Each time you shake it up with Taylor Swift or listen to your favorite song on Spotify or Apple Music, the singer receives a small royalty. A single download or stream won’t make much of a difference, but if a song or artist gets millions of streams and downloads each month, those music royalties can provide a steady passive income stream. You don’t have to be a great singer to get music royalties, and you don’t even have to sing at all. Music royalty investments are gaining momentum, and you can invest in someone else’s music instead of creating your own. This article will explain how investing in music royalties works and some of the paths you can take.
How Does Investing in Music Royalties Work?
Music artists can sell their albums and individual songs to investors willing to pay the right price. The original music artist can still perform the songs at concerts, but the investor receives music royalty payments instead of the original creator. The investor gets the copyrights to the sound recording or composition, and some may request both. Music royalties can provide a steady income source that grows exponentially if the song or artist becomes more popular.
Are Music Royalties an Asset?
Music royalties are alternative assets that can generate stable returns. These assets have risks like any other investment, but they are investments you can make with the hopes of generating attractive long-term returns.
Assets are resources that investors buy in hopes of making a greater return in the future. Music royalty purchases fit that description.
4 Reasons to Consider Investing in Music Royalties
Music has been a central part of civilizations for thousands of years. Now, you have the opportunity to profit from music even if you don't plan on singing or writing a song. These four advantages of investing in music royalties will shed some light on why music royalties can be great investments.
Digital Streaming Provides Greater Stability
Music royalties are more stable now than in the previous generation. Digital streaming makes music more accessible to raving fans, and the digital component turns music listening into a habit. Fans can tune into their favorite songs during commutes, while working out or performing any activity. Fans can continue listening to older songs even when they stop playing on the radio. This stability translates into reliable cash flow that can grow if the song or album gains momentum.
Higher Yields
Yields for any asset are not guaranteed. They can fluctuate based on market conditions and other factors, but music royalties tend to have higher yields than what you would find in the S&P 500 and similar asset classes. Investors can find 5% to 10% yields by investing in music royalties. The yield will fluctuate within the first few years of a song’s release but tend to become more stable over time.
Potential for Recurring Revenue
Music royalties can generate recurring revenue for investors long after those songs get released. Some music remains popular for years or even decades after the initial release. Having these assets in your portfolio creates passive income that you can use to retire sooner or reinvest into another song or artist.
Low Economic Activity Correlation
People will always listen to music, and the affordability of digital solutions makes music royalties less correlated with the stock market and economic cycles. This lack of correlation makes music royalties a useful hedge to minimize risk in your portfolio. Music royalties can continue generating income for investors even in economic downturns.
Invest in Tunes for an Upbeat Portfolio
The public markets aren’t the only place to go for strong returns. Alternative investments like music royalties demonstrate the greater scope of possibilities. Music royalties, in particular, have the potential to generate high yields and consistent passive income. Music royalties can make sense for some investors who want to explore unconventional ways to generate strong returns.
Frequently Asked Questions
Are royalties passive income?
Royalties are passive income once you produce or acquire them. You can apply some marketing strategies to get the songs in front of more people, but you can take a hands-off approach with music royalties.
Are music royalties considered earned income?
Music royalties are treated as earned income. You will have to report music royalties for tax purposes.
Is it smart to invest in royalties?
Investing in royalties can be a smart move, but this asset contains risks like any other. Royalties open the doors to passive income, and you can grow their passive income with the right marketing strategy and optimizations.
About Marc Guberti
Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.