal). 


We hope this sheds some light on what investors are looking for. If you own a catalog that has any of the characteristics listed, you could attract a lot of interest from investors willing to pay quite a bit for the opportunity to collect even just a percentage of your royalty income. And you can do it all without giving up you rights. 

Click the link below to get a free analysis, and if you want you can test the market by listing your catalog to the largest community of music royalty investors in the world. It's free, and there's no obligation.