That song you have stuck in your head right now...would you like it to make money for you? That may not be a pipe dream for much longer. Right now there is a website called Royalty Exchange where accredited investors (a fancy way of saying “really rich people”) can buy and sell royalties made on some of the most popular music on the radio now and in years past.
If the new Coldplay album takes off or and old Sinatra song is used in a movie, investors in those royalties get a cut of the profit.
Right now it’s tough for the average Joe with his online trading account to get in on the action, but that may not be the case for much longer says Jonathan Hoenig of CapitalistPig.com and adviser to Royalty Exchange.
“It’s not so unlikely that in the next three to five years you could easily see an ETF that doesn’t hold stocks or bonds but holds royalty interests and pays monthly or quarterly dividends based on the amount of times a...song is played.”
Not convinced? Look no further than the Apple / Beats deal. Sure, Apple gets a recognized audio brand but they also get the infrastructure of Beats’ music streaming service to supplement their own “iTunes Radio” offering.
After a sea change in the industry that saw actual media like LP’s, cassettes and CD’s give way to MP3’s there was a scramble to monetize it. There was the wild west of Napster followed by the “pay-per-song” iTunes model and it seems now that what the consumer wants is the streaming capabilities that Beats, Apple, Pandora and Spotify all offer. Quite simply there is money to be made there and Hoenig believes this is one of the ways royalties can generate cash.
Still he notes that such investments aren’t limited to music. He mentions medical innovation, oil rights, and mineral rights as other types of royalties that can lead to real returns for investors
As with any new idea, those who choose to invest should do their homework first. “These are assets that are illiquid,” Hoenig cautions. “So if you have a need for the money more than anything song royalties are not a great choice for you.”
If you’re in it for the long haul, and not overly risk averse “music royalties have the opportunity not to just pay a steady income but potentially even to rise in income,” Hoenig says. “If your song is used by Quentin Tarantino or used in an ad or becomes popular for whatever reason music royalty owners can often see those payments go up.”
Would you invest in an ETF that holds song royalties? What kind of music do you think would generate the biggest return? Tell us your thoughts in the comments below.