As the pandemic-induced economic crisis decimates the music industry, many musicians and songwriters are scrambling to make a living. For those who have written songs but yet to receive payment through traditional sources — publishers and performing rights collection agencies — a number of financial companies are vying to help.
Royalty Advance, Sound Royalties, and Lyric Financial are three companies that work in much the same way as personal injury loans do where a cash advance is given against an expected legal settlement. Lenders conduct a forensic analysis of a songwriter’s generated royalties. They then offer an advance against that amount with funding possible in a matter of days — far faster than the time conventional publishers take to process payments.
“It’s not like a songwriter can go to their local bank with a profit and loss statement like any other small business can and get a loan,” Courtney Barnes, an industry veteran who done recent publishing deals for The Isley Brothers, Smokey Robinson and Deniece Williams, tells Rolling Stone. “So there’s a limited pool of places where writers can go for quick funding. And as you know, it’s not like being a writer can give you a predictable income like a 9 to 5.” But, Barnes warns, writers “should tread very carefully when talking to the royalty loan companies” — and should always ask the companies to run specific scenarios with them, so they can understand the fees being charged over time.
Royalty loan programs have been around for a while. Parviz Omvidar is president of RoyaltyAdvance.com, also known as Royalty Advance Funding, which has brokered deals with household names such as Michael Jackson, War, Kool and the Gang and Roy Ayers. “We are very proud that to have been in the same business for over three decades, which to our knowledge is longer than any other participant in the music finance field,” he says. “We get to know each of our borrowers and develop relationships with each of them, so they can simply pick up the phone and call us about their financing needs.”
All the companies I spoke to were reluctant to talk about their specific approval criteria and repayment programs — but Omvidar does explain that their lending works in much the same way a home equity line of credit does. “We set up simple lines of credit, so songwriters, producers, music publishers, record labels, and others can borrow and repay as they wish without any prepayment penalty,” he says. “The process is fast, easy, and simple. And we are very forgiving of many credit issues, such as past bankruptcies, foreclosures, liens, levies, et cetera. We are regulated under and held accountable by lending laws, so borrowers can feel confident that there is an extra layer of oversight.”
How are interest rates determined? Omvidar says he weighs a number of variables. “Determining the rate is more of an art than a science, as there are so many factors that must be considered,” he says. “For instance, are we evaluating a diverse catalog or are we working with a one-hit-wonder? Is there a hit? Is it new and on its way up? Or is it on its last legs? What is the genre? How many players are involved? Who are the players and what are their finances? What are the debts and liens that are in play? The list goes on and on.” He adds that his borrowers take short-term advances ranging from six to 12 months against their credit lines, and interest rates can be as low as 12%, which is standard for the intellectual property world.
Royalty Exchange, who cite a long list of writers as clients that have worked with artists including Wiz Khalifa, NKTOB, Zendaya and Akon has a different model to other companies that offer short-term financing. The company hosts online auctions for the buying and selling of music royalties, with investors bidding for a portion of an artist’s royalty stream. Through this process, the artist can sell royalties and collect immediate revenue, with the possibility of regaining the stream at a later date.
“The difference between this and a loan or an advance is that there’s no obligation to repay or recoup the money based on what someone else things you might earn in the future,” says Keegan Gaeng, artist relations manager at Royalty Exchange. “That means any money you earn after the transaction is yours to keep and not subject to paying back a debt based on another’s terms. This is particularly important at a time like now when predicting future royalty income is increasingly uncertain.”
Gaeng uses the example of Slade Echeverria, lead singer of alt-rock band Anarbor, who had a European tour planned before the pandemic hit. He turned to Royalty Exchange to raise cash. He sold the public performance royalties to a collection of songs that included the 2010 LP The Words You Don’t Swallow. Echeverria was earning about $1,200 a year in performance royalties from this catalog. He listed it for $5,000 on the Royalty Exchange marketplace, but bidding drove the final sale price to $14,450 — 12 times what the catalog had earned in the last year.
“Artists need to think of their catalogs as financial assets, just like labels and publishers do,” Slade says. “Thinking that way gives you far more financial and creative control as an artist, and it will sustain you through tough times like these in a way that lets you emerge in even a better position once all this is over.”
Companies like Royalty Exchange and Royalty Advance also emphasize an upper hand in speed: They can often get money to artists much faster than conventional music publishers and performing rights organizations (PROs). That’s something Rich Christina, senior vice president of A&R at Warner Chappell Music, is cognizant about — but Christina dismisses the notion that royalty loan companies could someday morph into competition.
“Major publishers have worked and continue to work hard to expedite collection and payment of writer royalties as well as help writers in need in a timely fashion,” he says. “And great strides have been made in the last few years. I’ve dealt with a huge number of writers over the years. I’ve only heard of very few going the route of the high-interest loaners. They are certainly no competition for publishers.”
Will the current economic situation prompt more artists to experiment with alternate royalty routes? In recent months, the industry has buzzed in particular about the option of selling entire song catalogs to investment operations like Merck Mercuriadis’s Hipgnosis. For publishers, PROs, and royalty loan companies alike, the competition is heating up.
Omvidar points out that “there are new Wall Street firms or hedge funds who try to crash in on the music world” once every decade, some of them with more staying power than others. “Anyone who is looking for financing should make sure he or she is working with a company who has a trusted and dependable capital source, who has true love and knowledge of music, and whose experience in the music world has passed the test of time,” he says.