A Deep Dive into Royalty Exchange

Ready to go shopping? In this episode, we take our first trip to the biggest and oldest marketplace for music royalties, Royalty Exchange. Host Josh Gilliland provides a step-by-step guide to how the platform works for individual investors.

In this episode, you will learn:

• The step-by-step investor journey, from signing up to placing a bid.

• The critical "Accepting Final Offers" (AFO) period and how it impacts the bidding process.

• The platform's fee structure and how the "All-Access Membership" can provide value for serious investors.

Resources Mentioned:

Download your free Advanced Investment Calculator: https://www.jgsoundofmoney.com/calculator

Pre-Order the companion book, The Sound of Money: https://a.co/d/7132rZv

Transcript:

[00:00:00] Welcome back to the JG Sound of Money. I'm your host, Josh Gilliland. Last week we did a deep dive into the four core royalty streams. These are the engine that generate the income for the music assets that that really concluded our foundational series of music royalties in general. Before we get into the fun stuff.

Because now that you have all that foundational knowledge, it's time to go shopping. So today we begin our series on specific platforms where you as an investor can go and buy these assets. And we're gonna start with the biggest and, and the oldest and the OG of this space. And that is Royalty exchange.

This is also where I began my own personal journey into music royalty investing.

So what is Royalty Exchange you say? Well, you know, honestly, at its core, it's [00:01:00] simply an online marketplace that connects the owners of royalty streams with investors like us. It was founded, uh, in 2011. And they really did pioneer this space, this space for, you know, individual investors creating the first real open auction based type of platform for music growth investing.

And, and they're huge, right? They've, they've handled hundreds of millions of dollars in transactions from everything from, from. Tiny indie artists to massive, iconic hits from major stars and everything in between. And the deals, they definitely range in size accordingly, but most catalogs require an investment of, you know, several thousand dollars as a minimum investment.

Some of the other platforms we'll talk about later. You can get in with smaller investments, but royalty [00:02:00] exchange, you've gotta commit a decent amount of capital to, to these investments. But how does this actually work for an investor inside of Royalty Exchange? Well, let's walk through the journey step by step.

Step one, getting started. So. It is pretty simple. You, you go onto royalty exchange, royalty exchange.com, and you create a free account and for first time buyers, so the first time you've, you've gone into this purchasing process with them, there's a very straightforward verification process to confirm your identity.

A key point here is with royalty exchange. You do not need to be an accredited investor. So if any of you have gone through, um, the accreditation process, you know, can be, I don't wanna say challenging, but as at least there's steps through that process. Well, with Royal [00:03:00] Exchange, you don't have to go through that because you do not need to be an accredited investor.

So it makes it really accessible. These investments really accessible to. A wide range of people. So before you can bid on a royalty assets asset on the exchange, you, you must make sure you are ready to act though you, while you don't have to actually pre-fund your account in Royalty Exchange, if you bid on an asset.

A bid is a binding commitment, so you must have the capital ready to deploy to complete the insure the transaction if you win. Generally it's a three day turnaround time where you have to transfer in or wire in the money for the purchase of the asset, but that's it. It is pretty easy to get started, so once you're in there.

Now we move to step two, which is finding [00:04:00] an investment. So the platform on royalty exchange features a marketplace of royalty offerings. And so with this is offerings where new assets are added weekly, but it also includes all the other assets that they've sold on their platform as well. So me as an investor.

I have a dozen or so catalogs with Royalty Exchange, and a catalog is simply, it could be one song, a collection of songs from the same artist, a collection of songs from many artists. It's, there's varying degrees of that, but it's all bunched into one catalog for purges. So of those catalogs that I have, all of them are listed on Royalty Exchange currently Now.

I'm not actively selling them, but people can place bids on them if they want. So you can go in there and see the catalogs that they've sold in the past and place bids on those. But they also have new catalogs that come [00:05:00] to market as well on the exchange. So once you get into there, once you see the royalty offerings, each, each one of those offerings, each listing provides a ton of information.

It includes the royalty type like we talked about in the past. Is this a mechanical sink, et cetera? It the copyright as well. Are these performance or are these, um, on the master side? Master, sorry, master or publication side. How long is it? Is this a tenure? Is this a life of rights? Or is this some, some variation?

Uh, in between those, is it a 10 year that has four years left on it, so you can see how much time this catalog will provide you income until it reverts back to the original copyright owner. And crucially, it also includes a [00:06:00] downloadable spreadsheet with all the raw royalty data. So you as an investor can do your own deep analysis on that offering.

Now here's a great place for me to plug the free calculator that I have available that you can use. You can find at my website, jg sound of money.com/calculator. Uh, and that'll help you with that analysis. Now, it's not a calculator that'll tell you, hit a button and it'll tell you if you should make an investment or not.

You have to put in what it is that you're looking for. But this calculator will help with the backend math, um, that you need to analyze a catalog. Okay. So let's say you go through that process. You found a catalog that it checks all the boxes. You're, you're excited about it. You have the money, it's ready to deploy.

So now you get into the offer process, and this is an adrenaline rush. There's a lot of fun with [00:07:00] this. So you find the catalog and you click make offer. This is where you place a bid. So you put in the amount that you're willing to, uh, pay for this catalog. You can also put in a proxy amount in there as well and how many, what the increments are that you want to go up to that proxy amount.

And it is kind of in the weeds, but just know this is where you put in the amount that you're willing to pay for this catalog. Now the seller, obviously they can accept, say. Love it. Yes, perfect amount. I accept your bid. They can reject it. Say insult. I'm not even going to counter this. Just flat rejection.

Or they can counter it, say, you know, they appreciate your offer, but they're really looking for a little bit more. And here's what that little bit more is. Now some listings also have a buy it now price. And that's simply what you think it is. Click this button, buy this royalty now. So that is, uh, an investor or an [00:08:00] owner who knows exactly what they want to get for this catalog.

They make the process very simple for you to purchase it. Then with that, you bypass the whole negotiation process as well. So that's, that's the offer process. All right. Now let's move into step four. So this is the end game, and this is a very critical part of the modern platform, and this is the accepting final offers or a FO period for royalty exchange.

So when a seller accepts an offer, so you go through the bidding process, you've agreed on a price. The seller accepts your price. The listing doesn't close immediately. Instead, it enters into a 24 hour a FO window. So this acts as a final fast pace auction where other previous bidders and certain members can [00:09:00] place higher bids on that asset and to prevent any type of like sniping at the last minute.

If a bid is placed in the final five minutes, the clock resets, uh, at the end of it, the highest bid wins. Pretty simple. Um, so anyway, that's a, that's something new that they've rolled out. I don't know, I think in the past year or so. Uh, but it definitely brings a level of excitement to the bidding process that wasn't there before.

Okay. So the, those are really the four, the four steps. There's a few more things I want to touch on though before we wrap up this episode. First thing is fees. So let's talk about fees. 'cause royalty exchange, you know, they're a business so they're in this to make money as well. So for buyers, royalty exchange charges a one-time administration fee on a successful purchase.

This is typically. A percentage of the final price with a $500 minimum payment. [00:10:00] But that being said, there is an An An An Insider's Club, shall we say, that they have called the All Access membership. And so for serious investors, those who plan on doing a lot of investing on the platform, this is a very powerful tool.

So the key benefit is that all access members pay no buyer fees on any purchase. So for active investor, the savings from this benefit alone can quickly pay for the membership. Memberships also get members also get unrestricted access to downloadable raw data. So remember in each one of these offerings, there's a file of raw data available.

But it's limited unless you're an all access member on how many of those you can download during a period of time. All access members can download as many as they want across whatever plat, whatever, uh, portfolios or catalogs. So you get that unrestricted access to the downloadable raw data [00:11:00] for all the listings.

And this is really essential for due diligence. Like this data is really important for you to understand and dig through. Uh, and it, again, it's the access is an invaluable tool, um, for investors. In addition to that, all access members get access to a really invaluable tool called the Marketplace Median.

Marketplace Median, which is a data-driven estimate of an asset's market value based on what similar catalogs have sold for on the platform. So this, this is a number that'll tell you as an investor how much, based off of these averages, a typical catalog of this size has gone for on the platform size and like duration, et cetera, et cetera, et cetera.

And so the number's not perfect, but you can use that as a benchmark for where you feel you want to come in on the [00:12:00] bidding process. Without being an all Access member, you don't have access to that number, and so you fly a little bit blind beyond your own due diligence that you can do. All right, so finally, the last beat piece here.

So you've won an asset, you finally got that catalog. You've made your first, first purchase on Royalty Exchange and, and now. You're ready to receive your royalty. So how does that work? Well, the process is very seamless with Royalty Exchange. They handle all of the administration to have the payments redirected to them, and then they deposit the funds directly into your accounts, and then they also provide a consolidated 10 99 tax form at the end of the year.

So it truly is hands-off management experience. Once the deal is closed, and I can tell you firsthand as an investor on this platform for many, [00:13:00] many years, the way it works is simple. Usually once a quarter, 'cause royal payments are generally paid once a quarter payments just show up in my account and my actual investment account, not in royalty exchange, my actual Schwab account.

And so I'll go in there and be like, oh, I just got a payment for whatever royalties exist that I've purchased. And so now I can go into Royalty Exchange and see details of the payments, where catalog it came from, et cetera, et cetera. And they send you emails as well with that information. But it's hands off, it's mailbox money.

It's the money just shows up in my account. And so it's very, very seamless. Very, very, very hands off. And all of this is locked down in contracts. So this is not one of those situations where what if the platform goes away at some point in the future? You are entered into contracts with that provider of, or that owner of the royalty.

So regardless of the platform, it's contractually binding for [00:14:00] these investments. Okay, so to recap, royalty Exchange is the established marketplace. Marketplace where deals. Are secured either through an initial offer or a final 24 hour a FO option. It's a very powerful platform with a suite of tools for the serious investor.

Royalty Exchange is a major player, but they're not the only one. So next week we're going to cross the Atlantic and explore a completely different model. With the European marketplace, ENO Music, don't forget to download the free advanced investment calculator at JG sound of money.com/calculator. Thank you for tuning in to the JG Sound of Money.

Please subscribe and leave a review and we'll see you next [00:15:00] week.