The Hidden Risk of Royalty Exchange Music Investing

Royalty Exchange is a platform that exists to permit amateur and professional investors alike the opportunity to purchase the royalty rights from musicians that seek to sell the residual earnings claims / digital rights. It has found early success by tapping into attractive concepts—the desire for regular income and the desire to own an asset that provides psychological satisfaction in a way that investing in, say, sewage dumps and funeral homes cannot.

Unfortunately, the ease of purchasing music royalties enables royalty purchasers to dramatically overvalue the worth of the royalty stream due to naivete with the industry.

For instance, someone might see a royalty exchange listing for an indie band that earned $7,000 over the past year and conclude that $35,000 is a reasonable price to pay (based on my review of the ten most recent listings on the royalty exchange website, the average price paid was about 5x earnings). … Read the rest of this article!