IPO Plans Collapse For Company That Wanted To Offer Investors A Piece Of Eminem’s Royalties
For people looking to invest in the Real Slim Shady, this is disappointing news. IPO plans for a company that aimed to offer investors a piece of Eminem’s royalties has collapsed.
The company, Royalty Flow, planned to go public but this was ruined by Regulation A+ failures. (Reg A+ is a type of offering which permits private companies to raise up to $50 Million from the public.) According to a blog post by Matthew Smith, the CEO of Royalty Exchange, the parent company of Royalty Flow, the company had formulated a start-up business model dependent on royalties from Eminem.
Prior to this, Royalty Flow had completed the acquisition of “an income stream of 25% of Eminem royalties paid to FBT Productions, the Bass Brothers company that often works with and produces Eminem’s music, from the artist’s studio albums released between 1999 and 2013 via Aftermath Entertainment/Interscope Records,” Billboard reported.
Royalty Flow had agreed to pay $18.75 million for that income stream, but instead of using funds raised from an initial public offering Royalty Flow reportedly used internal funding.
According to Smith, “the purpose of the [stock offering] was to raise the capital required to secure the initial Eminem catalog asset, with enough left over to acquire additional catalogs in our pipeline. But, because of the incredible delays we experienced, Royalty Exchange fronted all of the capital required to exercise the option, and has held this asset on its balance sheet waiting for the Flow offering to complete.”
Royalty Exchange was trying to leverage Regulation A+ of the JOBS Act for an equity campaign in which any private investor, accredited or otherwise, could have participated, with a minimum buy-in of $2,250 for 150 shares of Class A common stock.
In his blog, Smith wrote that after Royalty Flow received a tentative approval to go public through a Regulation A+ offering. But then NASDAQ “pulled the rug out from under us, revoking the provisional approval it had issued to us months before,” said Smith.
The potential for investors to make money from Eminem’s music was nothing to sneeze at. “Total royalties earned by the rapper’s catalog grew by 43 percent from calendar year 2015 to calendar year 2016, with streaming royalties specifically increasing by 76 percent over the same time period,” Forbes reported.
Interestingly, Eminem was not involved at all in setting up the IPO. The rap artist’s publicist at Interscope records, Dennis Dennehy told NPR that no one ever consulted Eminem about the deal for selling his royalties and that he has “no connection” to Royalty Exchange.
Investing in music is becoming more and popular. The reason being is earning potential. According to Billboard, a songwriter’s catalog on average sells for 10 times its net publishing share and that can increase up to 12x or even 16x depending on the market. Still, this would have been a risky investment. Even Royalty Exchange warned on its website that investment in the Royalty Flow IPO “will be suitable only for persons who can afford to lose their entire investment.”
Besides Royalty Exchange, there are other companies are even trying to launch IPOs for song royalties, such as the Hipgnosis Songs Fund. This is a music IP investment company co-founded by veteran artist manager Merck Mercuriadis (Elton John, Macy Gray and Mary J. Blige).
3. Eminem not being involved in setting up the IPO for royalties from his OWN CATALOG + Royalty Flow citing the Goldman Sachs report to justify its business = confirmation that we are ascribing music's value to its distribution platform and not to the content itself
— Cherie Hu (@cheriehu42) January 4, 2018