Tuesday, November 21, 2017

Private Investors Are Buying Up Royalties

Written by Andy Hermann — Like a lot of independent artists, Mickey Shiloh was struggling to make ends meet. An L.A.-based professional songwriter now focused on launching her solo career, she had run up a lot of credit card debt on various expenses — promotion, Facebook ads, forming her own LLC (called Michaela, after her full first name). At one point, she even wrote herself a personal check for $20,000, trying to manifest the money she needed into existence.

Despite having numerous songwriting credits with such top-tier artists as Janet Jackson, Pitbull and Britney Spears, the royalties on her back catalog were netting her only about $2,000 a year. "I was in a really terrible publishing deal," says the 25-year-old San Mateo native, who signed with producer Rodney "Darkchild" Jerkins and his wife when she was just 17. "And that’s not a reflection on them," she is quick to note. "I learned a lot of great things from Darkchild and I always consider him a great mentor." But for songwriters who started their careers in the mid-2000s, when the industry as a whole was struggling with declining revenues, her situation is not uncommon. "It was just the business [at the time] was not good."

Having been through the industry wringer, Shiloh was naturally skeptical when a colleague told her about Royalty Exchange, a company that enables songwriters to auction off portions of their back catalogs to private investors, often for ample sums. “I was automatically like, this is not real. This is a scam," she says. But after researching the company and concluding that it sounded legit, she decided to give it a shot. After a three-day auction, her back catalog sold for $20,500 — the equivalent, as she puts it, of a 10-year advance on future royalties.

"Now tell me that's not manifestation!" Shiloh declares, recalling the check for $20,000 she had written to herself just a few weeks earlier. "It was like I got a $500 signing bonus," she jokes.

Royalty Exchange was founded in 2011 as a sort of auction house for copyright holders, particularly in music. Although it completed some high-profile auctions early on, selling off the rights to everything from Coolio's "Gangsta's Paradise" to the catalog of Disney composer Frank Churchill, it struggled to raise enough capital to stay afloat — likely because the music industry as a whole, at the time, was not seen as a smart investment.

But since relaunching under new ownership and management in March 2016, Royalty Exchange seems to have found its footing. The "world’s first online marketplace for buying and selling royalties," as the Denver-based company now describes itself, has completed "about 200 deals" since the relaunch, according to president/chief financial officer Jeff Schneider, and claims to have an active pool of more than 22,000 investors looking for a chance to buy up the rights to a potentially lucrative song or catalog.

Though the songs being put on the auction block are often familiar (a 25 percent songwriter's share of Barry White's "You're the First, the Last, My Everything," for example, sold in July 2016 for $73,000), the names of the actual rights holders are not. Schneider describes them as the "ecosystem" surrounding the artists whose names are attached to the hits — behind-the-scenes people, including professional songwriters like Shiloh as well as managers, producers, studio musicians and independent labels and music publishers, who don't have the luxury of leveraging their fame to pay the bills.

"If [the big-name artists] needed capital today, they can go on tour; they could sign a new publishing deal with an advance," Schneider explains. "We’re servicing a lot of the people who don’t necessarily have all those same financial options available to them.”

Some rights holders, like Shiloh, opt to sell off their entire back catalog. Others may choose to auction off only a percentage of their royalties, or sell some songs and hold on to others. “We provide songwriters a flexible solution," Schneider says.

The goal, according to the company's director of communications, Antony Bruno, is to "make music royalties an investible asset." And his company's auction model, he argues, is only the beginning. "We’re at the early stages of it, but eventually this could be an asset class where millions, even a billion dollars of capital could be deployed ... which would really change the way music in general is financed.”

Hearing song catalogs described as an "asset class" can be a little unnerving — and historically, selling off or otherwise rescinding the rights to one's catalog has generally been viewed as a mistake. The music industry is littered with tales of artists, from George Clinton to John Fogerty, who signed away rights to their publishing and lived to regret it. But Schneider argues that such stories are largely relics of an old music industry, which companies like Royalty Exchange aim to supplant. “If you look at who those buyers were [in the past], they were usually the labels or the publishers," he notes. "These rights holders — songwriters, producers — had no other viable option. What we do is, by bringing competition into marketplace, we make sure that the songwriter gets the fair and best deal that’s available in the market."

Songwriters and other rights holders choose to sell for any number of reasons, Bruno says. Many, like Shiloh, are looking to pay down some debt and invest in other areas of their career, like new recording equipment or promotion for their latest music. (Shiloh, among other things, spent some of the money on a music video.) In the case of some independent labels and publishers, he says, they may use the money to invest in the software needed to track royalties for all the catalog they own or manage on behalf of their artists — a process that, in the age of streaming, has become increasingly complex.

Occasionally, rights holders turn to Royalty Exchange simply to cut the cord from that complexity. One songwriter, after a successful auction, sent Bruno a photo of the keyboard on which he composes his music. "It was covered in paperwork," Bruno says. "It was literally a visual example of, ‘This paperwork is getting in the way of my creating music.'”

That was partly the motivation for Shiloh, as well — a clean break with her songwriter-for-hire past, so she can focus on her future as a truly independent, DIY artist. “I’m just really happy that a company like Royalty Exchange exists and it enables artists like me and songwriters that have a dense back catalog to just sell it off," says Shiloh, who now claims to make more than $100,000 a year through Sound Better, a sort of Task Rabbit for music industry professionals. "Because the new industry is on the way and it’s not gonna matter in 10 years."

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