Company Lets Musicians Sell Royalties to Investors
(NEW YORK) -- The Royalty Exchange is not -- as it might sound -- the place you go to trade in a late-model Charles for a zippier Prince Harry. It's where you go to buy the future earnings of Usher, TLC, Boyz II Men and other recording artists, including ones deceased, like Judy Garland.
It's an online auction house where what's being auctioned are future royalties from songs.
Creator and president Sean Peace tells ABC News he originally intended (and still does) for the site to auction royalties from many different kinds of intellectual property like movies, works of literature, pharmaceuticals and patents. For now, however, its offerings are limited to royalties from songs and from an as-yet-unbuilt solar energy plant in Ontario, Canada.
Currently up for auction on May 9 is The Clement Collection, which produces average royalties of slightly less than $29,500 a year. It includes performance, digital and synchronization royalties for songs written by producer Edmund Clement and recorded by a variety of artists including Chris Brown, Tomcraft and Usher.
Bidders must bid on the entire collection, undivided, with minimum bids starting at $60,000. What the winner gets is the future royalty revenues of the music. While that revenue is impossible to predict with perfect accuracy, says Peace, buyers are unlikely to be surprised by the performance of their investment, since they will have had access, before bidding, to three years' worth of reports on the royalties' past performance.
"Most of our streams," says Peace, referring to earnings, "have been pretty consistent, offering returns of between 5 percent and 10 percent. Every one's a little different."
Most items for sale have been producing a royalty stream for at least 10 years, further reducing the chance of surprises. While dramatic drops in revenue are rare, he says, there sometimes is fluctuation on the upside: A car company, say, will decide to license a song in a given collection for a TV commercial, and the song's royalty stream will spike.
The Exchange has held 18 auctions since being created two years ago. The cheapest collection sold to date was priced at $9,500, but Peace says the normal minimum is around $20,000. He took the cheaper offering as a favor to the artist (unnamed) who had suffered financial reversals and was about to be kicked out of his house.
The Royalty Exchange is intended, Peace says, for investors looking for a place to park their money other than the stock exchange. He regards royalties as "an alternative investment."
The stock market could tank tomorrow, he says, and the performance of a royalty would be unlikely to change.
"TV shows and radio aren't all of a sudden going to stop buying music," he argues. "Are there fluctuations? Yes, but not by 30 percent. This is for people looking for a consistent rate of return without the volatility of the market."
And music, as an asset class, is "pretty cool," he says. "It's cool to be able to say you own part of a Natalie Cole song."
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