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A royalties advance is a financial agreement between music artists, songwriters, and publishers and a third-party financial institution, in which the artist or publisher receives an upfront payment in exchange for future music royalties. This type of financing can be a vital source of cash flow for musicians and can help them continue to create music without being burdened by financial constraints.
These future royalties may come from a variety of sources, including radio plays, streaming services, television or film licensing, and other sources of music royalties. Typically, the percentage of future royalties sold by the artist or publisher is a negotiated amount, and it can range from a few months to several years.
Let’s discuss how music royalties advances work, the advantages and disadvantages, and some of the most common types of music royalties advances available.
To get a music royalties advance, an artist, songwriter, or publisher typically has to sign a contract with a third-party financial institution. The contract outlines the terms of the agreement, including the percentage of future royalties that the artist or publisher is selling, the amount of the advance, and the terms of repayment.
The third-party financial institution will typically review the artist or publisher's past royalty income to determine the amount of the advance. The amount of the advance can vary widely, depending on the artist's or publisher's level of success, their track record, and the perceived potential of their future music royalties.
There are several advantages to getting a music royalties advance, including:
- Quick access to cash flow: Music royalties advances can provide artists with the cash flow they need to continue creating and promoting their music.
- No need for collateral: Music royalties advances are usually unsecured, meaning there is no need for artists or publishers to provide collateral.
- Predictable repayments: Repayment of the advance is usually based on a percentage of future royalties, which makes it easier to budget for and plan around.
- Retain ownership of copyright: Unlike other forms of financing, music royalties advances do not require the artist or publisher to give up ownership of their copyright.
There are also several disadvantages to getting a music royalties advance, including:
- High interest rates: Music royalties advances can come with high-interest rates, which can significantly increase the cost of borrowing.
- Limited future royalty income: Selling a portion of future royalty income can limit an artist's or publisher's future income potential.
- Risk of default: If future royalties do not materialize as expected, the artist or publisher may struggle to repay the advance.
There are several types of music royalties advances available, including:
- Mechanical royalties advance: This type of advance is based on mechanical royalties, which are royalties paid to songwriters and publishers for the reproduction and distribution of their music.
- Performance royalties advance: This type of advance is based on performance royalties, which are royalties paid to songwriters and publishers for the public performance of their music.
- Sync royalties advance: This type of advance is based on sync royalties, which are royalties paid to songwriters and publishers for the use of their music in film, television, commercials, and other media.
- Publishing royalties advance: This type of advance is based on publishing royalties, which are royalties paid to publishers for the use of their catalog of music.
We think that we provide something that’s way better than advances. Sonomo is a music financing platform that offers a new approach to financing to creatives and rights holders. Unlike traditional music royalties advances, Sonomo allows artists and labels to access upfront cash without having to take any loans or rack up debt. Instead, Sonomo allows a rights holder to sell their royalty rights to investors to raise money. Sonomo will basically match rights holders with investors who are willing to buy royalty rights at a price that a rights holder would agree to ahead of time. This provides a rights holder with upfront cash and the investor with a future stream of income from their newly acquired royalty rights.
- Like advances, a rights holder gets access to upfront cash that can be used to fund side projects, buy new equipment, fund tours, or anything else.
- Rights holders can start by selling a small portion of their royalty rights. As the price of their royalty ownership increases, they can gradually sell more to earn even more cash.
- With Sonomo, rights holders are not taking on any loans. So there’s no need to worry about having to pay back any money you raise. No loans, no high interest rates, no headache.
- Creatives keep their Master and Publishing rights.
- Sonomo makes it really easy to sell royalties. It literally takes a couple of minutes.
- While rights holders are not entering into a loan agreement, they are selling their future royalties income. Getting access to cash upfront means that creatives can no longer expect to earn future income from the portion of the royalties they have sold. Those royalties would go to their new owners (the investors).
- When selling royalty rights, a rights holder is essentially giving up potential upside if the music they sell royalties for does really well and blows up. At the same time, when selling royalties for music that doesn’t end up performing well in the future (maybe even see a decrease in streams), the investor assumes all the risk associated with future performance for the portion of royalty rights they purchased.
Sonomo makes it really convenient for labels and artists to access upfront cash on terms that are agreed upon ahead of time. Sonomo allows creatives to access money on demand as creatives can sell royalty ownership and raise money gradually. Additionally, the process is very straightforward and simple. Sonomo does the heavy lifting for you. If you’re curious to learn about what Sonomo can do for labels and artists, check out our plans (they all give you access to our investment platform).