"Secondary merchandising" has become a buzz phrase in the music industry in recent years, with acts hawking everything from fragrances to clothing lines. Music itself has seemingly taken a back seat, serving as little more than an attention-getting device -- until now. SongVest, a company partly based in Raleigh, has a program that offers fans the novel opportunity of buying shares of actual revenue streams to songs. For more details on how that works, below is the story from Sunday's paper.
For a Song: Raleigh-based company lets fans buy a (very small) share of revenue rights to their favorite tunes
By David Menconi, News & Observer
March 15, 2009
From platinum records to backstage passes, Steve Matthews is an avid collector of rock music artifacts. He has enough to stock a good-size Hard Rock Cafe, he reckons.
But the latest addition to his collection goes beyond secondhand souvenir: He now owns 0.7 percent of "(I'm Not Your) Stepping Stone, " the classic 1960s-vintage single by the Monkees.\ Matthews bought a share of "Stepping Stone" through SongVest, a musical brokerage firm partly based in Raleigh that auctions off shares of songs. It's the newest wrinkle in the music memorabilia business.
Matthews discovered it when he happened onto the company's Web site, SongVest.com.
"I saw it and said, 'Now that's pretty cool,'" says Matthews, a water treatment plant operator who lives in Clinton. "I grew up watching reruns of 'The Monkees' as a young lad, and I liked the show and certain songs. I really liked that one. If you're like me, somebody who is into memorabilia, owning part of the song is great."
Technically, SongVest doesn't sell the songs it auctions off. What people buy is the right to a portion of a song's revenue stream, while each song's copyright owners retain ownership and control of its use. But the revenue stream rights that SongVest customers buy last for as long as the copyright does (and can even be willed to heirs).
Matthews came across SongVest when the company was auctioning the rights to four Monkees songs. His 0.7 percent share of "Stepping Stone, " which reached No. 20 on the singles chart in 1967, cost $1,060.
President and founder Sean Peace calls SongVest's concept "memorabilia with a paycheck, " and there are royalty checks involved - though they're pretty small. Based on recent revenues for sales and airplay royalties for "Stepping Stone, " Matthews stands to make about $29 a year for his 0.7 percent share. At that rate, it will take more than 36 years for Matthews to recoup his investment.
But what he really bought it for was the framed platinum record award he received certifying his part ownership of "Stepping Stone." His plaque also includes handwritten lyrics by co-writer Bobby Hart (for which he paid an extra $100).
"It's a nice model that makes everyone happy, " Peace says. "The songwriter, the artist and the fan, who is allowed to do something beyond buying a widget. It's very personal."
The music business used to be simple. You wrote a song, recorded it, put it on a record (or tape, or compact disc), sold copies and collected a check. If it got on the radio and sold a lot of copies, that check might be very large.
But nowadays, with CD sales plummeting, it seems like musical acts and record labels put a lot more effort into selling other things - ringtones, clothing lines, endorsement deals and, of course, obscenely overpriced concert tickets. The music itself has almost become a loss leader, a way to get attention and open up other revenue streams.
So you can think of SongVest as something that takes the focus back to the song itself and what it might be worth. Song copyrights make money in the form of royalties from the sale of recordings, along with performance royalties from placements in movie, television and commercial soundtracks.
Those placements have become increasingly important in recent years, as CD sales have dropped by around 50 percent from their turn-of-the-century peak.
William Krasilovsky, who wrote the book "This Business of Music" and has overseen the publishing of Duke Ellington, Chuck Berry and other legendary (and valuable) catalogs, says that publishing remains the best place to make money in the music business.
"Music publishing still does pretty well, " Krasilovsky says. "ASCAP, BMI and SESAC revenues are all up. I've been telling people to read the Warner Music Group annual report, which stresses how well its publishing is doing. Record sales, they're only hopeful of curing the problem of the Internet."
While online piracy is something the labels will probably never cure, song copyrights remain the most valuable long-term asset in the industry, one that can even be leveraged. In 1997, David Bowie issued "Bowie Bonds," the rights to revenues to 287 songs in his catalog. They were sold for $55 million.
But deals like that are far out of the reach of most fans and artists.
Enter SongVest, which Raleigh resident Peace co-founded with David Prohaska (who lives in Wisconsin). SongVest operates on a more modest scale, one that can even serve as a way for lesser-known acts to raise money.
"Somebody could utilize this to raise money to tour or record or buy gear," Peace says. "And larger bands that are mega-sellers might do this with B-sides. Hootie [& the Blowfish] might never want to sell 'Hold My Hand, ' but maybe some of their B-sides. This would turn nonperforming assets into something that generates money.
"Bands could pre-sell songs, let fans listen to them as rough cuts while they're being recorded. Maybe buying a song gets you into a recording session, or listed on the record as executive producer. Other things we're talking about as premiums are a lifetime backstage pass in the buyer's name. Maybe a special performance, lunch with the artist, a clinic."
SongVest's most recent auctions were for four Monkees songs, and the $1,060 Matthews paid for his 0.7 percent share of "Stepping Stone" came in at the lower end of the price range. At the higher end, another buyer paid $20,400 ($17,000 base price plus 20 percent commission) for 4.25 percent of "Last Train to Clarksville."
"Last Train" hit No. 1 in 1966 and still gets enough airplay to generate considerable revenue. But as investments go, this might not be the best. The buyer who won "Clarksville" can expect to make $831 a year, so it will take more than 24 years to recoup the total purchase price.
"The return might be better than on a savings account, " Peace says, "but we'd never promote this as an investment."
Still, if lightning strikes, such an investment might pay windfall dividends. Were "Stepping Stone" to unexpectedly appear in a movie soundtrack or high-profile television commercial, that 0.7 percent Matthews bought will bring in a lot more than $29 a year.
Not all of SongVest's offerings have panned out. Last fall, the company offered 6.25 percent of country singer Garth Brooks' 1990 signature "Friends in Low Places" for a minimum price of $250,000. Unfortunately, that offering coincided with the beginning of the stock market slide. Even though Peace estimates that "Friends" still generates more than $50,000 a year, there were no takers.
"That six-figure price is something we'll have to grow into, " Peace says.
For now, SongVest is concentrating on price points of around $1,000 to $3,000, and $10,000 to $25,000.
Next up for SongVest is a collection of songs by 1980s-vintage hair metal bands, which should go up for bidding this spring.
"Stepping Stone" buyer Matthews used to be a deejay during the style's heyday, so he's interested in buying a song or two from the era. And he's already thinking big.
"I'd like to build up a portfolio of all different kinds of songs, " he says. "Owning 0.7 percent is not a big percentage, so the royalties won't be much. But if you buy 30 songs, after a while you might see some substantial royalties."