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Holding Out for A Hero
We always hear about royalties in the mainstream media. From Taylor Swift’s song rights to YouTube copyright, royalties are a driving force for making passive income. Royalties can be a great way to diversify your portfolio at the same time. This past month, royalties made headlines with Shrek. An unlikely combination.
You can now buy Shrek royalty rights and earn income every time the movie is watched.
Online trading platform, Public, announced earlier this month that users will be able to buy Shrek royalties for as little as $10. The program is in an early stage at the moment, but I’m hopeful that the royalty investment trend will continue in the future. This is the first time retail investors will be able to invest in royalties.
How Do Royalties Work?
Royalties are like the gift that keeps on giving, providing you with passive income in a pretty laid-back way. So, how do they work?
Imagine you're a creative genius, and you've written a bestselling book, composed a hit song, or designed a popular mobile app. Now, every time someone buys your book, streams your song, or downloads your app, you get a little slice of the pie - that's your royalty.
Here's the best part: once you've done the initial work, like writing that book or creating that song, you can kick back and watch the money roll in. The more people buy or use your creation, the more royalties you earn. It's like getting paid while you're on vacation, sipping a drink with a little umbrella in it.
Royalties can come from all sorts of creative endeavors – not just books, songs, or apps. They can also flow in from patents, trademarks, mineral rights, or even from allowing others to use your work, like licensing your art for merchandise.
It's important to note that royalties vary. Some come in as a one-time payment, while others keep coming in periodically. The amount you receive might depend on the contract you've negotiated or the agreement you've set up.
So, the bottom line is this: royalties can be a fantastic way to generate passive income, but they usually require some upfront work or creation. Once that's done, though, you can enjoy an income stream while your creation continues to be appreciated by others. It's like the financial equivalent of relaxing in a hammock on a sunny day.
If you’re looking for more, here is the official webpage for investing in royalties on Public’s website.
Time Can Be the Enemy of Royalties
Time is always the greatest financial asset. This adage is repeated over and over again in our daily lives as we watch our investments compound. However, royalties do come with downsides and it’s always best to diversify your portfolio as this passive income generates. Let’s take a look at a few of the downsides -
Uncertain Income: One of the biggest cons of royalty investments is the uncertainty of your income. You might have a hit song or a popular book that rakes in the cash, but there are no guarantees. If your creation doesn't catch on, your income can be a bit like a rollercoaster - up one month, down the next. So, it's not always a smooth sail.
Lack of Control: When you're earning royalties, you're often handing over the control of your creation to someone else, like a publisher or a distributor. This can be a bit unsettling because you might not have the final say in how your work is used or marketed.
Market Changes: The financial world isn't static, and neither is the market for your creation. What's hot today might not be hot tomorrow. So, your royalties can be affected by market trends and shifts in consumer preferences.
Long Payback Period: Royalty investments usually take time to pay off. It's not a quick way to make a buck. If you're looking for instant gratification, royalties might not be your best bet.
Complex Contracts: Dealing with royalty contracts can be a real headache. They can be long, filled with legal jargon, and tricky to negotiate. It's like reading a novel with a thesaurus in one hand and a magnifying glass in the other.
Royalties in Real Life
I mentioned earlier that royalties pop up in the headlines. It’s most common in music as songs generate pennies per stream nowadays. In 2018, Spotify paid out $112M to songwriters after a royalties settlement.
This significant payout was part of Spotify's effort to address past licensing issues and ensure that songwriters received fair compensation for their work. The move was seen as a positive step in the music streaming industry, where artists and songwriters had long voiced concerns about the transparency and fairness of royalty payments. Spotify's decision to allocate a substantial sum for songwriters aimed to rectify these concerns and build better relationships within the music community.
As corporations and celebrities deal with royalties, wouldn’t you like to be a part of the club? That’s why I’m so optimistic for this trend. I’ll be looking to invest in royalties where possible, keeping this close to my portfolio.
Have a great week. I’m making waffles!
Jordan