Imagine Spotify or Apple Music crossed with Charles Schwab or Robinhood, so you can press play to listen to a song, and then press “invest” to buy a share of that song’s royalty stream.
That’s the vision of a merry band of “music stock market” platforms looking to lure loot from music-loving traders who want to speculate on the next big song, as an alternative to boring bonds, erratic equities and crashing cryptocurrencies.
And it could help “end artist poverty” in the bargain, says Mark Miller, founder of Labelcoin and a former touring musician and manager. The company describes itself as the “Robinhood of music, a revolutionary song exchange” that lets fans invest in what they think is the next big song or maybe just a song they love.
“We started this business during Covid when the touring industry collapsed,” says Miller. “We’d asked ourselves, ‘how do we not just help musicians survive this terrible period and pay their bills, but actually help them thrive on the other end of this?”
So if an artist earns, say, $30,000 in streaming income in a year, they might ramp it up to $150,000 a year by selling half of those song rights on one of these trading platforms. “And that changes everything,” Miller says.
Among Labelcoin’s competitors in the “fractional” song trading game are JKBX, scheduled to launch in September, and SongVest, which has already been offering fractional shares of song royalty streams since 2021.
SongVest says they will soon be offering royalty shares in TLC’s “No Scrubs” and “Creep,” each a Number One single on the Billboard Hot 100 chart in the 1990s. These will not be the original recordings, but re-records à la Taylor Swift’s new versions of her earlier recordings. “So they’ll own 100% of the new recordings and they are sharing 50% of the streaming royalties with their fans,” says SongVest’s founder Sean Peace of the TLC offering.
We’ve all heard about Bob Dylan, Bruce Springsteen and Justin Bieber selling their music rights for hundreds of millions of dollars to private equity and music companies. But those megastars may have hit bigger megabucks had they let their legions buy small slices on a music stock exchange.
That’s because the price of a famous catalog to a corporate buyer is typically based on a multiple – which could be anywhere between 10 and 30 times average annual earnings – depending on the artist’s popularity and available rights. But on a public exchange, the price can go crazy, just as price-to-earnings ratios on tech companies have, with multiples on the open exchange rising to 50, 100 or, the sky’s the limit. Private equity and major music biz players will monitor these stock exchanges to see if they might offer upside opportunities.
But is song share trading a good investment for the average Little John or Friar Tuck?
“It’s both a passion play, and a traditional investment,” says Scott Cohen, a former Warner Music Group executive who is now CEO of JKBX, which plans to launch a platform in September for investors in fractionalized shares of songs. “Some investors may not understand things like price to earnings ratios or what drives a tech stock like Google, Apple or Amazon, but when you put music in front of them, they understand what songs are valuable and why they are valuable.”
Sixty-one percent of U.S. adults say they have money invested in the stock market, the highest percentage since 2008 (just before the crash), according to a recent Gallup report. And these music start-ups wants to attract those retail customers, as would the major labels if the model works.
Some see parallels between music speculating and investment in contemporary art, where prices outpaced the S&P 500 by 131% over the past 26 years, according to Masterworks, a platform for investing in works by Basquiat, Picasso, Banksy and others. But in place of a gated community of rich and rarified art bidders or NFT whales, the music exchanges want to attract regular folks en masse.
But to do that, these galloping gallants must avoid any slings and arrows from the Sheriff of the Securities & Exchange Commission, which has already taken the axe to crypto exchanges Coinbase and Binance.
Although the SEC has characterized NFTs as unregistered securities, the fledgling song exchanges believe they’re different from NFTs. They say they can take advantage of a series of SEC regulations that started under President Obama in 2012 as part of the Jobs Act, allowing for crowdfunding campaigns public capital inflows for creative companies that couldn’t get that before.
That’s thanks to “Reg-A,” something you hear a lot of chatter about in the financial forest, and while you may think they’re talking about “I Shot The Sheriff,” they’re not talking about Reggae but about a regulation under the Securities Act of 1933. It was Reg-A that democratized capitalism by providing exemptions from complicated and compliance-costly laws that kept public markets and funding open only to elites.
“What Reg-A does really is fascinating, because it allows for anyone over 18, as long as they’re not a bad actor with a criminal record or from an OFAC country that we don’t do business with like North Korea, to come up with whatever share class structure or valuation that they want for virtually anything,” says Etan Butler, chairman of Dalmore Group, a broker-dealer that says its “on a mission to revolutionize the way companies raise capital online.” The company has been engaged by several of the music stock exchanges seeking to launch.
Butler says Reg-A makes it easy to issue stock in just about anything nowadays. “You can issue shares of royalty flows for music just like you can issue shares for any commodity. A fractional share of royalty flow is functionally the same as a fractional share of real estate in a REIT or a fractional share of an historic piece of art or an exotic car. As long as you abide by the Reg A rules, it is all fair game – and quite interesting.”
But the Securities and Exchange Commission needs to give its blessing before a music stock exchange rings the opening bell. SongVest is the only exchange already open for business, following SEC qualification, says Peace.
But SongVest is only offering a “primary market” for investors, which is a way to buy a royalty share in a song you love. But to then re-sell the song share to another fan, you need a “secondary market.” While SongVest has authority to open a secondary market, they’re holding off for the moment, hoping that proposed changes in SEC regulations will substantially lower costs, Peace says. Such costs include sky high legal expenses to comply with each state’s so-called “Blue Sky” laws, as well as hopping through more SEC compliance hoops.
“The way that we think about this is not so much as an investment platform but more as a fan engagement tool,” Peace says. “It’s high-end memorabilia, like selling rare vinyl. But this is like vinyl with a drop of the artist’s blood on it. Participating in the royalty stream of a song you love by an artist you love is the ultimate way for many fans to get close to that star.”
SongVest sees its song-trading venture as “a natural extension to our music catalog marketplace,” Peace says. The firm a way to drive business to its more conventional music auction business that we established in 2020,” Peace says.
Whether Robin Hood rides off with Maid Marian happily ever after, as in the 1938 Errol Flynn-Olivia de Havilland classic, or it all ends in frustration, as in Mel Brooks’ “Robin Hood: Men in Tights,” we can’t know but we’ve got our popcorn.
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