Music by VICE

Some People Are Investing in Pop Song Royalties Instead of Stocks

"Investing in music royalties... is pure passive income. You'll make money in your sleep from it. It doesn't require any proactiveness."

by Luke Winkle
Mar 23 2020, 6:41pm

Dozens of different people had their hands on "New Americana." Four different songwriters contributed the music and lyrics for the 2015 pop hit, Halsey performed it, Lido produced it, and Astralwerks and Capitol Records released it. The song springboarded Halsey to a higher echelon of fame, one filled with Chainsmokers collaborations and salty Pitchfork tweets—making her the kind of artist you can expect as a big-font mainstay on Coachella posters for years to come. So as "New Americana" banked Spotify streams and radio rotation, and as Halsey settled into stardom, one of the track's composers, DJ Kalkutta, wanted to take advantage of the momentum while she still could.

"A friend of mine sold on Royalty Exchange and had a great experience with the company's attentive and ultra-competent staff," she told VICE. "[I] figured intellectual property was being sold in a relatively user-friendly way by now."

Late last year, the auction for Kalkutta's "New Americana" royalty rights closed. The final bid? $79,200. The bounty? Perpetual IP ownership of her (now-former) piece of the pie. Kalkutta essentially exchanged the future dividends she would continue to make on her Halsey hit for a lump sum of money. Cashing out, instead of doubling down.

These kinds of transactions are Royalty Exchange's bread and butter. In the past, the company has hosted rights holders for Jay-Z and Alicia Keys' "Empire State of Mind," The Doobie Brothers' "Black Water," and Dirty Dancing's "(I've Had) The Time Of My Life." Capital is an amorphous concept in 2020; there's no better example than filling out a financial portfolio with pop songs.

Antony Bruno, Director of Communications at Royalty Exchange, reminded me that artists have been selling off their publishing rights for years. The most famous example happened back in 1985, when Michael Jackson outflanked Paul McCartney with his bid on the Beatles' back catalog, causing a deep riff between the two friends. But Royalty Exchange has miniaturized that process, and allowed anyone—not just multimillionaire titans like the Jackson estate—to barter their artistic oeuvre. This business model is particularly relevant for the post-millennial pop music machine, where every hit requires a studio-wide creative effort. (Justin Bieber's latest single "Yummy" has 11 credited personnel in the liner notes. Compare that to Michael Jackson's "Billie Jean," which has just three.) Royalty Exchange understands that there are more people working behind the scenes in the music industry than ever before. They, too, are entitled to operate on a free market.

"We don't buy the rights. We operate the marketplace that connects the buyers and the sellers together. Songwriters work together, it's a very tight community. So if a songwriter works with us, they'll often tell their co-writers on that song, 'Hey, my share of this song, or this catalog, was worth this much,' and then they all come to us," Bruno said. "We have these spurts around certain genres. About a year or so ago we had a bunch of Christian songwriters. One or two came of us, and then bam, there was a ton more … The average song has, like six songwriters.

"Royalties are the currency of the music business. There's a vast, vast community of people in this industry that nobody has ever heard of before."

Like any auction house, Royalty Exchange offers some basic appraisal information to its investors so they can make a wise purchase. For instance, everyone bidding on Kalkutta's "New Americana" royalty stream knew that within the 12 months before the auction, the song made her a total of $8,320. (Extrapolate that over a decade, and the royalty stream will eclipse the closing bid.) Like the majority of other listings that hit the Royalty Exchange docket, Kalkutta was specifically selling her "public performance" rights. According to Bruno, those rights encompass a huge umbrella of revenue that include any time the song is played "on radio, on a streaming platform, at a baseball stadiums, or on television." Essentially, whenever "New Americana" is played for an audience, Kalkutta's buyer earns another drop in the bucket.

I asked Cherie Hu, a writer and researcher who covers the financial side of the music business, if song royalties are a good investment for the average broker. She explained that some investors on Royalty Exchange might be incentivized to simply "own" a fragment of an artist they like. After all, that's a little more fun than the typical mutual fund full of pharmaceutical stock. Outside of that, Hu argues that the royalties can be more reliable than the entropy of Wall Street. No matter what happens to the stock market, people are always going to be listening to music. As far as assets go, "New Americana" is surprisingly solvent.

"If the investment is good, if you're investing in proven back catalogs, they tend to perform really well independent of any stock movements. If you're investing in a tech stock, a lot of the bigger tech stocks move in the same direction a lot of the time. Investing in music royalties escapes that codependence," she said. "It's pure passive income. You'll make money in your sleep from it. It doesn't require any proactiveness."

Keep that in mind when you strike it rich, dear reader. Retirement funds are boring. Buy pop songs instead.

Tagged:
Money
investing
Michael Jackson
halsey
music business
royalties