How to Invest in Music Royalties

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Contributor, Benzinga
March 23, 2023

It’s no secret that the world of music royalties is complex — and lucrative.

Artists aren’t the only ones making money. Songwriters, record labels and publishers all get a slice of the royalty pie. And now, you can be one of those players, too. 

Even if you’ve never written or performed music, it’s possible to invest in music royalties and diversify your portfolio income. But before you rush out to buy royalties, you should know what to look for. 

What Are Music Royalties?

In general, a royalty is any payment made to an asset’s owner in exchange for rights to use that asset. In particular, music royalties derive from copyrights or the intellectual property rights held by an artist. 

In the U.S., music royalties are complex affairs. Essentially, every piece of recorded music holds two copyrights:

  • The sound recording (master) copyright on the recording, held by the performing artist and their contracted entities (like record labels)
  • The composition (publishing) copyright on the lyrics and melody, held by the songwriter and their contracted entities (like publishing companies)

Songs earn royalties when they’re performed live, streamed, played on the radio or used on TV or in a movie. Then, royalties are divided among the copyright holders, including the performing artist, songwriter, record label and distributor, according to existing contracts. 

But if you’re not in the music industry, how is it possible for you to invest in music royalties?

That one’s a bit simpler. Occasionally, musicians or songwriters sell some or all of their royalties to cash in or finance new projects. When that happens, you can buy royalties yourself, often through the entity that purchases the copyright. Then all you have to do is sit back and enjoy the passive income rolling in. 

Why Invest in Music Royalties?

You might invest in royalty income for several reasons. Perhaps you’re a music lover or a fan of a particular artist. Maybe you want to help fund a singer’s next album. 

But the biggest reason to buy royalties is for their recurring, passive income. 

In the U.S., music copyrights last for 70 years after the author’s death, meaning you can easily enjoy royalties for over a century. And thanks to music’s resilience during hard times and the proliferation of streaming sites, cash flows remain relatively predictable. 

Many royalties also boast attractive yields, ranging from 4% to over 10% annually. By comparison, the S&P 500’s annualized return in the last half-century sits at around 10.5%. 

Music royalty investments also provide excellent portfolio diversification potential. Because music royalties don’t rely on the same factors that drive stock market profits, they’re considered uncorrelated assets. 

Plus, as passive income, you don’t have to earn royalties once you purchase the rights. Just sit back and watch the dough roll in. 

Where You Can Invest in Music Royalties

Because royalties are generally held by private persons or entities, accessible music royalty investments can be hard to come by. But you do have options. 

Marketplaces

Online marketplace platforms allow investors to buy and trade individual or fractional songs or catalog royalties. Some even let you crowdfund albums under production in exchange for a percentage of the royalties later. 

Marketplaces like Royalty Exchange, Lyric Financial LLC and SongVest offer deals ranging from a few hundred dollars to around $1 million. While that sounds like a lot, in the world of lucrative music deals, that’s relatively small potatoes. 

Bear in mind that you’ll have to do your research with marketplace investments, as the earnings potential of an investment greatly influences your potential returns. 

Hedge Funds

Fully managed hedge funds provide another opportunity to buy royalties. These funds purchase positions in music royalties and hand out the profits to shareholders. 

Royalty funds may present a less risky option, as you don’t have to choose your investments alone. Plus, you can easily maintain portfolio diversification between these and other assets. 

That said, your options may be somewhat limited, as music royalty funds tend to be private.  

Things to Consider When Investing in Music Royalties

Making smart music royalty investments isn’t as simple as choosing your favorite song. If you want to generate real income for years to come, you’ll need to adopt a data-backed, long-term mindset.  

Type of Royalty

Where and when you earn royalties greatly impacts your long-term earnings potential. 

Are you paid when a song is performed live? Covered by another artist? Played on the radio? Streamed on the radio? Some combination of the three?

In other words, it’s important to know what triggers your payout upfront. 

Examine the Financials Over the Song

Before you make any music royalty investment, you should set aside your personal music preferences and dive into the financials instead. Songs that perform well financially, even if they’re not your favorite, stand to produce larger passive returns. 

Long-Term Returns

The ultimate goal of investing in music royalties is to select songs that will remain popular for decades, not months. 

A song that tops the charts quickly and falls into obscurity may generate a burst of income — and then never produce a penny again. 

But a song that circles Spotify playlists, movie soundtracks and grocery store radios for years will keep producing long after the song tops the Billboard 100.   

Should You Invest in Royalty Income?

Because of their risks and performance potential, not to mention their cost, music royalty investments may not be for everyone. But for investors looking to branch outside the traditional, investing in music presents a unique and potentially lucrative opportunity.

Frequently Asked Questions

Q

How much does it cost to invest in royalties?

A

The cost to invest in music royalties ranges from a few thousand to millions of dollars. The exact price depends on your preferred catalog as well as whether you buy partial or full rights.

Q

Are royalties passive or portfolio income?

A

Royalties count as passive income — you don’t have to earn your income — within your broader financial portfolio.

Q

Do royalties last forever?

A

In the United States, any song copyrighted in or after 1978 holds its copyright for the life of the author plus 70 years. In practice, a song’s royalties could last over 100 years.

About Anna Yen

Anna Yen, CFA is an alternative investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about alternative investment topics ranging from derivatives to real estate and cryptocurrencies. Her work has been published on sites like Quicken, the crypto exchange Bybit, and Credit.com.