This investment model has attracted people interested in alternative investments, that is, those products that banks and brokerages in the traditional market do not offer.
As a result, music copyrights have become an interesting investment diversification opportunity that is worth getting to know better.
In this content, you can see how investing in musical royalties works and how it is possible to earn money with the greatest hits in music! Keep reading to find out:
- What are music royalties
- How are music royalties paid
- How does investing in music royalties work?
- How to profit from music royalties
- advantages and risks
- Is it still worth investing in royalties?
- How to invest in music royalty tokens
What are music royalties?
Music royalties are payments made to copyright holders of a musical work (artists, composers, producers, etc.) when the song is reproduced.
Thus, every time the music is played on radio, TV, digital platforms such as YouTube and Spotify, concerts, cinema, public places, among other contexts, an amount is charged and directed from time to time to the account of the person who owns the rights. .
The more successful a song is, the more money it can generate. It is in this sense that investment in musical royalties becomes an alternative that provides more returns than traditional market products can offer.
How are music royalties paid?
The collection and distribution of copyrights are carried out by ECAD (Central Office for Collection and Distribution).
This body is of great importance for the music royalty market, as it is ECAD that guarantees reliable control over reproductions and that artists and investors will be remunerated for their rights in a transparent manner.
Collection and distribution
ECAD is responsible for overseeing the execution of the songs in all channels, media and spaces in which they are played, and then distribute them to those who have the following rights:
- Copyright: Authors and composers who created the musical work.
- Related rights: Other professionals who contributed to the recording of the phonogram, such as interpreters, performing musicians and producers.
Different factors will be considered to define the amount that will be charged for these rights when a song is played on TV channels, streaming services, establishments, etc. Like for example:
- Place/medium where the song is played;
- Sound area size;
- Socioeconomic region;
- Field of activity;
- Relevance of the song to the business.
Of the amounts collected, 85% are passed on to music rights holders and 6% to collective management societies for their operating expenses. The remaining 9% remain with ECAD to carry out and manage its activities.
Royalties are paid only in specific periods : monthly, quarterly, semi-annually and annually, following the distribution calendar. Therefore, many artists sell their rights to their music so that they can immediately receive the money.
Thus, alternative investment platforms that offer financial investment in musical royalties pay in advance for the rights to potentially successful songs. Afterwards, these quotas are sold with the promise of remunerating investors with the profits obtained from the reproductions of the song.
Below, we will tell you more details about how this investment works.
How does investing in music royalties work?
Investment in music royalties is an alternative type of investment. This means that this is not a product commonly offered by banks and brokerages in the traditional market.
It was mainly after the advance of tokenization of assets (the process of transforming real-world assets into digital assets, or digital assets as they are also called), that this type of investment started to gain attention.
In the opportunity description, conditions such as:
- which and how many compositions will be included;
- what rights are included, such as streaming playback, radio, TV, etc.
- how long the royalties will remain in the buyer’s possession.
Then it sells shares of its portfolio, splitting the operation between different investors, to later remunerate them according to the profit obtained.
In this way, it is possible to start with smaller initial contributions. Thus, small investors can also access this type of investment, which was previously available to large companies and record companies.
Details such as minimum contribution, earnings prospects and other information are described in the details of each operation, which people interested in investing should analyze carefully.
The performance history and income generated with royalties from the songs should also be evaluated before purchase and help investors make the best decision.
How to profit from investing in music royalties?
Those who invest in musical royalties are investing in royalties receivable from a collection of promising songs by the same artist or by different artists.
These songs are previously evaluated and selected by specialists from the platform that offers the product, in order to compose a truly promising portfolio.
During the period in which the operation is in force, those who invested will be entitled to a percentage of the royalties received whenever these songs are reproduced. This is valid both for executions on the internet and in public places, depending on the type of agreement established.
The return occurs in fixed periods, usually monthly, and its value depends on the number of reproductions that the music obtained during the time that the investor owns the royalties on it.
Therefore, the more a song is heard, the greater the profits achieved.
How do you know which songs will yield the most?
The songs with the highest income potential are the ones most played. But the songs that bring big returns for investors are not always at the top of the charts.
This is because the return obtained can also be related to the repetition of a song in everyday situations, such as its constant reproduction in commercials and in vignettes of television programs, for example.
Therefore, there are different factors that can influence the success and number of plays of a song that need to be evaluated.
In general, the songs that make up a catalog for investment in royalties are already pre-selected considering all these factors and only the most promising ones are included in the package.
Advantages of investing in music royalties
Check below some characteristics of investment in musical royalties that can be considered advantageous:
- Decorrelation with the Exchange: Music royalty tokens have low correlation with the exchange and other markets. Each catalog in the portfolio follows its own dynamics. In this way, assets related to intellectual properties are not impacted by the same sudden fluctuations in the market.
- Investment diversification: As a consequence of the previous point, musical royalties become a good opportunity for investment diversification. They are more profitable asset options than fixed income products and less volatile than stocks and cryptoassets.
- High consumption of music: Music consumption remains high and, mainly from streaming services, it is also more accessible and easier to be tracked and accounted for. Considering that the more a song is heard, the more it can bring returns to those who invested in that period, a promising catalog can generate good profits through musical royalties.
Risks of this investment
As with any other investment, investing in musical royalties is not risk-free. Those who are interested in starting to invest in these assets must also carefully evaluate these points:
If a song does not have the expected success and ends up being little reproduced, it will generate less revenue and its royalties will be devalued. Several factors can lead to this reduction, such as the possibility of that artist being “cancelled” on the internet, for example.
In addition, it is necessary to consider that it is necessary to wait for the stipulated date for the withdrawal, which affects the liquidity of the investment.