Back in January 2020, singer-songwriter Ryan Tedder was jogging through the flats of West Hollywood while talking to his friend and investment partner Abe Burns when they struck upon an idea.
“What if you could take tranches of your favorite songs and securitize them, go through the [U.S. Securities and Exchange Commission (SEC)], invest in your favorite songs and trade them on the public market?” he recalls telling Burns. “Why can’t fans do this?”
The OneRepublic frontman and prolific songwriter behind megahits like Beyoncé’s “Halo,” Adele’s “Rumour Has It” and Leona Lewis’ “Bleeding Love” is less well known for his investing acumen. But over the last decade or so, Tedder has proved to be a successful venture capital and commercial real estate investor who owns stakes in lucrative properties like the sites of a 24-hour Walgreens on the Las Vegas strip and American Airlines’ call center headquarters in Fort Worth, Texas. “That’s all well and good,” Tedder says, but to be able to share in some of the greatest pop songs — that he didn’t write himself? That would be thrilling.
Music lovers like Tedder will soon be able to do just that. Beginning Sept. 12, music fans and everyday investors can reserve stakes in the royalty streams of more than 100 songs — written by Tedder; Diplo and the trio he co-founded, Major Lazer; and rock band American Authors — through a new music investing platform, JKBX (pronounced “jukebox”). This initial batch includes songs performed by Beyoncé, Adele, Taylor Swift, Colbie Caillat and Ed Sheeran and features by Justin Bieber, Travis Scott, Ellie Goulding, Jonas Brothers, MØ and Trippie Redd.
Like dividend-paying stocks, royalty shares acquired on JKBX’s platform will give investors the right to a slice of the income a specific song generates. The types of royalty streams offered — for example, publishing, recording and whether there are geographic boundaries attached — will vary by song and be disclosed in each offering.
Founded by Sam Hendel and John Chapman of venture capital and private equity firm Dundee Partners, JKBX aims to become the Fidelity of music investment — a platform where fans can buy, trade and sell royalty shares of songs with strong, sustained records of income. The company says all of the tracks offered will have been released over 18 months ago, with most of them older than 10 years. They include Major Lazer’s perennially streamed hit “Lean On” (it has over 1.8 billion streams on Spotify) and American Authors’ “Best Day of My Life,” a synch sensation that has been used in ads for Best Western Hotels, Ford and Jeep.
Early adopters won’t initially have to put any money down, and the reservations will be nonbinding while JKBX awaits the final approval from the SEC to make public offerings available to investors. In February, the company announced that it had partnered with GTS Securities, one of the largest Designated Market Makers on the New York Stock Exchange, to mitigate volatility and promote liquidity and competition on a secondary trading market for JKBX’s royalty shares.
JKBX has yet to choose a broker dealer or alternative trading system — it is in talks with several — and until that happens, there is no secondary market where investors can sell or trade their royalty shares.
The company says it will not set a royalty share’s initial price or determine how many shares will be made available; a separate issuer will do that. The type of Regulation A offering JKBX is attempting to provide can sell up to $75 million worth of shares in a 12-month period, which it expects to do.
Because it’s still seeking SEC qualification for its first batch of offerings, JKBX was careful to state in interviews with Billboard that it’s not offering or soliciting investors in securities and that any future offerings will provide investors with all the normal disclosures, including how much revenue a song has generated over the past three years and ongoing audited financials.
Tedder and other creators with songs on the platform won’t be directly involved in the investment process — at least for now. JKBX’s deals are with labels, music publishers and catalog funds that own the copyrights. But the company says writers with songs on the platform will get a cut of trades if they are part of its Creator Program, which includes a pool of money set aside for them.
If JKBX clears these hurdles and its business strategy takes flight, rights holders, artists, JKBX and individual investors stand to profit from a new, potentially transformative income stream generated by the masses betting on the continued earning power of songs — an asset class previously restricted to institutional investors, private equity and music publishers. Hendel estimates the total addressable market for JKBX could reach billions of dollars based on the music industry’s growth trajectory and the 60 million individual investment accounts that Americans hold.
In the meantime, sources say the company has taken on a top-shelf collection of music company investors such as Spotify, Live Nation, YouTube, Red Light Management and Bertelsmann Digital Media. Financial backers include Mike Novogratz’s Galaxy Digital, Valor Equity Partners, and Tyler and Cameron Winklevoss, sources say. According to a recent SEC filing, JKBX raised $16 million from investors in January alone.
“I see it as a potential game-changer in the music rights world,” says Round Hill CEO Josh Gruss (who is not an investor).
JKBX is not the first company to test these waters. Masterworks and AcreTrader both launched in 2018 as marketplaces where the average person could invest in top-end commodities by purchasing fractional shares of securitized fine art or farmland to earn returns. In music, Royalty Exchange, SongVest and Royal have all been doing something similar for years, but industry insiders and artists say that JKBX’s backers, song catalog and SEC validation give it a serious leg up.
Its launch also comes at a time when fans wield more power than ever to send old songs viral again, by using snippets of them in TikTok videos, for example, and may therefore have more interest in owning a share of these songs’ earnings than they did in the past.
Sources say JKBX has secured the rights to hundreds of hit songs worth over $4 billion, substantially more than prior companies in this space, and is in talks with several major rights holders, including Hipgnosis, BMG and at least one of the majors.
JKBX says it is not working directly with songwriters because it’s currently focused on securing deals that can deliver a diverse list of assets up front, though it is open to working with artist-owned catalogs in the future. Instead, it divides music assets into royalty shares and submits those shares to the SEC for qualification as Regulation A offerings. Every time an investor buys, trades or sells shares on its platform, JKBX earns a commission.
While the artist is not directly involved in the offering or investment, JKBX CEO Scott Cohen says the company actively tries to make original recording artists aware of its listings and get the artists’ blessing for songs that appear on the platform.
DJ-producer Diplo, who partnered with Royal in March 2022 to sell tokens linked to the streaming revenue of his song “Don’t Forget My Love,” says JKBX’s “business-minded” leaders and their embrace of conventional market rules — only SEC-registered and -regulated investments will be offered — convinced him the platform stands the best chance of succeeding.
“This has major artists,” he says. “It has the best chance of winning because there is real cash flow in music. There is already a money chain — and it is really SEC-regulated.” (JKBX currently is not involved with blockchain or non-fungible tokens — technologies other startups in this space have used.)
Tedder says that when Chapman and JKBX approached him with their pitch, “I think they got maybe two or three sentences in before I said, ‘Hold on a minute. You’re pitching me on the exact same idea that I had.’ ” He says he also told them, “ ‘The devil’s in the execution and your partners — getting [Universal Music Group (UMG) chairman/CEO] Lucian Grainge, getting giant funds like Hipgnosis. Whoever gets the largest collection of catalogs first, gets the signoff from the SEC first, jumps through all the hoops first is the winner.’ And they’re like, ‘Yeah, that’s us.’ ”
An early example of the financialization of music assets came in 1997, when David Bowie partnered with the Prudential Insurance Company and attorney David Pullman to raise $55 million through the sale of what became known as Bowie Bonds. It was the first example of an artist getting investors to bet on the income a back catalog would generate.
“This is a natural progression,” Pullman, chairman/CEO of The Pullman Group, wrote in an email. “The interest in investing has continued since these first … landmark deals where you have seen the biggest, savviest investors enter the market to recognize this asset class of music that keeps growing. It’s only natural [that] investors and fans would want to invest in their favorite songs. Song by song gives more choice.”
JKBX’s idea to allow investors to create customized portfolios of songs follows the recent launch of several exchange-traded funds, including David Schulhof’s MUSQ, where investors buy shares to gain exposure to 48 different music companies, including Warner Music Group (WMG), Spotify and Live Nation, and TUNE, a fund providing exposure to 50 music and digital companies, including UMG, Netflix and The Walt Disney Company.
“As long as the deals and investors are selective,” Pullman wrote, royalty streams “can be a sound investment.”
One key difference between owning stock in publicly traded companies and royalty shares in music assets is that the latter doesn’t give the investor any right to say how a song is marketed or promoted.
“You’re basically buying an income stream. You have no control over or input into how the song is used,” says Don Passman, renowned copyright expert, lawyer for Taylor Swift and author of the music industry handbook All You Need To Know About the Music Business. “The prices will be higher [than more conventional investments],” he explains, “because of two things: the sexiness of it and being able to buy it in little bitty pieces. It’s a little like fantasy sports, except with real money.”
Hendel and Cohen like the fantasy sports comparison for a couple of reasons: Fans who invest in sports tend to spend more money overall on merchandise and experiences linked to games, and labels are eagerly searching for ways to find and reach their artists’ superfans.
“We view this as a way to connect people more deeply to their favorite artists and elevate the catalog,” says Hendel. JKBX’s market research tells it superfans are one of their three target audiences. “A lot of our partners are looking at this not as a way to make money — the real thing is fan engagement.”
Cohen acknowledges that selling the platform’s potential to investors comes with a substantial learning curve, but he has successfully schooled the industry on similarly challenging concepts. As co-founder of groundbreaking digital music distributor The Orchard, he helped administer the first music downloads to mobile phones when consumers were still buying CDs.
“Trying to explain to people that they would be not only consuming music on their mobile device, they would be creating and engaging — just impossible,” Cohen says. “They’d go, ‘You want to download music? Why? I have a six-CD changer in my car.’ ”
Between 1995 and 2003, The Orchard racked up $3 million in debt. “We owed everybody money,” says Cohen. “We owed every artist money, our employees, the electric bill, the rent. I had lost all of my possessions.” And the IRS was hounding the company. At one point in the early 2000s, he recalls living out of The Orchard’s Lower East Side office subsisting on a diet of beans and rice cooked on a hot plate in the pantry. “I discovered there is a level of poverty; that zero, it turns out, is not the bottom,” he says. “It goes much deeper.” Cohen adds, “It was really dark times, but I was super confident in this space.”
When Apple’s iTunes Store launched in 2003, The Orchard owned roughly one-third of the digital rights to all of the songs in it. The first check the company received exceeded its total 2002 revenue. The next month, that figure doubled, Cohen says. “It was confirmation of eight years of incredible struggle.”
The Orchard paid off all of its debts a short time later thanks to a several-million-dollar infusion from media investor Daniel Stein, who Cohen says gave him sage advice: “He said, ‘You made it this far, but now you’re going to have competition. Everyone is going to pour into this space, and all that hard work to get into the lead will evaporate overnight because new people will come in fully capitalized without any debt and they’ll eat your lunch.”
This time around, Cohen is the new guy that Stein warned him about, and he claims that puts JKBX at an advantage. “With The Orchard, we were first. With JKBX we are — whatever. Twentieth,” he says. “You enter the space without all the baggage of the past, you learn from everyone else, you’re fully capitalized and, wow, you can do a lot of damage.”
However, Cohen will have to manage investors’ expectations for returns, which will be highly dependent on how quickly JKBX can achieve scale.
Company representatives decline to reveal how many customers it needs to break even, but Cohen, who runs JKBX’s 35-person team remotely from his London home, reiterates that he’s not concerned about that number. “We’ve modeled the company around a very modest growth curve — like ridiculously small numbers of people. We have enough runway to last us a very, very long time without me having to lose all my possessions and become homeless again.
“When I look at the next year to 18 months, it’s a long, slow, educational curve where we just march forward month after month, quarter after quarter on a very clear path of what we want to do and not get stressed that every rights holder, artist and consumer isn’t on board on day one,” he continues. “It is going to take a moment for this to catch on, and as long as we are seeing the growth, we feel we are in the right place.”
Cohen has a preternatural confidence and comfort in technology’s ability to improve the human experience. In addition to founding The Orchard and later helping WMG “see over the horizon” as its chief innovation officer, he co-founded wearable technology company CyborgNest in 2017 and became one of its test subjects, implanting a device called NorthSense into his chest that vibrated when he faced magnetic north.
“We only know what we know because of the sensory information that comes into our brains,” he says. “What if we give [the brain] a new signal? How would your brain interpret it? The thought was that it would make me more human, not less.”
Cohen attempted to implant three different devices, but his body ultimately rejected all of them. While he hopes to resume these explorations, he says the opportunity to run JKBX was irresistible, and he doesn’t need a wearable gadget to navigate the royalty share business: “We don’t have a road map, but we have a compass, and that’s all that matters. We are doing something new, and I know where we’re headed.”
It is too soon to project what JKBX investors can expect in terms of return on their investment, but two sources estimate royalty shares will provide a base rate of return of around 3%. By comparison, the S&P 500 Index is up about 14% so far this year, and the yield on the ultra-safe 10-year U.S. Treasury notes are at 15-year highs of 4.35% (as of Aug. 21). While JKBX’s royalty shares are a fledgling asset class compared with both of those investments, it is worth noting that on average, the stock price for companies that filed initial public offerings in 2022 rose by an average of 10%, and Royalty Exchange, which launched over a decade ago, now says it provides annual returns to investors of 13.3% a year.
Hipgnosis Songs Fund, a pioneer in providing investors exposure to music royalties through its publicly listed trust, said in July that its investors have earned 27.9 cents per share of dividends since its July 2018 IPO — a 69% net asset value return to shareholders.
Many factors affect investor returns, including market conditions, initial price, demand on a secondary market, how long an investor holds an asset and when the investor buys it. JKBX thinks this will appeal to superfans, people looking to diversify their portfolios, and crypto and Web3-savvy investors.
JKBX and financial experts argue that the rules of efficient markets incentivize issuers to price royalty shares competitively in order to create demand and foster the success of the platform.
When JKBX executives pitch rights holders and artists, they highlight older songs that achieved fresh success from viral moments on TikTok and Spotify — songs like Miguel’s 2010 hit “Sure Thing.” JKBX presents a new way to cash in on catalog-caliber songs and could help identify fans who share and promote them most, JKBX executives say. If users agree to it, JKBX sees a future where artists and labels could directly connect with superfans on the platform, potentially driving future social media revivals.
In the meantime, publicly traded music trusts like Hipgnosis, whose stock is trading at a discount, and labels, which are under investor pressure for the high prices they paid to acquire catalogs, can use JKBX “as an outlet to raise liquidity to justify their acquisitions and a higher share price to the public,” Pullman says.
As for the average investor, Passman is skeptical that they will earn high returns from JKBX, given the price record labels and catalog funds have had to pay to acquire hit song catalogs in recent years.
“It is unlikely that consumers will be able to get [royalty shares] at an initial price that would have any kind of decent return just because the multiples will be high and because there is a sexy value to owning a piece of your favorite artist’s song,” Passman says, cautioning that returns will be song-specific and lesser-known songs might present better returns.
Larry Miller, director of New York University’s Music Business Program at the Steinhardt School, says that JKBX’s success hinges on “the belief that [royalty shares] will be worth more in the future than they are worth today, and having in place a transparent, fast and highly liquid secondary market is essential in having this be more than an interesting, fun and curious hobby for fans.”
If JKBX can get that in place, Miller says, “there is a great deal of potential impact here.”