Royalty Exchange

Summary

Royalty Exchange is an online auction platform for royalty rights (primarily related to music). Terms and details vary considerably from auction to auction, and the complexity and nuances of IP rights transactions likely puts this platform well outside the comfort zone of many investors, especially those without direct experience in IP rights sales.

  • Website: https://www.royaltyexchange.com
  • Investment Types: Royalty Revenue
  • Security Types: Rights Contract
  • Sectors: Entertainment, Music, and Royalties
  • Minimum Investment:
  • Open to all investors

Pros

  • Open to non-accredited investors
  • Fluctuating but regular cash flow
  • Very low correlation with other asset classes
  • Transparent auction process
  • Some rights include multiple income streams

Cons

  • Some auctions have high minimum bids ($100K or more)
  • Inherent uncertainty in future cash flow from royalties
  • Rights transactions can be incredibly complex

Royalty Exchange logo

Overview

Founded in North Carolina in 2011 as a venture-backed startup, Royalty Exchange was sold to new ownership based out of Denver in 2015. Their public auction model stands out among alternative investment platforms.

I worked in book publishing for well over a decade, and know firsthand that most commercial rights sales in the media business remain anything but transparent, so Royalty Exchange deserves kudos for working to bring more visibility and opportunity to both rights holders and buyers.

Types of investments Royalty Exchange offers

While specifics can vary considerably from auction to auction, you’re investing in future income stream derived from royalty payments, primarily for music. For example, some auctions are for the “performance” rights associated with catalog of songs – every time one of the songs is played on a TV show, in a movie, on satellite radio, in a commercial, etc., a royalty is collected by a performance society (eg ASCAP or BMI) and those payments are distributed out to the rights holders.

Rights transactions can be incredibly complex, and investors should make sure to have a firm understanding of exactly what they’re buying, including for how long.

What do you get when investing with Royalty Exchange?

Royalty investments are contractual claims on future royalty payments owed to a copyright holder (who has chosen to license out some or all of their future claim on those payments).

Royalty Exchange fee structure

Royalty Exchange does not charge a fee to investors, they collect a fee from the rights sellers upon completion of a successful auction. Details about any additional fees are disclosed within the auction information (for example, fees to set up an account with the relevant rights society like BMI).

Potential returns and cashflow

Royalty payments are typically made quarterly, either directly from an entity like ASCAP or BMI, or via Royalty Exchange itself. Returns vary greatly depending on the specifics catalog. Most royalty streams tend to be steady over time, with some opportunity for additional upside (for example, if a song in a catalog is chosen for use in a popular movie, commercial, or TV show). Most copyright extends for the lifetime of the author plus 70 years, so many of the royalty streams have the potential to extend quite far into the future.

Regulatory framework and due diligence expectations

Royalty Exchange performs an in-depth analysis of each catalog before opening for auction. That said, they also advertise to rights sellers that they “have a team of attorneys, accountants, and analysts that can make these deals happen fast”, closing in less than 30 days, so prospective investors should keep that in mind as they perform their own due diligence in reviewing an auction.



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