A business designed to acquire and monetize royalty streams “of the world’s biggest artists,” Royalty Flow, went public last week with a “mini” IPO, or registration under Regulation A+ crowdfunding initiative.
A new type of PIPCO (public IP company), Royalty Flow hopes that under the 2012 JumpStart Our Business Start-up (JOBS) Act, passed by the Obama administration and known as “Regulation A+,” will enable it to raise between $11 million and $50 million. If successful, the capital will allow the company to purchase a portion of the income stream derived from Eminem’s 1999-2013 catalog and pay investors dividends in return.
Depending on how much money is raised, Royalty Flow will buy either 15 percent or 25 percent of an Eminem income stream based on royalties paid to FBT Productions, which often works with the performer.
With the recent upsurge in streaming revenues from services like Pandora, Spotify and Apple Music, some music industry observers believe that royalties generated under copyrights have a bright future. But streaming services have only just begun to pay recording artists and producers, and lucrative licensing deals reminiscent of returns on retail CDs are a long way off for most. See “Music royalties – a siren song for niche investors seeking higher yield” in the August 23 IP CloseUp.
The Royalty Exchange website cites a Goldman Sachs analyst that paid streaming revenues will grow by 833% by 2030 (see graph above).
Reminiscent of “Bowie” Bonds
The Royalty Flow business model is reminiscent of the “Bowie” Bonds securitization that took place in 1997. In that arrangement Bowie’s company, the copyright holder, did not sell the assets, but a portion of the cash flow they generated over a ten-year term. Bowie did well on the $55 million deal. Investors, depending on when they bought and sold, did not.
“What Bowie sold was the present value of his personal intellectual property (song copyrights) – that is, the future expectation of future royalty income, less a discount,” said an analyst.
Those buying shares in Royalty Flow would have the right to collect dividends based on the performance of the Eminem catalog and any other catalogs acquired over time. The company says it intends to later list directly to the NASDAQ.
“The plan is to give fans and investors a way to share in the income from the royalties through dividends paid by the company,” reports Billboard.
The minimum investment during the IPO is $2,250 for 300 shares (at $7.50 a share). After the equity campaign is over, Royalty Flow “intends to list directly to NASDAQ and give latecomers a chance to invest in Royalty Flow stock through the public exchange.”
For the Regulation A+ S.E.C. filing, go here.
Image source: royaltyflow.com