Royalty Exchange auctions fall into two types:
- Term Based: Winner collects royalty income for a fixed period of time (ie: 10 years). Royalty income reverts to the seller after the end of the term.
- Life of Rights: Winner collects royalty income for the lifetime of the underlying copyright (Life of the creator PLUS 70 years).
Both can prove valuable additions to your portfolio. But it's important to look past just the term of ownership when evaluating either as an investment.
This is the most common type of listing available on Royalty Exchange. The fixed timeframe is preferred by those who prefer not to sell royalties permanently. As a result, you as an investor gain access to not only more royalty investment opportunities, but to more diverse and higher quality catalogs that otherwise would be possible.
What’s more, the fixed term (typically 10 years) makes it easier to calculate project cash flows and overall returns. Each Term-Based listing features a Theoretical Internal Rate of Return.
This TIRR is not a projection or an estimation. It’s designed to give investors better insight into the relationship between the bidding price and the potential return on assets that will expire in 10 years based on projected cash flows.
It’s important to note that this figure takes into consideration your original purchase price. The figure listed is your potential return over and above your investment principle, and changes based on the current bid.
Life of Rights
Winning a Life of Rights auction means you will earn the right to collect royalties on the asset for the duration of the copyright. In the music industry, that means the lifetime of the creator plus 70 years.
That’s a long time. Of course, you can always choose to sell it yourself at any time, either through our marketplace or otherwise. And many have. But typically Life of Rights investors are in it for the long haul.
Determining what to pay for a Life of Rights asset takes careful consideration. Forecasting future cash flows beyond 10 years can be challenging. That’s why at this time, we do not list a Theoretical Internal Rate of Return on Life of Rights auctions.
And because there are fewer opportunities to acquire Life of Rights assets, competition for them can be fierce. Life of Rights on average attract twice as many bidders and three times as many bids as Term Based auctions. The result is a higher cost of acquisition relative to the asset’s value.
Getting Involved on the Exchange
But the best way to really see the difference between these asset types is to register for an account and watch an auction yourself. It’s completely free to create an account, and watching an auction requires no financial commitment.