(Updates in paragraphs 2-4 and Context News to reflect SEC filing, including offering amount and details of Eminem catalog purchase. The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Kate Duguid
NEW YORK, Sept 25 (Reuters Breakingviews) - Betting on the future popularity of Eminem's "Lose Yourself" may prove someone a true fan. But the initial public offering of a company that will buy into music royalties, starting with the Detroit rapper's, sounds off-key for public markets.
Royalty Flow is the brainchild of Royalty Exchange, an online site where artists can sell interests in the future revenue from their songs. Royalty Flow on Monday filed with the U.S. Securities and Exchange Commission to raise up to $50 million. The first deal on deck is to buy up to 25 percent of the royalties earned by two producers and their company, Funky Bass Team Productions, on Eminem's 1999-2013 catalog.
The idea behind Royalty Exchange makes sense. It connects artists with potential buyers of revenue rights, allowing even lesser-known musicians to raise cash against income that comes later. The providers of the funds, though, decide what they are paying. Investors in Royalty Flow will have to trust the company.
That said, royalty revenue is unpredictable. The Funky Bass Team crew earned $4.7 million on the Eminem catalog in 2016. That's up slightly from the prior year's $4.2 million, but down significantly from $14.5 million in 2013. In another illustration, Royalty Exchange sold rights to four songs written by Grammy-winner Timbaland. His collaboration with Drake, "Say Something," earned $26,112 in 2010 but a mere $270 in 2016.
Old tracks can boom in popularity if they're used in advertising campaigns, say, or if an artist dies. Widening its portfolio would diversify Royalty Flow's exposure to the ups and downs, but its announcement doesn't detail those plans.
Recent deals similar to Royalty Flow's haven't synced well. London-based Hipgnosis Songs has twice in recent months delayed listing its portfolio of over 50 artists' catalogs.
Meanwhile Fantex, a Silicon Valley firm that sold shares linked to athletes' future pay, this year closed its exchange and bought back shares at a loss.
David Bowie's famous sale of debt against song revenue provided investors a cushion, yet they still endured credit-rating downgrades as the catalog under-performed over the years. A private exchange where individuals can mix finance and fandom is one thing. As a public company, though, Royalty Flow risks gathering a Slim Shady reputation.
On Twitter https://twitter.com/kateduguid
- Royalty Flow, which intends to acquire music royalties, on Sept. 25 filed with the U.S. Securities and Exchange Commission for an initial public offering. The company intends to raise up to $50 million according to the announcement.
- Royalty Flow is a subsidiary of Royalty Exchange, an online marketplace for music and media royalties.
- The first music catalog Royalty Flow will acquire will be a production company's master sound-recording royalties from the 1999-2013 catalog of hip-hop star Eminem, according to a press release from the company.
- Royalty Flow plans to acquire either 15 percent of the catalog for $9.75 million or 25 percent for $18.75 million.
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(Editing by Richard Beales and Martin Langfield)
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