How You Profit from Beyoncé and Bieber? (2) – Comparison

Continuing from the last post, in fact, I’ve found that once you (comparatively) thoroughly understand an asset class, many things are easily understood. For example, let me draw a comparison between commercial real estate and music copyrights to quickly explain:

1. Both of these asset classes focus on cash flow. For example, looking at a building, it’s all about rental income. Looking at a song, it’s all about royalty income.

2. The rent of a building? It’s easy to benchmark; just search online for similar properties in the same area, and you‘ll find plenty. What about the cash flow and income of a song? How do you benchmark that?

3. The purchase price of a building? Calculate it using the cap rate of the same area (NOI/cap rate is standard). What about the purchase price of a song? How is NOI calculated? How is the cap rate determined, who determines it, and how do you benchmark it?

4. The lifecycle of a building generally lasts 5-10 years as a holding period, with historical data available to benchmark the compound annual growth rate each year. So, the annual return rate according to the model can be easily calculated. But for songs? How long is the lifecycle? Long-tail or short-tail?

5. Buying a building is relatively simple, through MLS or private sales channels. Anyone who has been in the business for a few years isn’t worried about finding properties. I analyze hundreds of buildings every year. But what about songs? Where can I buy the royalties of well-known songs, or the copyrights of artists I believe in?

6. The buying process of a building is also standardized. But what about songs? How do I know if someone is the real copyright owner? How do I know if they want to sell? How do I know if they’re willing to sell to me? If I really find someone willing to sell a song, it goes back to the third point above: how do I determine the price?

7. During the lifecycle of a building, property management is straightforward – collecting rent, maintenance, leasing, eviction. But what about the lifecycle of a song? What has to be managed? How do I know if the copyright is fully collected? How do I know how to rekindle interest in a song? Where do I even start?

8. Exiting from a physical asset is straightforward. Just list the building, and you can start the sales process. But for songs? I have no idea where to list them. Where do I sell them, how much do I sell them for, who do I sell them to, how do I sell them? So, how to exit a song?

9. There’s a rather interesting question to ask in the art world: is it better to buy from living artists or from ones that already said goodbye?