Tag Archives: Wall Street Journal

Music royalties – a siren song for niche investors seeking higher yield

A small but growing number of investors are buying the rights to musician’s future earnings, hoping to beat the fixed income returns and other markets.

According to an article in the Wall Street Journal, “Music Royalties Strike a Chord, these fixed income investors are lured by future returns of 8%-12% annually, when junk bonds are still hovering around 6%.

Private equity funds have raise or begun to raise $1 billion since 2013 when this sector appeared to be an alternative to low yields on fixed income.

There are a several types of royalties that can be sold, either for a specified period of time or until they expire. (For works created on or after January 1, 1978, it is life plus 70 years or 95 or 120 years, depending on the nature of authorship.)

David Bowie infamously sold his future copyright earnings for $55 million (“Bowie” Bonds), only to have new technology like Napster devalue them. [See, “The Bonds that Fell to Earth,” in the January 15, 2016 IP CloseUp.) The financing did wonders for Bowie balance sheet, although not all investors made out so well.

High Yield

Bowie Bonds paid 7.9% for ten years, at which time, I believe, they reverted back to the mercurial artist. He never lost ownership of all of his songs; he merely licensed the future earnings to some of them for a period of time.

Songs can also earn money when they are performed live, played in a restaurant or film, or streamed through a service like Spotify. They still do not make money from radio airplay (a legacy from old tech, when it was about selling records). Songwriters, music publishers, artists and labels own various rights, including performance rights.

WSJ reports that in the 2Q Denver-based website Royalty Exchange held music rights auctions valued at $2.5M, more than double the total from the 4Q 2016.  Royalty Exchange publishes a guide to music royalties, here.  It is a transaction site, so it is best to speak to a lawyer or experienced IP broker before buying.

Risk to music royalty streams includes timing, trends and technological threats. A song that generates a steady stream of income today is not necessarily going to in five or fifteen years. On the other hand, a small handful could actually generate more revenue than expected. Receivables, or royalty stream financing, takes place in many industries, including energy, real estate and sports.

Streaming Rises

The renewed interest in music royalties may due in part to increased royalty payments by services like Spotify, Pandora and Apple, which, similar to YouTube, have been notoriously reluctant to pay creatives fairly for content. But increases have been negligible for most performers and song writers, and top recording artists with leverage tend to cut their own distribution deals.

With disdain for IP rights on the rise, it is somewhat encouraging that niche investors still believe in the integrity of copyrights and the reliability of their income stream. For them to succeed they will need cooperation from streaming services, as well as songwriters and performers.

Image source: myradio360.com; entertainment.howstuffworks.com 

 

Fintech patent competition: fierce, diverse, growing

Among the most watched areas for new patent value is financial technology, covering inventions in areas like authentication, mobile payments and wealth management.

Fintech is among the few bright spots in the patent landscape, with leading banks like JP Morgan, Bank of American and Wells Fargo, and credit card companies like Visa, MasterCard and American Express deeply involved and competing with a broad range of new entrants, including:

• Traditional banking industry vendors such as Fiserve and IBM

• Scores of venture funded start-ups, some supported by former banking executives

• Established technology players such as Apple, Google and Amazon looking to capitalize on their   consumer recognition by expanding into banking and payments.

Close behind is leading Korean bank Shinhan and Bizmodeline Co., Ltd, a Korean company with a total of 2700 patents, 1000 patents related to Financial and Billing, 1400 patents related to Mobile, Ubiquitous, RFID and NFC, 300 patents related to authentication and other technologies. A host of Japanese companies, like HitachiToshiba, Sony and NEC, have become more active in identifying and developing inventions in the transaction space; Microsoft, too.

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“Start-ups, big tech and… banks,” in the current IAM magazine, The Intangible Investor, looks at the diverse competition in this space. (Subscribers can find the piece, which I wrote, here.)

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For more good background, “FinTech: An IP Perspective,” is a comprehensive report from IP research firm, Releclura. It outlines the players in the space and details the patents they have accumulated and in which areas of banking or transaction. The report can be found here.

A summary of the Relecura research compiled by IP consulting firm Aistemos, with charts and graphs, can be found here.

Execs Poised to Profit

According to The Financial Times, former banking executives are all over fintech startups, hoping for a big payout. See “Former Wall Street titans shake-up banking with fintech investments.” 

In the Wall Street Journal, “Banks and Fintech Firms’ Relationship Status: It’s Complicated,” discusses how disrupters and big lenders, often seen as rivals, are finding some success playing together.

Top holders

Fintech upstarts have attracted more than $50 billion in investments on the premise that they will disrupt banking and finance the way Uber or Airbnb have the taxi and hotel industries. But despite a decade of stumbling the banking industry has proven a tougher business to crack than some had thought. The American Banker speculates that the fintech sector may be overheating.

“’It’s too simple to say all these banks are stupid,’” says Qasar Younis, a partner at the Silicon Valley seed fund Y Combinator.

Like Big Pharma

The banks, much like some of the pharmaceutical companies, are smart enough to know that they will not be able to come up with all of the technology solutions they need to succeed, and that they have the capital, markets and regulatory savvy that others need.

For more information, Forbes’ top fintech stories for 2015, go here; their “Fintech 50” also provides a good overview of the up-and-comers, here.

Image source: americanbanker.com; CB Insights; Relecura 

 


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