Music Royalties

Music Royalties Returns vs S&P

-13.00%

Versus S&P

-19.70%

a day ago

-13.00%

Versus S&P

-19.70%

a day ago

6m High

6m Low

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Music Royalties

£126.02

£102.60

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S&P 500

4,796.56

3,666.77

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Music Royalties

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S&P 500

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Does not follow the Stock Market

Sources: SONG, SPX

    Reasons to Invest

  • Streaming has become the dominant form of music consumption worldwide, reducing music piracy and stabilizing music royalty income.
  • While stocks and bonds are susceptible to global macro events, music royalties are uncorrelated to public markets.
  • Music royalties are a form of passive income with the potential to deliver double-digit yields.
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Highlights

Good For

Passive income

Time Horizon

5-10+ years

Diversification

Music catalogs can generate competitive returns, with music royalty funds delivering average yields of around 5% to 10%. Do keep in mind, however, that music royalty income generally falls to a lower but more consistent level after 3 years. Unlike dividends, music royalties are not based on a company’s performance. Instead, royalty payments are made to the copyright holders of a song every time it is used. These uses include sales, streams, public performances and licensing to films, video games and other mediums. Most of the music industry’s revenue growth is being driven by digital streaming. Since 2014, music streaming revenue has grown at an average rate of 43.9% according to Business of Apps. With the growing adoption of smartphones, smart speakers and connected cars, Goldman Sachs estimates that streaming revenue could reach up to $37 billion by 2030—a more than 76% increase from today. 

In contrast to the low yields offered by bonds and dividend stocks, music royalties have been shown to deliver yields as high as 17%.

avg

+5.4%

Avg Annual Returns

Past 10 years

Ways to Invest

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Risk Analysis

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Risk Analysis

The high, steady yields offered by music royalties do come with their own set of risks. The return on investment of a music catalog hinges on proper valuation. One common approach is to build a Discounted Cash Flow model, but this requires years of historical data that is not available for newer catalogs. Counterparty risk is also worth mentioning, so it is important for investors to verify that a seller actually owns the copyrights they are buying. Another troubling matter is that streaming royalty rates have not increased in tandem with inflation, which will continue to eat into profits over time. 

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Compared to:

Residential Real Estate

Low

12

Gold

Low

13

S&P 500

Low

20

Performance During a Recession

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Performance During a Recession

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. 

Drawbacks

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    Drawbacks

  • Music royalties have medium-to-high minimum investment requirements, ranging from $5k to $1 million+.
  • Music royalty income is not fixed, with cash flows generally declining over time.
  • Investors who don’t know how to value a music catalog could end up overpaying for music IP.
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How You’re Taxed

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How You’re Taxed

Income Tax

Income Tax

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.

Investing In Music NFTs

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Investing In Music NFTs

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.

Did You Know?

  • poitStar

    SongVest was the first music royalties marketplace released in the US. Tech entrepreneur Sean Peace came up with the idea after talking to a friend about her catalog and realizing that industry outsiders would probably want to buy royalties too.

  • poitStar

    In December 2021, Bruce Springsteen sold his music catalog to Sony for a whopping $500 million—the largest figure ever paid for a single catalog. 

  • poitStar

    Michael Jackson and Paul McCartney were close friends throughout the '70s and early '80s. But that friendship came to an abrupt end in 1985 when Michael Jackson bought The Beatles’ entire back catalog for $47.5 million, which was seen as a betrayal to Paul McCartney.

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Music Royalties