If you’ve established a proven stream of royalties, you can turn it into a lump sum of money that you can get today by using royalty auction services.
If you’ve established consistent sales and royalties from your music, a whole new revenue stream opens up for you: advances. While this was once only available to star musicians and music labels, today you can generate a cash advance by selling the rights to your future sales and royalties through some new, innovative services. Doing so can help you fund your next album, build out your studio, launch your next tour, or simply get you out of debt.
Why you earn royalties and why you can sell this right
Before we explain how you can sell your future royalties for cash, we need to review how getting cash advances from your royalties and sales is even possible.
Each time music is broadcasted, performed, streamed, or covered by someone else, a fee for its use is generated. These fees are usually collected by authorized organizations in each country that charge broadcasters, streaming services, and establishments (music venues, restaurants) for the use of music in their catalog. They then pass these royalties onto their registered songwriters, publishers, and sound recording owners.
The only way to get these royalties is by signing up with performance rights organizations and other services so they can identify your music, track how many times it’s played, collect the royalties, and send you money. If you don’t sign up with these organizations, you won’t get a cut of the income they’re collecting even if your music is performed and is technically owed a royalty payment. You need to participate to get paid, and once you do, you’ll successfully create a passive income stream for your music business.
How to turn your royalties into a cash advance
If you can establish a consistent passive income stream from royalties and music sales, you can enter the world of royalty advances and selling off the rights to all or some of your future sales and royalties. Since the term of this type of transaction is based on copyright, for an individual songwriter, this is your entire lifetime plus 70 years. This means you can earn more than your entire lifetime’s income from the percentage of royalties you sell off.
These types of advances have only become available over the last few years thanks to changes in investment law and the prevalence of digital music aggregators that constantly track sales, streams, and plays.
You can always use your sales and royalties to get advances on your own by selling them directly to music organizations and labels or getting loans based on future earnings from banks or individual investors. However, today, you can auction them off using innovative services like Royalty Exchange and Songvest that create a marketplace for buying and selling future earnings for music that has a history of royalty income.
Depending on the size and consistency of revenue your music produces, this could generate a lucrative lump-sum payment. For instance, Michael Skaggs and his band, Outline in Color, were able to generate over $40,000 by auctioning off a 50 percent stake in their first two albums’ future digital sales, mechanical royalties, and YouTube synchronization/ad share revenue on their first two albums. This advance provided some needed cash flow, allowed them to pay off debt the business accumulated, and helped them fund more music projects.
Here’s how it works using Royalty Exchange. The service will meet with you to analyze the sales and royalty revenue your music is generating and the advance potential it could fetch in the market. They then help the musicians decide which digital sales and royalty streams they’re comfortable in auctioning as well as which ones to exclude, allowing them to set the percentage share to offer to the market and whether to set a minimum reserve. Once the copyright owners decide on the final offering, Royalty Exchange then organizes and runs the auction for a cut of the proceeds.
Naturally, how you use the proceeds afterwards is up to you. You can use it to invest in your music or whatever else you want to use it for. Just make sure to handle the taxes properly since it is reported as income. If you decide to participate in this type of financial transaction, be aware of how Royalty Exchange’s auctions work, the options available (such as setting a reserve or minimum), the bidding process, and the best ways to promote your auction.
How to boost your chances in auctioning or selling your future royalties
To increase the likelihood you get the most from your royalties auction, there are three things you should do.
1. Use song and sound recording split sheets so you can prove who owns what
It goes without saying that you can only sell or auction off what you actually own. So before you try selling or auctioning off your future royalties and sales, you need to make sure you can prove you own the copyright of the composition and sound recordings. This is where Songwriting and Sound Recording Split Sheets come in. These are easy-to-use, templated agreements that document, in writing, the percentage of ownership each collaborator is entitled to for a song, which determines how much each gets if it generates revenue. This makes it easy for you to register the songs for royalties and can avoid nasty legal disputes in the future should the song or sound recording take off or get licensed. (We go in depth about how music copyright works in the “Your Rights” chapter of Making Money With Music.)
The best time to capture this information is at or shortly after your songwriting session. Capture this information early and make it a habit in your production process. We created free split sheets you can download, review, and use in our free starter kit here.
2. Verify your PRO collects foreign performance royalties or choose a foreign rights collection service partner
One way to increase your odds of selling or auctioning your future royalties is to have more royalties coming in. Many musicians leave money on the table when it comes to the royalties generated outside their home country. To capture performance royalties outside the US, you may need to either grant your PRO the right to collect these royalties for you or sign up with a publishing administrator service which specializes in this, such as CD Baby’s Publishing Administration. Check the policies of your PRO if you decide to use them for this, because some payments may be delayed for up to two years as the collection works its way through the system.
3. Use cue sheets if your music is used in TV, Film, or other audiovisual work
There’s one more step to complete to ensure you get all the performance royalties owed to you if your music is used in film, TV, advertisements, video, or other audiovisual works: you need to have the production company submit a cue sheet. Cue sheets are documents created by production houses to track the music used in their work. These documents list the name of the song, the artist, the publisher, and precisely where it was used in the work (including the start time and duration). Most professional production houses will fill these forms out and send them to the PROs, which then use these sheets to track when your music was played so they can pay you performance royalties.
Make sure the information in the cue sheet is accurate. Check the spelling and make sure the composer (songwriter) and publisher names are listed correctly. Each PRO uses its own preferred formats, so use the one from your PRO. You can get an idea of what they need to track here:
It’s absolutely critical to ensure all the information in the cue sheet is accurate. A misspelled song title in a cue sheet can result in zero confirmed plays and no royalties, so check your cue sheet carefully.
— — —
Making money off of your recorded music starts in the studio by signing split sheets and requires doing all the right administrative work to register the songs before, during, and after the release of the music. Although these steps are a bit of work, the registrations only need to be done once for the song to collect money for your entire lifetime. It’s worth using a weekend to do it! Don’t wait, start collecting the money from the first day it’s released into the world and establish an income stream that other people would like to pay you to get in on.
Finally, note that some of the most enthusiastic bidders for these auctions aren’t just business people — they’re superfans. They want to go beyond buying your merch, mementos, and behind-the-scenes photos and instead want to own an actual piece of one of the songs they love. They may be willing to pay money to be an owner. This means that if you do decide to auction it off, make sure to tell all your fans, since one of them may want to go into business with you and pay you a lifetime of royalties to do it.
Authors of the critically-acclaimed modern classic, The Indie Band Survival Guide, Billboard Magazine called Randy Chertkow and Jason Feehan “the ideal mentors for aspiring indie musicians who want to navigate an ever-changing music industry.” Their latest book, Making Money With Music (Macmillan) and free Making Money With Music Newsletter, help all musicians — from startups to pros — build a sustainable music business so you can make money in today’s tech-driven music environment.