What makes up the value of a song?
In order to invest in music rights, and specifically the royalties that are generated by master right ownership, it is important to predict the song’s performance (number of streams, synch income, etc.) in the upcoming years. Every song is unique and its performance will depend on many different factors, however, there are certain patterns one can assess in order to make an informed decision whether to invest in a song or not.
The most important factor: Expected royalties over time
This is of course easier said than calculated or done. Sudden changes can occur such as if a song goes viral on social media or if it is being used in a film or in a commercial. But the two most obvious factors to keep an eye on are:
- Royalties last year
- Where the song is in its maturity phase
A song goes through different phases of maturity
Most songs that make it to become more stable and predictable in its earnings go through different phases: Growth, decline, a short period of recovery, and then enter into a stability phase where royalties are more predictable over time.
This cycle of different maturity phases used to take 4-6 years, but as with so much else, nowadays this can happen much faster.
Remember; this is not a formula that tells you the exact value of a royalty right, it merely serves as a good indicator of what kind of opportunity you are looking at.
At MasterExchange we have depicted this cycle as follows:
If the song has been on the market for a minimum of 3 years AND in the stability phase for at least 6 months, we will apply an estimated annual yield on the song calculated as a percentage return on the investment per year.
The earlier a song is in the cycle the harder it is to say how much royalties a song will generate over time. Most songs actually fade into basically nothing, and generate very low royalty income. However, with clear traction, even in the early days, the probability that the song will actually become a stable moneymaker at attractive levels becomes more likely.