Royalties Inc. focuses on cash flow generating royalty opportunities across a wide variety of very different industries.
Through its stake in Music Royalties Inc., the Toronto-based company provides direct exposure to music revenues from the recent hyper-growth in global streaming platforms by acquiring partial ownership in song royalties for shareholders. Its goal is to increase share value by accumulating a diversified portfolio of cash flowing royalties in order to pay increasing dividends.
TMH: First off, tell us about your music royalty portfolio as a whole, what’s the company’s overall goal?
TG: First and foremost, we made a $1 million investment in Music Royalties Inc., which is a private company that’s built up a pretty awesome portfolio of about 25 catalogs that include financial interests in songs by the Rolling Stone, The Kinks, The Who, one hit wonders like Dancing in the Moonlight, as well as Eminem sound recordings and a piece of a Drake song. So it’s the first time that the North American retail public investor has had an opportunity to participate in this new streaming revenue that obviously didn’t exist before, from entities like Spotify and YouTube.
TMH: You have some pretty big names there…how do you monetize that?
TG: I think the surprise and you can see it on your Spotify account, if you look under song credits is that every song actually has 5, 10, 15 “owners”, if you will, “rights holders” that participate in that streaming income. So, it’s analogous in a way to the mining business where you have a typical 2% interest or NSR, you could have a songwriter or a guitarist, a drummer, a sound engineer, a producer or manager, so that all these people, private individuals have these interests are rights holders and the best part about this interest is that it’s protected for a hundred years in general. Meaning copyright law is 70 years plus the life of the author. So we’re saying it’s like a hundred year mine life, if you want to make the analogy to the mining business, but to have a monopoly on streaming revenue that’s growing every year with smartphone growth, the globalization of music, the remixes of old music, it’s sort of the one thing that we all know and love but never had that opportunity to buy. So that’s the huge opportunity in front of us – billions of dollars of annual streaming revenue to be monetized into a portfolio.
TMH: Why should investors want to be in the music royalty business?
TG: First and foremost, it’s important to recognize that the Canadian markets got their start with public investing in royalty companies from Frank Nevada in the 1980s.Now the gold royalty peer group is about a hundred billion dollars in market cap but it’s supported by less than a thousand actual paying mining royalties. If you think on the other hand, off your smartphone, you’ve got millions of songs and millions of owners, so it’s an infinite universe, much smaller cash flows but that’s the kind of thing that has never come to the public market before and the other point is that your typical mine life depletes to zero over 10 or 15 years on average, whereas we’re comparing this to in some cases perpetual royalties. So again, there’s no comparison but really, it’s not about eliminating what you own already. It’s about an incremental, non-correlated asset that you already know about, the top songs, the iconic songs and it goes beyond music to TV, film, books and gaming. It’s about bringing all that global streaming revenue to the financial markets in a portfolio to de-risk the investment.. It’s not like a single mine or oil and gas royalty that depletes with a volatile underlying price. Once you’re a hit song and you’re on everybody’s playlist, it’s a utility cash flow.
TMH: Talk a little bit about the advantages of passive income sources…
TG: I think especially as you get older, and you think about what’s the pension plan that you’re going to live on, you start focusing on dividend paying stocks. So in the case of the perfect investment that combines growth and income, passive streaming income from playlists, is from my perspective the perfect incremental investment at the individual level, right? The alternatives would be collecting interest on bonds but they typically don’t have much upside, or you could say that you have a real estate property that you have to manage for rental income. You can collect dividends from big companies. The US average S&P 500 is less than 2%. So we’re bringing to the public market, a new asset class, you didn’t know about but there’s actually a private market of these rights that are held by millions of people that basically you can buy for 10 to 20 percent yields.
TMH: Is there anything else on the horizon in the short or mid-term that investors should be excited about?
TG: In the time that we’ve been at it going back five years there are some online auction sites where we’ve been able to buy some things by cherry picking. Royalty Exchange is a great company. We’ve bought a few things there that are unique and spectacular from interest in the Dire Straits and Eminem sound recordings. It’s an auction site. They’ve done about 1600 deals in the range of $50,000 to $500,000. So, the issue is it’s going from one private hand to another, and we’re trying to offer diversification and the liquidity ultimately in the public market. There is ANote in Europe, and Songvest in the US. You can talk to people in the entertainment business and see if you can make a deal directly. There are all kinds of angles.
TMH: So, we’ve touched on a lot of things but is there anything else that’s on your horizon in the shorter midterm right now that perhaps we haven’t touched on that’s important for investors, our audience to be excited about or to know at this point?
TG: Of course, we still have our mining assets from the past. We spent $30 million on a silver asset in Zacatecas, Mexico. We’ve been waiting for 12 years for the silver price to go on a run and it seems to be percolating of late. The underlying assumption in the PEA was $30 per silver. So, if we crack that number then perhaps we can bring our investment back on the balance sheet and the second thing we have is a litigation royalty on a Capstone mine and we’re working through that in Mexico. So, the core main investment that we can control is raising money and buying incremental cash flows and that’s really going to create the news flow and allow us to grow the cash flow so we can ultimately achieve our goal of becoming a dividend paying investment.
Toronto-based Royalties Inc. trades on the Canadian Securities Exchange under the ticker symbol CSE:RI. You can also visit www.royaltiesinc.com for more information.
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