With big private-equity firms finding music publishing assets attractive, an upstart company wants to see if it can create a market for selling rights to individual investors. But the ambitions of the Royalty Exchange don’t stop there: Principals also envision the development a secondary market where units of assets would be sold like a stock or a bond.
CEO Sean Peace — who co-founded the company with former Midnight Star singer Reggie Calloway and former music publicist Wilson Owens — says the firm can sell any asset regardless how big it is. But he anticipates the company’s sweet spot will be in holdings that generate annual income of $5,000-$200,000.
Since its inception in July 2011, the Royalty Exchange has sold royalty-producing assets that combined have brought in $875,000, including songs by Preston Glass and Edmund Clement and titles owned by an heir of Frank Churchill, who wrote tunes for Disney movies, including “Whistle While You Work.” The company positions itself as a buyers-and-sellers marketplace for a variety of royalties beyond music publishing, including books, movies and TV. On the other hand, not everything that has come up for offer has sold. An auction for masters of songs by Jerry Garcia and Merle Saunders flopped because they didn’t have a royalty history.
Most auctions to date have been won by individual investors, but the Royalty Exchange is moving to create a secondary market, with plans to cut up assets and income streams into units. For example, an asset worth $100,000 would be offered in 10 units. This plan creates risks for potential investors — what happens if the Royalty Exchange turns out to have a financially inviable business? Will investors be left in the lurch?
To alleviate such worries, the company will create a separate legal entity that would own and hold income-generating assets. “If we disappear tomorrow, they have the paperwork for the assets,” Peace says.
On the front end, the Royalty Exchange (or an entity it hires) will handle due diligence to ensure the copyright paperwork is in order and the copyright assignment is correct. For example, when the company recently sold a Travis Tritt producers catalog, it contacted all labels to ensure the contracts were in effect.
After the auction takes place, the Royalty Exchange serves as an administrator for all royalties, but in cases where publishing assets are actually acquired, the new owners would have to appoint a publisher to market the music and create new licenses.
For its work, the Royalty Exchange collects a 2.5% fee from the buyer and anywhere from 5% to 12.5% from the seller depending on the size of the deal. Also, as administrator, it collects 2.5% from the buyer’s income. Based on those percentages, Billboard estimates the company has made about $125,000 so far. So it clearly needs to drive more volume in order to have a sustainable business. However, the company got a boost when it landed a $2 million equity infusion from Grotech Ventures in July.