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Re: Mr Eazi’s proposed song investment structure.
1. Typically, investors would invest in labels via debt or equity. Aggregated profits from streaming income, sales, merchandise less overhead and profit share with artistes would be distributed to investors as dividends/interest
1. Typically, investors would invest in labels via debt or equity. Aggregated profits from streaming income, sales, merchandise less overhead and profit share with artistes would be distributed to investors as dividends/interest
2. The increased viability and business sophistication + streaming income generated by artistes and labels have made labels an attractive investment for institutional investors (PE, IBs and Hedge Funds). There’s more money flowing into the business now.
3. However, what Mr Eazi wants to sell is not shares in a label but “equity” in a song. Essentially, he wants to sell you a share of the music royalties accruing to a specific record.
4. Streaming income from platforms such as Apple Music and Spotify has made music royalties an attractive and relatively stable asset class. Investors can now choose to invest in a song and get returns from royalties accruing to the artiste/label from the song.
5. This sort of structure is already being used in the US. Jay Z sold a partial interest in “Empire State of Mind” in Royalties Exchange, an online exchange for buying and selling of royalties.
6. The perfect example here is actually @royaltyexchange which is similar to the securities exchanges where shares and fixed income assets are traded. Instead of buying shares or bonds, you build a portfolio of yield-generating royalties from records published by artistes.
7. Investors look for yields and while streaming income may fluctuate from time to time, you may actually get better yields on songs that you would get on the stock market. @royaltyexchange has said that it’s yield in 2020 has been 12% (compared to the S&P 500 which earned 1.8%)
8. Another factor that makes this new asset class attractive is the relatively low correlation to economic activity when compared to other assets such as shares or bonds.
9. Issues
- How do you value a song? How do I know how much Mr Eazi’s song is really worth? IP valuation is tricky
- How do I know that Mr Eazi actually owns and can sell the royalties? How am I sure another party doesn’t own a portion of title? Bank liens? charges via loans?
- How do you value a song? How do I know how much Mr Eazi’s song is really worth? IP valuation is tricky
- How do I know that Mr Eazi actually owns and can sell the royalties? How am I sure another party doesn’t own a portion of title? Bank liens? charges via loans?
10. Issues (2)
- Will Mr Eazi allow me conduct due diligence before investing? So many issues to unpack
- What if Apple Music pulls the record off the platform when someone sues for copyright infringement? E.g Wizkid/DJ Tunez & Tony Tetuila in the record “Gbese”
- Will Mr Eazi allow me conduct due diligence before investing? So many issues to unpack
- What if Apple Music pulls the record off the platform when someone sues for copyright infringement? E.g Wizkid/DJ Tunez & Tony Tetuila in the record “Gbese”
11. Tax
- Investment Income earned by investors from royalty payments would be taxable in the hands of the investors.
- if an investor decides to dispose of the investment, capital gains tax would be payable.
- Sums received from investors should not ordinarily be taxable.
- Investment Income earned by investors from royalty payments would be taxable in the hands of the investors.
- if an investor decides to dispose of the investment, capital gains tax would be payable.
- Sums received from investors should not ordinarily be taxable.
