An Alternative Investment That’s Music to Your Ears

  

Invest To Your Own Beat

After nearly 15 years of declining revenues, the music industry is rebounding. In fact, analysts have projected a bull market for music revenues that could outpace the industry’s pre-piracy highs.

After a slight increase in 2015, global recorded music industry revenues increased 6% globally last year, and over 11% in the U.S.--the first year of double-digit growth since Napster. Driving this are streaming revenues, to the tune of $3.9 billion worldwide.

According to Goldman Sachs, this isn’t an isolated blip. Analyst Lisa Yang predicts global music industry revenues will increase to $41 billion by 2030, also driven by streaming. She expects paid streaming will jump to $28 billion by 2030.

NO DIRECT ACCESS

Although the growth in the music business has attracted a lot of attention, there is no pure play way to invest.

The major record labels and music publishers are not standalone public companies, so investors who want to participate in that growth have no direct way to do so. Sony Music contributes less than 10% to the broader Sony conglomerate, and Universal Music Group is tied up among Italian telecoms within Vivendi.

CHERRY PICKED ASSETS

Until now. Royalty Flow is a unique opportunity for investors to gain direct exposure to the music industry’s growth through cherry picked premium royalty streams.

When people think of music royalties, they typically think of the big name artists. But, there’s actually an entire ecosystem of contributing songwriters, producers, and other artists behind every hit song. This rightsholder ecosystem consists of hundreds of thousands of people. These individuals don’t have the same financing options as the celebrities they support, who can simply go on tour or sign endorsement deals.

Royalty Exchange and Royalty Flow offer a new opportunity for these rightsholders--flexible financing arrangements that give rightsholders control over how much they want to make available to investors, how much to retain, and the ability to retain their copyright.

This is a first for the industry, but not without precedent.

THE ROYAL GOLD CASE STUDY

In a nutshell, we aim to be the Royal Gold (RGLD) of media royalties. Royal Gold is a resource finance company that "acquires and manages precious metal streams, royalties, and similar interests. It focuses on acquiring stream and royalty interests or to finance projects that are in production or in development stage in exchange for stream or royalty interests."

The company hit an inflection point in the 1990’s when they acquired a royalty interest in a marquee asset launching an efficient royalty-based business model. Today, Royal Gold has a market cap of about $5.8B, and get this…  just 23 full-time employees.  In the most recent fiscal year, RGLD produced $4.4 Million in Net Income per employee.   

Most of the companies who acquire music royalties want to acquire the copyrights and control of a catalog. Royalty Flow’s approach is as novel today as Royal Gold’s was in the late 1990’s. Royalty Flow seeks to take passive interests in great assets... exactly like the first transaction with FBTs Eminem catalog.

Like precious metals in the early 2000’s, music royalties are coming out of a brutal bear market. We believe that the music industry is on the cusp of a major bull market, led by the impressive growth of on-demand streaming. If we’re right, our unique approach couldn’t come at a better time.

SHAREHOLDER-FRIENDLY STRUCTURE

Royalty Flow is designed to put shareholders closer to where value is created within the growth of the music business. That means acquiring assets into the company with the potential to generate 8-16% returns for Royalty Flow, while also keeping costs low. By not owning the copyright and instead partnering with great managers/operators, Royalty Flow doesn’t have to take on the overhead costs that are required for labels and publishers.

Royalty Flow can then continue to buy great assets and grow free cash flow per share. It intends to return capital to shareholders through dividends, the first of which we expect to pay within the first 12 months, with a commitment to growing them over time.

THE FIRST ASSET

The first asset that meets this criteria is the FBT-Eminem Royalties. This catalog grew 43% last year despite the fact that Eminem hasn’t released a new album since 2013. Driving this was streaming, which grew 76% over 2015. This further supports the theory that growth in the music business disproportionately benefits great assets like the Eminem catalog. For full details of the catalog’s performance, please read the offering statement on our SEC Form 1-A filing.

HOW IT WORKS

Royalty Flow is conducting what’s called a “mini IPO” using Regulation A+ of the JOBS Act. This allows any investor to participate, not just accredited investors, but caps the amount raised at $50 million.

On top of the standard Regulation A+ disclosures, Royalty Flow is holding itself to higher standards. That’s because once the Regulation A+ equity offer is over, Royalty Flow intends to list directly to NASDAQ. This gives shareholders liquidity in an active marketplace.

Royalty Flow has attracted three industry veterans to spearhead its independent board of directors. This consists of:

  • a lawyer who has managed household-name artists since the 80s and was the co-founder of SoundExchange.

  • An audit partner from Deloitte with over 20 years of experience in public accounting.

  • And an expert on securitizations who previously spent time with Deutsche Bank.

This combination of income-focused investment strategy, aligned with the interests of shareholders, and a low-cost / capital-efficient structure makes Royalty Flow one of the most unique and interesting investment opportunities today.