Music Royalties

With the rise of global internet access, smartphones and digital streaming, investor confidence in music royalties is now greater than ever. This will likely remain the case heading into the future, as streaming is the most convenient and inexpensive way to discover and access millions of songs from around the world. Music royalty income is also largely shielded from market downturns. While royalties tied to sales and licensing have the potential to decrease during recessions, consumers will keep streaming music in almost any economic climate. Following lockdown restrictions, streaming accounted for most of the music revenue generated during the 2020 COVID-19 pandemic. 

Music royalties can offer investors a stable yield, but tax planning is critical to retaining much of that income. Every individual’s situation is unique, but royalties are typically reported as self-employment income on Schedule C of IRS form 1040. While music royalties are often taxed at a higher rate, they also have unique tax benefits. Since music royalty income declines over time, it is considered a depreciating asset. As such, music royalties can be amortized, meaning that investors can write off the cost of this asset over a number of years. By offsetting the income produced, investors in turn also reduce their tax liability. For more specifics surrounding amortization, please refer to section 167 of the Internal Revenue Code.

An NFT, short for non-fungible token, is a unique digital asset that acts as a certificate of ownership. Most NFTs are created, bought and sold using the Ethereum blockchain. Artists, labels and publishers have recently started to mint NFT songs and music catalogs that automatically distribute royalty income to token holders. This innovation has a host of benefits, including removing the need for middlemen like performing rights organizations (PROs). Since music NFTs are also programmable, some are even coded to pay a cut of all future resales to the original copyright holder.