Online auctions have proven themselves to be one of the most effective and lucrative ways to make money on the internet. People have sold nearly everything on eBay in the past, so it is a wonder that song royalties have never made the list until now. A new company called SongVest has taken the online auction business model and merged it with the business of the distribution of royalties. Customers bid to own a share of certain songs that are offered, including songs performed by Bon Jovi, Aerosmith, Garth Brooks and more. The winning bid for each song receives a personalized plaque, an RIAA-certified gold or platinum album award, other commemorative items, as well as the royalties awarded on the song prorated to the percentage of the song they own. They get paid whenever the songwriter does. Songwriter Mark Hudson, who has several songs that will be auctioned on SongVest, said: "No one is buying records. This to me is just another angle." In my view, SongVest is an innovative and revitalizing attempt to glean new income streams in an industry that has seen declining profits of late. Although the system doesn't seem completely ideal for the writers to me, this is a good way for them to capitalize in the changing music industry.
Whenever a song is licensed, anywhere from a TV ad to the radio, or a copy of a song is purchased, a portion of the money is paid in royalties to the songwriter. This is not to be confused with the royalties paid to the artist (granted they are sometimes the same person). There are two different types of copyrights at work, one is regarding the recording itself, and other is regarding the song itself, as composed of a written tune and lyrics. For instance Lee Hazlewood wrote a song called, "These Boots Are Made for Walkin,'" which became popular as performed by Nancy Sinatra in 1966, and again in 2005 when it was recorded by Jessica Simpson. If either song is licensed (e.g. used in a TV ad) or purc
hased (e.g. buying the album), Lee Hazlewood would receive his share of the royalties based on the song copyright through the song publisher (as seen on the right), while the artist would receive her portion of royalties based on the recording copyright through her record label. It is Lee Hazlewood's portion of royalties that SongVest would be auctioning off to the highest paying Simpson or Sinatra fan. The song copyright still belongs in full to the songwriter and publisher, so buying a share of the royalties does not mean buying a vote in how the song may be used.
The auctions work in a way very similar to eBay. A seller can determine a minimum bid, the duration
of the auction, and what percentage of their song royalties will be auctioned. Although the first official auction will take place from October 4th through October 18th, SongVest has found success in its smaller test auctions. The first one had a $25,000 buyer for 25% royalty shares of two songs by the 80's Christian-Metal band Stryper. The picture on the left shows GB Leighton fan Toni Reynolds standing with Leighton and her newly acquired 50% share of his platinum song. When a customer wins an auction, SongVest takes responsibility for collecting and distributing the royalties to the winning bidder, after garnering 25-40% off the top of the sale price. With such huge names already in their repertoire, SongVest is expecting as much as $250,000 dollars to be spent on some of the songs in their first auction.
Song royalties are purchased in bundles all of the time, but "They're bought and sold on a pure investment basis," says David Prohaska, co-founder. "What about people who really love the music?" SongVest markets their auctions as the ultimate purchase in memorabilia, not as an investment to make money. It connects the songwriters to the fans, and that is where the value comes from. This is crucial to the preservation of good songwriters in the music industry. While a performing artist can take a top hit and tour the country with it, making hundreds of thousands of dollars per concert, the songwriter doesn't have that ability or income source to fall back on. With the recent and worsening decline of album sales, SongVest, and any other creative services that will emerge if SongVest is successful, help the songwriter capitalize on, and be compensated for their work.
It must, however, be noted that the deal is not completely ideal for the songwriter. A cut of 25-40% can easily be seen as gouging the songwriter, who may be in need of cash (a Hollywood agent only takes a 10% cut). As an Idolator.com writer assessed: "strapped singers and broke bands will happily treat their art like eBay merchandise, provided it takes care of those child-support payments and student loans." In essence, he asserts that SongVest helps songwriting artists sell-out to "the man." This may be true, but the songwriters do not give up control of the intellectual property, only forfeit some of the royalties for a price over ten times what they would receive in a standard music publishing sale, where they would no longer control the song. For a business deal similar to consignment, 40% is a large piece of the pie, but on the other hand making 60% of $250,000 simply because a rich patron really liked the theme to The Monkees would be too good to pass up for many songwriters.
2 comments:
Fantastic summary, Michael. If you’ll permit me, I’d like to make one correction, however. The commission charged to the songwriter for selling their Writer’s Share through SongVest is an industry standard flat 20% - identical to most major auction houses. It’s the buyer who pays what’s called a “Buyer’s Premium” on top of their winning bid that can range from 15-25% based on the size of the bid. Those numbers, too, are very consistent with industry standard.
Great post! Songvest is such an interesting topic because it shows one of the many ways somebody can "glean new income streams" in the music industry with a solid understanding of copyright, publishing and royalty rights. Your post was very thorough and all the questions about Songvest that I had along the way were answered and reviewed both through your blog-post and your links. I found it interesting that many of the songwriters would even consider selling their royalties; however I failed to consider those who may not sell as much music on a monthly basis. Songvest assesses the problem of money now or money later, and for an artist who is currently struggling money now could be a very lucrative deal. Mark Hudson’s quote was interesting because he mentioned that “nobody buys records” which tends to make people think that the music industry is “failing.” It raises the question: How does format affect a band’s success in the future? Were Mark Hudson’s songs released mostly on vinyl and maybe not reissued or delivered to online distribution companies? However, I think Songvest is on to something interesting, especially because of the way they focus on the songwriter and the way money flows to them.
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