Music Royalty Offering Analysis: Case Study #1

Updated: Feb 6

I've decided to start a new series where I find a music royalty offering and provide my own analysis of it.


As always this blog is meant for entertainment. I'm not a financial advisor in any way, shape or form. Anything I suggest here will need your own due diligence!



The Offering:

For this case study I'm analyzing the following offering from Royalty Exchange: "She Wouldn't Be Gone" - Blake Shelton - Songwriter Royalties.


Why did I pick this one? Honestly, no real reason...I just scrolled through the Royalty Exchange offerings on the eXchange and randomly clicked on it. So I have no idea what my analysis will bring on this deal.



This particular offering is a Life of Rights deal. If you have questions around what the means then I suggest you read this article I've previously published.


The asset has been earning royalties for over a decade, which is helpful in analyzing as it will show how stable the revenue streams have been over time.


The past 12 months it has paid out $2,669 which is a bit less than its 3 year average yearly payout of $3,483.



You can see that the earnings had a spike up in Q1, 2019 then dipped to a lower plateau where it has held fairly steady for the past couple of years.


Pulling the raw data into a pivot helps to dig into the details a bit deeper.

You can see that the royalties were high the first few years after the music's initial release (which is to be expected). A large portion of that revenue came from radio, which tends to drop a couple of years after release as new music takes its place.


Apparently the catalog was used in TV and/or Films early as well, but that completely dried up in recent years. Live revenue has also dropped to zero over the past couple of years - thanks COVID!


The streaming revenue was on a steady increase over the first 7-8 years, until experiencing a slight drop over the last couple (as outlined above). But it really hasn't dropped by much.



My Analysis:

To get started here's the calculator I built and use for this analysis. Feel free to download it and use it as you wish. Again, this is for entertainment - please do your own due diligence!


I started by adding in a few assumptions. First, even though this is a Life of Rights offering I use 30 years as my max in "years remaining" just to make sure the numbers don't get too out of whack. Plus who knows what the market will look like 5 years from now, let alone 70.


Next I try and estimate the first year of revenue that this catalog will achieve. For this one, since it has been around for a long time and has largely stabilized, I just used the previous 12 months revenues as an assumption for the next 12 months.


I then enter in my guesstimate for how much the royalties for this offering will decline year over year. Again this is a back of the napkin best guess based on historical data as well as my own experience in investing. For this one I plugged in 3%.


I then played around with the purchase price to see how it impacted the lower section of the calculator that determines return percentages. Here are the returns I calculated for a purchase price of $20,000.



Not bad overall from a total revenue estimate but not great from an annualized standpoint. Making a $20,000 investment in this catalog wouldn't even keep up with current inflation rates.


Now scrolling through the offer history, none of which were accepted by the seller, you can see that at one point someone put in a bid of $25,000 that wasn't accepted. Yikes!



Let's run the numbers on what a $25,000 purchase price for this catalog would look like.



Obviously this made the numbers look even worse. Nothing too exciting to see here.


My Conclusion

I would not make a bid on this catalog. The amount I'd be willing to pay for this would be greatly less than what the owner would be willing to sell it for. So it is best to not waste anyone's time with a bid that would ultimately just end up expiring in 24 hours (that's another pet peeve of mine here - the seller does not decline offers, they just let them expire in 24 hours. Please do the investor a favor and just decline if the amount is less than you want...or better yet, counter!).


The good news is this is one of many, many music royalty investments options in the marketplace today. If you want to see what else is available I suggest you start here.


Alright, onto the next one!

 

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As always this blog is meant for entertainment. I'm not a financial advisor in any way, shape or form. Anything I suggest here will need your own due diligence.


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