The following is a transcription of the above video, and The Market Herald Canada has edited it for clarity.
Joining us today is Royalties Inc. (CSE:RI) Chairman and CEO Tim Gallagher, who is here to share all the information about the company and what it has to offer investors in the exciting business of music royalties.
TMH: For members of our audience who may not be aware, can you please provide some background on Royalties Inc.?
Gallagher: Royalties Inc. used to be called Xtierra, went public back in 2008 and had a good run into the silver peak of 2011 when silver hit $50 per ounce, on a Mexican silver property called Bilbao.
But, of course, it’s been a long time, almost 13 years, for most silver companies, waiting for that silver price to make its move back to $50. So, we still have the legacy asset. We still think it’s valuable, but obviously we need a better price than $22 per ounce silver and it feels like we’re another day, maybe a year away from something finally happening, which will put silver assets front and centre again. And there are actually not that many silver companies out there, in fact. That’s the history.
About a year and a half ago, we changed the name to Royalties Inc, which is a tie-in to the fact that back in 2018, after being involved with another gold royalty company called Metalla, I came across the music royalties opportunity.
Think about all these gold royalty companies that have a hard time finding cash-flowing royalties and I see that one of these performing rights organizations that redistribute the streaming income pays out a record billion dollars in royalties and so that began the odyssey for Music Royalties.
We bought our first asset, and a song called “The Nights” and 60 other songs for a fellow you may know called Avicii. That song is a great example as it’s gone from a 10 per cent yield to 22 per cent yield and in fact, we got about $32,000 last year, and almost have paid the original investment of $145,000 back. So, we wanted to bring that story to the vehicle Royalties Inc. Royalties Inc. now has an investment of 2 million shares that it paid 50 cents for, and it’s generating $6,000 a month in royalties from Music Royalties Inc., the private company.
Royalties Inc. is a hybrid investment. It’s got the legacy mining asset and before we got into Music royalty specifically, I bought back the Bilbao Royalty and I came across another one that we bought called the Portree royalty on the Cozamin Mine, which is an asset on an operating mine in Zacatecas owned by Capstone but that’s turned into a dispute.
So, Royalties Inc. has these three things on the go. The Bilbao asset that we think is worth millions of dollars as a silver asset. I mean, we spent $30 million on it. So hopefully in a better market we can realize some value and we’ve got what we think is good progress on the lawsuit with Capstone and then of course now we have music royalties as an investment generating monthly dividends and we’ve added four other cash-flowing music royalties. So, that’s where we’re at with Royalties Inc.
TMH: Is there anything more you can elaborate with just the Music Royalties Inc., just to share some information and let’s introduce the video that we’re going to share here?
Gallagher: I think there are a few things that stand out for a bunch of reasons. One is nobody thinks about streaming as being a big revenue generator. But of course, I don’t know if you saw the news, but in the last little while, we found out that there were 4 trillion music streams in 2023. So, at about half a penny a stream, just to give you an estimate, that’s about $20 billion a year in streaming income.
We’re trying to basically assemble a portfolio that’s part of that global streaming income. Let’s face it, it’s mostly coming from Spotify and surprisingly since Spotify didn’t use to exist, we used to have something called record stores.
Spotify has paid out over $40 billion in royalties and in fact, so has YouTube. That’s $80 billion just from those two companies that didn’t used to exist. TikTok, Facebook, Apple, there’s obviously all kinds of new internet platforms that are paying for licensed music. We’re trying to bring those cash flows if you will, to investors in a portfolio so that it’s diversified.
TMH: It sounds like such an intriguing opportunity. Can you break down for us the process of obtaining a song royalty and how money is generated from this?
Gallagher: Continuing from where I started off, so we’ve got $20 billion in annual cash flows from copyright protected material. It’s going out to frankly millions of private individuals that are part owners of a particular song.
The biggest surprise when you look on your Spotify, you look at the three dots to the right of a song and you’ll see when you scroll down, song credits and that is essentially the ownership of the song. When you think about somebody as a single artist like Drake, you’re forgetting the fact that on a song there are 14 co-writers, three producers and your band, you obviously can be the lead singer but you need some people playing instruments. They all have “pieces” or a percentage, for example, sound engineers, producers, managers typically take 5 per cent.
So, it’s really the other 50 per cent that the record companies don’t take, shared amongst the number of people it takes to create a new song and of course that also applies to TV shows like “Friends,” where you have six actors each getting $20 million a year from a show they retired from 20 years ago.
It’s the secret world of private entertainment royalties that we’re trying to bring to the public market.
TMH: Just to clarify, Music Royalties Inc. is investing in the song. So you pick a bunch of songs or you invest in specific songs that then pay the royalties. Am I getting that correct?
Gallagher: It is definitely a little complicated to think about, but the reality is that you could focus on a particular song, you want to own a piece of your favourite song. You could say, I just want to own a piece of my favourite band or you could say, “I happen to know a producer who lives next door and they’ve worked with two dozen bands.” And sometimes if I wanted to simplify it, if you and I wanted to own the best music of the last 60 years, all you’d need to do is make a deal with Quincy Jones, Clive Davis and David Foster or somebody that they worked with who has a piece.
If you think about Quincy Jones working from Frank Sinatra on one hand all the way to Michael Jackson. David Foster working with Barbara Streisand, Whitney Houston, Celine Dion, all the way to Michael Bublé. These people are “built-in portfolios” in and of themselves.
And of course there’s also the demographic aspect where a lot of our artistic musical heroes are now at the estate planning stage. They’re in their 80s and what are they going to do with these royalties?
In the last five years, you’ve probably noticed some of the higher-profile artists like Bob Dylan and Bruce Springsteen and even younger ones like Britney Spears and Justin Bieber have sold parts of their catalog for huge amounts.
TMH: What can you share with us today regarding the recent financial results?
Gallagher: In the most simple terms, all we did was change from being a mining exploration company, which of course by definition has no revenue, never had any revenue. By bringing in the dividend-paying music royalties investment and doing four more acquisitions, we now have enough revenue to basically cover the overhead.
That’s step one. That was a big milestone, changing the name, changing the strategy, the next step will be to acquire enough cash flow to be able to start the “dividend play,” which is what we’ve done with Music Royalties. And remarkably, I didn’t say it, but we’ve actually paid out $7 million in royalties through Music Royalties as a private company, and we’ve more than tripled the dividend from 1 cent per share to 3.6 cents, more than tripled the stock.
We want to take that public as well, which will create value for Royalties Inc. And it’s the simple idea of saying, “Let’s start paying royalties or dividends with Royalties Inc. and replicate that same model.”
TMH: Finally, can you let the viewers know what plans the company has in this early part of 2024 and anything else you would like to mention today?
Gallagher: Probably the main thing is the lawsuit with Capstone, we made some good progress. It’s obviously a lawsuit and not associated with the economy per se, but witnesses were deposed in the fall. There was an inspection at the site, and we’re moving through to the evidence stage.
So hopefully we get a positive outcome in 2024 and that aligns with the silver price finally going on a run and lastly, more cash flow from the music royalty side.
You can find Royalties Inc. on the CSE under the symbol RI or head to its website at Royalties Inc. for more information.
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