[Dixielandjazz] Web Helps Musicians Sell Shares of Royalties

[Norman Vickers]

To: DJML and Musicians and JazzFans lists

From: Norman Vickers, Jazz Society of Pensacola

 

This from NYTimes 4-21-2013-wouldn't apply directly to me but I thought this
subject  would be of casual interest to some on this list.

 

 




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April 21, 2013


Web Helps Musicians Sell Shares of Royalties


By BEN SISARIO
<http://topics.nytimes.com/top/reference/timestopics/people/s/ben_sisario/in
dex.html> 


As a songwriter and producer for stars like Natalie Cole
<http://topics.nytimes.com/top/reference/timestopics/people/c/natalie_cole/i
ndex.html?inline=nyt-per> , Aretha Franklin
<http://topics.nytimes.com/top/reference/timestopics/people/f/aretha_frankli
n/index.html?inline=nyt-per>  and Whitney Houston, Preston Glass receives a
comfortable stream of music royalties. But when he needed to make a
substantial investment to embark on the next phase of his career - as a
performing artist in his own right - he had few options to raise the money,
he said. 

"Me and most writers can't walk into a bank," Mr. Glass said in an interview
from his home studio in Los Angeles. "Banks don't understand how songwriting
works, how the whole business of royalties works." 

So Mr. Glass turned to the Royalty Exchange
<http://www.theroyaltyexchange.com/> , a Web site where musicians can sell
parts of their royalty income to investors. He put 15 of his songs on the
block - including "Miss You Like Crazy," a Top 10 hit for Ms. Cole in 1989,
of which Mr. Glass was a co-writer - and raised $158,000. Mr. Glass retains
most of his rights to those songs, but will now share part of the income
with an investor whenever they are played on the radio or streamed online. 

Since it was founded two years ago, the Royalty Exchange, based in Raleigh,
N.C., has held 18 auctions, raising about $750,000. But Sean Peace, the
company's chief executive, envisions it as a robust marketplace where
musicians can capitalize on their work and investors can find a somewhat
exotic asset that could still bring in steady earnings. 

"Most musicians have no idea that they can take their royalties and reinvest
in themselves," Mr. Peace said. "If they could get $80,000 up front for
selling 50 percent of their royalties, that can be game-changing." 

The music industry is full of bitter stories of musicians who have given up
royalty rights for a fraction of their future value. Eli Ball, the founder
of Lyric Financial <http://www.lyricfinancial.com/> , a competing service
that gives musicians short-term advances on their royalties in exchange for
a fee, thinks that musicians should not sell their rights. 

"It's too easy for songwriters to sell off an asset that took you a career
to build and is going to be gone forever," Mr. Ball said. 

But Mr. Glass said he liked the Royalty Exchange because he could define
exactly which rights to sell and which to retain. His sale involved what is
known as the songwriter's share of public performance; it does not cover
sales of CDs or downloads, and it does not involve any change to the song's
actual copyright. (He also is a national artist representative for Lyric
Financial.) 

The intricacies of royalties can be confusing even to many in the industry.
But Mr. Peace said his buyers are told what they will and will not receive,
and are given at least three years of back earnings reports. For a
collection of songs written for R&B acts like Usher and TLC that was up for
auction recently, bidders saw that most of the $22,975 in annual earnings
was generated by three tracks. 

The company takes a 2.5 percent fee from the buyer and anywhere from 5
percent to 12.5 percent from the seller, depending on the size of the deal.
It also takes 2.5 percent of future earnings from the buyer, as an
administration charge. 

Mr. Peace, whose background is in technology, started the Royalty Exchange
in 2011 with two others after first trying a similar idea with SongVest,
which sold interests in songs as high-priced memorabilia items for fans. But
that model tended to work only with big artists, he said, so the Royalty
Exchange instead aims at investors with bundles of songs. 

The idea of royalties as a salable asset has a mixed record. In 1997, David
Bowie
<http://topics.nytimes.com/top/reference/timestopics/people/b/david_bowie/in
dex.html?inline=nyt-per>  raised $55 million by selling a 10-year bond in
some of his royalties, with a fixed interest rate. But by 2004 they were
downgraded amid industry tumult, and lawsuits over administration fees and
other issues marred similar bonds. 

The complexity of music royalties is another concern. Michael S. Simon, the
chief executive of the Harry Fox Agency, one of the industry's primary
royalty-collecting groups, said that a potential investor needed
considerable sophistication. 

"You need to understand life of copyright, you need to understand the
potential ramifications of legislation that could affect life of copyright,
and you need to understand termination rights," Mr. Simon said. "Those are
three things that most people don't understand, let alone how to predict
revenue in the music business." (Termination rights let authors recover
copyrights to their works from third parties after a certain period.) 

Martin Diessner, an investor who lives in South Africa who bought about half
of Mr. Glass's offering, said that being an outsider allowed him to spot a
good investment where others might see risk. 

"The reason why I think it's less risky is probably because I don't
understand the music industry," said Mr. Diessner, who is now on the Royalty
Exchange's advisory board. "Everyone who is in the industry sees it from the
inside out, while I see it from the outside and maybe don't have a negative
perception." 

Most of the Royalty Exchange's sales have dealt with the publishing rights
of songs, which have to do with songwriting, as opposed to their recordings,
which are controlled by a separate copyright. Publishing income has been
seen as more stable, but it is also subject to shifts. Last year Ascap and
BMI signed a new deal changing the method for how radio companies pay
royalties. According to BMI's most recent
<http://www.bmi.com/images/news/2012/AnnualReview_2011_2012.pdf>  annual
report, the change has already resulted in a 3 percent drop in revenues. 

Mr. Peace said that like any investment, royalties involved risk, and that
its buyers were given a significant amount of information for evaluation. 

As for Mr. Glass, the sale has helped him buy new equipment for his studio,
including a sitar and various vintage instruments, that will help him as he
starts a new phase in his career. 

"I wanted to be competitive, not only as a producer and writer but as an
artist, too," he said. "I wanted to invest in myself, to be able to use some
of the royalties that I have built up, almost like real estate."