December 12, 2017

Royalty Exchange Lets Musicians Sell Royalty Income to Investors

As a songwriter and producer for stars like Natalie Cole, Aretha Franklin and Whitney Houston, Preston Glass receives a comfortable stream of music royalties. But when he needed to make a substantial investment to embark on the next phase of his career — as a performing artist in his own right — he had few options to raise the money, he said.

“Me and most writers can’t walk into a bank,” Mr. Glass said in an interview from his home studio in Los Angeles. “Banks don’t understand how songwriting works, how the whole business of royalties works.”

So Mr. Glass turned to the Royalty Exchange, a Web site where musicians can sell parts of their royalty income to investors. He put 15 of his songs on the block — including “Miss You Like Crazy,” a Top 10 hit for Ms. Cole in 1989, of which Mr. Glass was a co-writer — and raised $158,000. Mr. Glass retains most of his rights to those songs, but will now share part of the income with an investor whenever they are played on the radio or streamed online.

Since it was founded two years ago, the Royalty Exchange, based in Raleigh, N.C., has held 18 auctions, raising about $750,000. But Sean Peace, the company’s chief executive, envisions it as a robust marketplace where musicians can capitalize on their work and investors can find a somewhat exotic asset that could still bring in steady earnings.

“Most musicians have no idea that they can take their royalties and reinvest in themselves,” Mr. Peace said. “If they could get $80,000 up front for selling 50 percent of their royalties, that can be game-changing.”

The music industry is full of bitter stories of musicians who have given up royalty rights for a fraction of their future value. Eli Ball, the founder of Lyric Financial, a competing service that gives musicians short-term advances on their royalties in exchange for a fee, thinks that musicians should not sell their rights.

“It’s too easy for songwriters to sell off an asset that took you a career to build and is going to be gone forever,” Mr. Ball said.

But Mr. Glass said he liked the Royalty Exchange because he could define exactly which rights to sell and which to retain. His sale involved what is known as the songwriter’s share of public performance; it does not cover sales of CDs or downloads, and it does not involve any change to the song’s actual copyright. (He also is a national artist representative for Lyric Financial.)

The intricacies of royalties can be confusing even to many in the industry. But Mr. Peace said his buyers are told what they will and will not receive, and are given at least three years of back earnings reports. For a collection of songs written for RB acts like Usher and TLC that was up for auction recently, bidders saw that most of the $22,975 in annual earnings was generated by three tracks.

The company takes a 2.5 percent fee from the buyer and anywhere from 5 percent to 12.5 percent from the seller, depending on the size of the deal. It also takes 2.5 percent of future earnings from the buyer, as an administration charge.

Mr. Peace, whose background is in technology, started the Royalty Exchange in 2011 with two others after first trying a similar idea with SongVest, which sold interests in songs as high-priced memorabilia items for fans. But that model tended to work only with big artists, he said, so the Royalty Exchange instead aims at investors with bundles of songs.

The idea of royalties as a salable asset has a mixed record. In 1997, David Bowie raised $55 million by selling a 10-year bond in some of his royalties, with a fixed interest rate. But by 2004 they were downgraded amid industry tumult, and lawsuits over administration fees and other issues marred similar bonds.

The complexity of music royalties is another concern. Michael S. Simon, the chief executive of the Harry Fox Agency, one of the industry’s primary royalty-collecting groups, said that a potential investor needed considerable sophistication.

“You need to understand life of copyright, you need to understand the potential ramifications of legislation that could affect life of copyright, and you need to understand termination rights,” Mr. Simon said. “Those are three things that most people don’t understand, let alone how to predict revenue in the music business.” (Termination rights let authors recover copyrights to their works from third parties after a certain period.)

Martin Diessner, an investor who lives in South Africa who bought about half of Mr. Glass’s offering, said that being an outsider allowed him to spot a good investment where others might see risk.

“The reason why I think it’s less risky is probably because I don’t understand the music industry,” said Mr. Diessner, who is now on the Royalty Exchange’s advisory board. “Everyone who is in the industry sees it from the inside out, while I see it from the outside and maybe don’t have a negative perception.”

Most of the Royalty Exchange’s sales have dealt with the publishing rights of songs, which have to do with songwriting, as opposed to their recordings, which are controlled by a separate copyright. Publishing income has been seen as more stable, but it is also subject to shifts. Last year Ascap and BMI signed a new deal changing the method for how radio companies pay royalties. According to BMI’s most recent annual report, the change has already resulted in a 3 percent drop in revenues.

Mr. Peace said that like any investment, royalties involved risk, and that its buyers were given a significant amount of information for evaluation.

As for Mr. Glass, the sale has helped him buy new equipment for his studio, including a sitar and various vintage instruments, that will help him as he starts a new phase in his career.

“I wanted to be competitive, not only as a producer and writer but as an artist, too,” he said. “I wanted to invest in myself, to be able to use some of the royalties that I have built up, almost like real estate.”

Article source: http://www.nytimes.com/2013/04/22/business/royalty-exchange-lets-musicians-sell-royalty-income-to-investors.html?partner=rss&emc=rss

DealBook: In Letter, Icahn Promises to Fight Dell Over Sale

Carl Icahn has suggested a  so-called leveraged recapitalization of Dell.Jeff Zelevansky/ReutersCarl C. Icahn has suggested a  so-called leveraged recapitalization of Dell.

A special committee of Dell’s board disclosed on Thursday that it had received a letter from Carl C. Icahn, who hinted at “years of litigation” if Dell did not back away from its $24.4 billion deal to sell the company to its founder.

The confirmation of Mr. Icahn’s intent to oppose the bid illustrates the growing pressure on Dell not to pursue the buyout by Michael S. Dell and his partner, the private equity firm Silver Lake. Mr. Icahn is joining a growing chorus that already includes the beleaguered computer company’s two biggest shareholders outside of Mr. Dell himself.

Mr. Icahn did not disclose the exact size of his stake, describing his hedge fund’s holdings only as “substantial.” CNBC reported on Wednesday that he held a stake of roughly 6 percent, acquired in recent weeks.

In the letter, sent to the committee on Tuesday, Mr. Icahn proposed that Dell instead issue a special dividend of $9 a share. Such a payout would be financed from the company’s cash on hand and new debt.

He estimated that the publicly traded company was worth about $13.81 a share, making his suggested transaction – a so-called leveraged recapitalization – worth about $22.81 a share.

“We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright,” Mr. Icahn wrote in the letter. “We see no reason that the future value of Dell should not accrue to all the existing Dell shareholders – not just Michael Dell.”

If Dell fails to comply, Mr. Icahn said he would call on the board to combine a vote on the deal with a vote on re-electing the company’s directors. He said he planned to nominate an alternate slate of nominees.

He also wrote that the $24.4 billion management buyout would be subject to lengthy litigation from shareholders, who will claim it was negotiated to give maximum advantage to Mr. Dell, who is also the company’s chairman and chief executive.

Dell’s special committee, made up of independent directors, has argued that it reached the deal in good faith, having bargained hard for the current price and secured a number of concessions from Mr. Dell aimed at facilitating a higher alternative bid.

Potential bidders have signed nondisclosure agreements to take a look at the company’s books, including Hewlett-Packard, Lenovo and the Blackstone Group, according to a person briefed on the matter.

It is unclear that any of those companies will ultimately make an offer.

In a statement on Thursday, the committee reiterated that it was seeking higher offers through March 22, and invited Mr. Icahn to participate in that process. So far, he has declined, the person briefed on the matter said.

“Our goal is to secure the best result for Dell’s public shareholders — whether that is the announced transaction or an alternative,” the committee said.


Here is the text of Mr. Icahn’s letter to the special committee of Dell’s board:

We are substantial holders of Dell Inc. shares. Having reviewed the Going Private Transaction, we believe that it is not in the best interests of Dell shareholders and substantially undervalues the company.

Rather than engage in the Going Private Transaction, we propose that Dell announce that in the event that the Going Private Transaction is voted down by shareholders, Dell will immediately declare and pay a special dividend of $9 per share comprised of proceeds from the following sources: (1) $4.26 per share, or $7.4 Billion, from available cash as proposed in the Going Private Transaction, (2) $1.73 per share, or $3 Billion, from factoring existing commercial and consumer receivables as proposed in the Going Private Transaction, and (3) $4.26, or $5.25 Billion in new debt.

We believe that such a transaction is superior to the Going Private Transaction because we value the pro forma “stub” at $13.81 per share using a discounted cash flow valuation methodology based on a consensus of analyst forecasts. The “stub” value of $13.81 combined with our proposed $9.00 special dividend gives Dell shareholders a total value of $22.81 per share, representing a 67% premium to the $13.65 per share price proposed in the Going Private Transaction. We have spent a great deal of time and effort in determining the $22.81 per share value and would be pleased to meet with you to share our analysis and to understand why you disagree, if you do.

We hope that this Board will agree to adopt our proposal by publicly announcing that the Board is committed to implement our proposal if the Going Private Transaction is voted down by Dell shareholders. This would avoid a proxy fight.

However, if this Board will not promise to implement our proposal in the event that the Dell shareholders vote down the Going Private Transaction, then we request that the Board announce that it will combine the vote on the Going Private Transaction with an annual meeting to elect a new board of directors. We then intend to run a slate of directors that, if elected, will implement our proposal for a leveraged recapitalization and $9 per share dividend at Dell, as set forth above. In that way shareholders will have a real choice between the Going Private Transaction and our proposal. To assure shareholders of the availability of sufficient funds for the prompt payment of the dividend, if our slate of directors is elected, Icahn Enterprises would provide a $2 billion bridge loan and I would personally provide a $3.25 billion bridge loan to Dell, each on commercially reasonable terms, if that bridge financing is necessary.

Like the “go shop” period provided in the Going Private Transaction, your fiduciary duties as directors require you to call the annual meeting as contemplated above in order to provide shareholders with a true alternative to the Going Private Transaction. As you know, last year’s annual meeting was held on July 13, 2012 (and indeed for the past 20 years Dell’s annual meetings have been held in this time frame) and so it would be appropriate to hold the 2013 annual meeting together with the meeting for the Going Private Transaction, which you have disclosed will be held in June or early July.

If you fail to agree promptly to combine the vote on the Going Private Transaction with the vote on the annual meeting, we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it. The Going Private Transaction is a related party transaction with the largest shareholder of the company and advantaging existing management as well, and as such it will be subject to intense judicial review and potential challenges by shareholders and strike suitors. But you have the opportunity to avoid this situation by following the fair and reasonable path set forth in this letter.

Our proposal provides Dell shareholders with substantial cash of $9 per share and the ability to continue as owners of Dell, a stock that we expect to be worth approximately $13.81 per share following the dividend. We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders – not just Michael Dell.

As mentioned in today’s phone call, we look forward to hearing from you tomorrow to discuss this matter without the need for us to bring this to the public arena.

Very truly yours,
Icahn Enterprises L.P.

By:
Carl C. Icahn
Chairman of the Board

Article source: http://dealbook.nytimes.com/2013/03/07/in-letter-icahn-promises-to-fight-dell-over-sale/?partner=rss&emc=rss

Alibaba and Yahoo Try to Make Up

But just as quickly as it began, Yahoo and the Alibaba Group, the Chinese Internet giant that Yahoo partly owns, said Sunday that they were working to resolve the fight.

The announcement is a bid to end a feud that erupted after Yahoo said in a regulatory filing last week that Alibaba had transferred the assets of its online payment unit, Alipay, to a Chinese company controlled by Alibaba’s chief executive, Jack Ma.

Shares of Yahoo plunged after the statement over concern that the transfer may have eroded the value of Yahoo’s holdings in Alibaba, one of its prized assets.

Confused by the dispute, investors punished Yahoo’s stock last week, wiping out more than $2 billion in market value. Investors had bid up shares of Yahoo in recent months, partly because of projections about the future value of its Alibaba holdings.

Some investors accused Yahoo of failing to properly disclose the asset sale; others said the sale could be a sign that Yahoo was losing control of its stake in Alibaba.

The fight over the asset sale has become the latest wedge in a partnership that began five years ago, with a confetti-filled news conference in Beijing to announce that Yahoo had agreed to pay $1 billion for a 40 percent stake in Alibaba. As part of that deal, Alibaba also agreed to take control of Yahoo’s Chinese language Web site.

Since then, Alibaba has grown into a Chinese Internet powerhouse, with an array of fast-growing units, including a business-to-business Web site called Alibaba.com.

Yahoo, on the other hand, has had its fortunes decline after a takeover battle with Microsoft and the decision of a co-founder, Jerry Yang, to step down as chief executive. He was succeeded by Carol Bartz in January 2009.

With Google holding much of the online search market and Facebook the dominant social networking site, investors believe much of Yahoo’s value is tied to Asia, locked up in its stakes in Yahoo Japan and China’s Alibaba.

Investors in Yahoo became nervous after privately owned Alibaba last week released a series of statements saying the asset transfer began in July 2009 and was completed a year later.

Alibaba executives say the transfer was legal and necessary because of China’s new regulations governing electronic payment platforms. But on Friday, Yahoo suggested that it did not know about the transfer of the Alipay division until this March and that Yahoo and other Alibaba shareholders had not approved the sale.

“There is clearly bad blood between Jack Ma and Carol Bartz,” said Colin Gillis, an analyst with BGC Financial. “The soap opera continues.”

The two companies on Sunday, however, said they would work with another Alibaba shareholder, Japan’s Softbank Corporation, to resolve the issue. Japan’s Softbank and Yahoo together own about 70 percent of the Alibaba Group.

“Alibaba Group, and its major stockholders Yahoo! Inc. and Softbank Corporation, are engaged in and committed to productive negotiations to resolve the outstanding issues related to Alipay in a manner that serves the interests of all shareholders as soon as possible,” Yahoo and Alibaba said in a joint statement.

John Spelich, an Alibaba spokesman in Hong Kong, said Sunday that the Alibaba Group had already received some compensation for Alipay, though he declined to say how much.

Speaking on Saturday at an annual general meeting in Hong Kong, Mr. Ma, the Alibaba chief, said that the transfer was made to help Alibaba’s fast-growing e-commerce site, Taobao, which uses the Alipay system.

“If Alipay were illegal or didn’t get the license, Taobao would be paralyzed,” Mr. Ma said referring to the Chinese government’s new requirement regarding online payment licenses. “If Taobao were paralyzed, how could Alibaba reform and develop?”

Yahoo, which is based in Sunnyvale, Calif., declined to comment over the weekend. But a person close to the company said that Yahoo executives knew as early as 2009 that a majority stake in Alipay would be transferred temporarily but the company was unaware until March that the transfer had been completed.

David Barboza reported from Shanghai and Verne G. Kopytoff from San Francisco.

Article source: http://www.nytimes.com/2011/05/16/technology/16yahoo.html?partner=rss&emc=rss