Royalties on Royalties on Royalties
Eminem, Usher, and Wiz Khalifa are among hip-hoppers whose musical catalogs are on the open market. What does this even mean?
Production duo Funky Bass Team, made up of brothers Jeff and Mark, published and produced a huge portion of Eminem’s music from his early years. The royalties are staggering ($5 mil last year alone!), and now they’re ready to auction the rights to some of those royalties off to the highest bidder. (Em… isn’t too pleased, but that’s another story.)
It’s all a bit complicated: copyrights, royalties, licensing. Pretty confusing, especially in the new streaming era as the ground shifts beneath our feet.
Here’s what’s important:
- Terrestrial radio (AM/FM type), restaurants, sporting venues or any other public places that play music, or streaming services have to pay to play copy-written music
- licensing agents like BMI, ASCAP, or SoundExchange are almost always the ones getting paid — they’ll hound you. Don’t get on their bad side.
- These licensing agents, in turn, pay out to publishers, songwriters, and performers who have registered with their agencies to collect.
Each combination of format has its own rules on who they pay, and how much:
- Spotify, for example, pays about 10% of its revenue to songwriters and 60% to performers
- Pandora gives no love (or $$) to songwriters
- Kiss FM and other terrestrial are paying only songwriters.
The right to the money that gets paid out — that’s what’s being flipped like foreclosed houses, cryptocurrencies, and stocks. Crazy.
While it’s coming to the forefront right now, it’s been around for a long time. Michael Jackson bought the rights to huge portions of the Beatles catalog for about $50 million, and now those assets (plus a few more from Sony) are valued at over a billion — with a B.
These can come from anyone with skin in the game. A back-up singer on that huge (and kinda trash) Wiz Khalifa x Charlie Puth x Fast & Furious track ‘See You Again’ (RIP Paul Walker) — the one that was the most viewed Youtube vid for a long time — auctioned off all of their royalty rights. The singer had made about 11 thousand bucks in the song’s first year, and the portion of the rights ended up selling for $102k. In turn, twhe selling exchange (Royalty Exchange) gets a yearly fee of $100 from the buyer … forever.
A 25% stake in writing royalties for Usher’s ‘U Remind Me’ recently went for $113k.
A Dutch pension fund invested in the rights to the Rodgers and Hammerstein catalog — every time Sound of Music gets performed at a high school, some retired teachers in Rotterdam get a extra bump on their check.
It’s a gamble. It’s innovative. It’s like making prop bets on the music industry.
Now, the conversation about “owning your masters” and how much a catalog can be worth in perpetuity — especially as music changes formats and evolves — is a conversation that’s been going on since recorded music began being monetized. Because of Obama-era changes in the SEC regulations on accredited investors (You no longer need a million bucks to invest in certain types of IPOs) and the proliferation of crowd-funding, everything’s changing. Access is opening up. Thanks, Obama.
For unsigned artists, companies that can handle distribution and the complex pathways of copyright and royalties while allowing artists to maintain control of their music and its rights will also thrive. See Frank Ocean, Childish Gambino, or Masego and their relationship with Stem.
A little excerpt from a Forbes article indicates this moment’s renewed interest, and the high futures market for music publishing as it enters a new era of profitability:
“Publishing is a great asset,” says billionaire Ron Burkle, a frequent investor in entertainment securities. “People obviously went through a moment in time when they thought these assets weren’t going to be worth very much because everybody was going to get it for free.”
Five years ago, we were proclaiming the end of the music industry. Now, Goldman Sachs projects the industry almost tripling its revenue by 2030. Now, catalogs are being bought up by major distributors left and right.
Now, we’ve got Ron Burkle, a cat who specialized in buying and selling grocery stores, probably scouring Soundcloud for “good investments.” To be fair, he invested 100 mil in Sean John fifteen years ago, so he’s had his hypebeast ears to the streets for a while now.