Buying and Selling Song Equities — My Thoughts
By: Matthew Prince
Tags: Money, Opinion, Investing, Mr Eazi, Business

Photo by Austin Distel on Unsplash

Some days ago, Mr. Eazi, a Nigerian singer, songwriter, and entrepreneur, tweeted his conceived idea to experiment on selling shares on his next release. He suggested the idea was born out of love for the fans, and he wants to give back. To my knowledge, this is the first time a Nigerian artist will sell shares for a song.

As I try to swallow the hard pill of him claiming the motive is to give back, I also thought about the viability of the business idea.

I shall examine the selling of shares of songs as a smart business move and whether it is an effective way to give back to his fans as Mr. Eazi says he wants to.

Why do companies and individuals sell shares or equity?

The idea behind selling equity is to raise capital. So you have a brilliant and profitable idea for a Startup, but you cannot fund it? Not to worry, all you have to do is find a venture capitalist — Private investors who provide capital for businesses or ideas with high growth potential in exchange for equity. In simple words, the private investor helps you fund your business or idea, for part ownership of your business. Depending on the percentage equity given to the investors, they may be involved directly in decision making. Large companies may also sell shares (go public) to raise funds, either to expand or start a new product line.

Buying and selling shares in a song.

Buying and selling song equity is not a novel idea. Record labels buy rights to artists’ intellectual property in the name of signing a recording contract. The record companies pay the artists up-front. Royalties accrued from sales of CDs, streams, public performances, and commercials go to the record labels, who are the investors and majority owner of the songs (This is called recoupment in the music business)

Technology and social media have given rise to many independent artists. Artists may crowdfund, which rely on public charity and support, or may leverage the sales of shares or equity of their song or catalog to raise funds for other projects and investment, or share risk.

World-renowned artists have sold shares and equity of their songs. For example, the public performance rights for Jay-Z and Alicia Keys “Empire state of mind” was auctioned for a whopping $190,500 for ten-year ownership. The investor made a profit of $32,735 for the first year. We can only speculate how the song performs in the years following.

According to “Royalty Exchange”, the leading site in the sales of royalty,

Selling a portion of your royalty stream to private investors allows you to raise many years’ worth of royalty payments upfront without giving up control over your future earnings or going into debt. It allows you to diversify both your risk (protecting you against potential royalty shortfalls in the future) and your income stream (by allowing you to use the money to invest in new revenue streams)

So what’s in for buyers? The potential to make a good return on investment and recoup from royalties, just like the record companies do, except that the record labels have more control. As an investor, you are betting on the success of the songs going forward.

How are song equities bought and sold?

As with “Royalty Exchange” the artist and owner of the song make a listing with the terms of sales and the amount he wishes to sell the song equity. Investors may then use the platform (broker) to buy the shares of the song. Still using the “Empire state of mind” as an example, a royalty may be for a time (10 years) and specific rights to the song (public performance rights). I presume Mr. Eazi intends to sell streaming rights only. That implies, as the song(s) is streamed on all streaming platforms(Spotify, apple play, YouTube, etc.), shareholders get royalties corresponding to the percentage of their equity.

Should you buy song equity?

The buying and selling of song equities are a little dissimilar to the buying and selling of equity in traditional businesses. For startups, you pitch your idea to the investors, and they decide if it’s worth investing in. And for companies going public (offering share), investors have years of data on which to base their decisions; Market capitalization, prize-to-earning ratio, share buyback, profit analysis, and more.

As it is typically happening for song equities, songs or catalogs get listed on the marketplace a year or more after the official release. The prize with which it’s listed depends on the performance of the song within the last 12 months. The glory days for most songs are in the first year of its release, and thereafter, it slides down in streams. There are some outliers, but betting against the odds for disproportionate returns doesn’t seem like a smart investment strategy.

Though buyers (the public) should hear the song and decide if it’s a song they wish to invest in before song equities go on sale. This hearing already generates streams. On the other hand, If the songs are not released, but their equities are sold as an upcoming release, intending investors may bet on the artist to release great songs. Therein lies the headscratcher. If Mr. Eazi goes the conventional route, equities will be available for purchase months or years after the official release of the song. Else investors may have to bet on him as an artist to release great songs. Buying equity for songs you haven’t heard is akin to equity crowdfunding. Either way, these are two bad choices for intending investors. One must also consider the low liquidity of song shares and easy manipulation of prizes by big investors.

Selling song equities is undoubtedly a great business strategy. As in all investments, it may turn out profitable for investors, or it may head south.

It is debatable if selling shares of songs is an act of love for fans or solely profit-motivated. And if Mr. Eazi genuinely wants to give back to the fans, selling shares to his songs should probably come last on the list or perhaps never appear.

Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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