Unlock Income with Fractional Ownership of Music Royalties
Some information in this article may be outdated. As of February 26, 2021, SOMRE purchases the rights from copyright holders and no longer has them list their rights individually. This change negates the kickbacks and the ability to retain ownership of your copyright.
In addition, SOMRE now offers a marketplace for tokens to catalogs of royalties rather than individual royalties.
These changes ultimately create as simpler, more secure process for our users.
See Open Beta and Business Model Changes for more information.
What is this radical idea of "fractional ownership"?!
The year is 1602 and you are a merchant that wants to get in on the lucrative trading business with the New World. There are a few roadblocks though: you don't have any ships, inventory, or enough money to fund such a venture. You have a couple of options:
- Partner with others of similar ambition, pool your money together, and begin your trading business with the New World.
- This Dutch East India Co. has just begun issuing paper shares. Perhaps you could buy some of these shares and enjoy some of the profits of this already successful company. The money that you invest will be used by the company to expand business, which will increase your and other shareholders' profits. Seems like a great idea!
The above scenario has played out many times throughout history. The London Stock Exchange was created in the midst of the Industrial Revolution as a way for the industrial companies to raise capital for their large factories. By selling shares, the monolithic company ownership is broken down into fungible stock that allows investors to take part in ownership of the company, the factory, and its profits.
Another example from more recent history is the gold standard. Up until the gold standard was abolished (1933 in the U.S.), currency (e.g. U.S. Dollar) represented a fractional share of an ounce of gold.
In more modern times, blockchain technology has been the catalyst for a few companies looking to breakdown traditional ownership models. UBS recently initiated a project that breaks commercial real estate ownership into fungible tokens that can be traded or held as a part of your portfolio. Holding onto these tokens will net you a portion of the rental income for the property to which your token is tied.
Fractional Ownership of Music Royalties
SOMRE deals with the fractional ownership and exchange of royalties associated with musical copyrights. What does that mean in English? Think back to the example given at the beginning of this article; SOMRE is the stock market, copyright holders are the Dutch East India Co., and investors are the individuals looking to earn income from trade with the New World.
There are 2 different types of copyrights when you think of a song, the Composition and the Recording. Both of those copyrights have 3 different streams of royalties:
- Performance Royalties - The song is played on radio or in public
- Reproduction Royalties - Sales and streaming
- Sync Licensing - Use of the song in a movie, TV show, or video game
As an investor, you are able to buy shares to the above royalty streams on SOMRE. To learn more about the royalty streams and how the fractional shares are broken down into tokens, check out the Wiki.
Investors and Copyright Holders... Who Wins?
The copyright holders now have a way to raise capital for an asset that has traditionally not been very liquid. Even if the copyright holder does not intend to sell, it is beneficial to hold fungible shares of their copyright royalties. Now the copyright holder has the option to send shares to people that may have helped create the copyrighted work or send shares to friends and family.
On top of the new capabilities that the copyright holders have with fractional shares, the value of their royalties increases when they are sold! How is that? More investors means more demand.
Say I have a copyright that I am trying to sell, so I put it up for auction and it sells for $50,000! That is a good price, but the hidden downfall is that I've missed out on a lot of potential investors at this price point. An investor may not have $50,000 to invest, but could be willing to pay $1000 for 1% of the royalties. So if I find others that are willing to pay that same price (there are a lot more people with $1000 to invest rather than $50,000), then I could sell all of the shares for a grand total of $100,000!
($1000 x 100 shares) > ($50,000 x 1)
$100,000 > $50,000
With the auction route, copyright holders take the risk that they might not get the amount that they would like for their copyright. In the SOMRE market, that is not an issue. The copyright holder sells their shares at a price with which they are comfortable.
In addition to the above benefits, there is perhaps an even more important benefit for the copyright holders when they sell on SOMRE. Kickbacks. Even if a copyright holder sells ALL of the shares to their copyright's royalties, they are still making money each time those shares are traded. A percentage of each trade is sent back to the copyright holder that brought the copyright to SOMRE.
So how does this benefit the investors?
Investors now have a way to invest in copyrights without shelling out large sums of money. Not only that, the investors are now able to diversify since they are able to spread out their money across a wider range of investments (e.g. different genres of music, different artists, etc.).
Once an investor has puchased the shares to some royalties, they benefit from all of the same income streams as the copyright holder minus the kickbacks.
First you'll need to sign up!
If you are wanting to purchase royalties, then all you need to do is add some money to your SOMRE account and search the marketplace for royalties that you are interested in.
If you are a copyright holder interested in adding your royalties to make managing them easier or to sell shares, then you'll need to add your copyrights. For this you just need to provide SOMRE with the information about who is collecting the royalties for you. SOMRE will work with them to route the royalty payments straight to your account. You can then sell some or all of your royalties on the marketplace for whatever you believe is a fair price.