Sound Royalties were a music industry resource for 10 years, advancing money to artists, songwriters, producers and other entities against their royalty income streams. And if there's one message the company consistently emphasizes, it's that Sound Royalties doesn't use customers' music rights as collateral, so it can never secure ownership of those rights.
In Sound Royalties parlance, rather than loans, the company primarily provides advances, and the recipients of these funds are collectively referred to as “creators.”
Sound Royalties also makes it clear that it does not charge interest. In contrast, advances come with fixed dollar-denominated fees. The company also does not charge late fees and a customer's creditworthiness is not factored into any deal because the down payment is repaid by one or more of a customer's revenue streams.
Contrary to standard music industry practice, Sound Royalties do not require 100% recovery from revenue streams until the advance is paid in full.
Depending on the agreement, the company may receive only some of the rights to an assigned revenue stream from one of the creative's music companies — labels, distributors, publishers or collecting rights organizations, which are collectively known as “payers,” according to the Sound Royalties — and will pass through the remaining income to the client.
As of 2021, Sound Royalties is owned by GoDigital Media Group and investment firm MEP Capital.
Alex Heiche, with experience in high-tech software and specialist finance companies, founded the company in 2014. As he explains, Sound Royalties is “not a label, publisher or distributor. We do not replace them. we work with them.
“So when the creatives come to us, we provide the funding, but they stay with these great companies that they've chosen to work with,” he says. “And we don't get a percentage of future income. The down payment is a fixed dollar amount for a set period of time. We are obsessed with transparency.”
Company executives also emphasize their pursuit of a relationship-based business.
“Part of Alex's original vision is that we try really hard to build relationships,” says Sound Royalties president Michael Bizenov, who joined the company in 2018 after a career in consumer banking and mortgage lending. “We're not just here to do business. They are important to us, yes, because they are a way to grow a business. But we want to do it in a very healthy way.”
It's also why in times of industry turmoil, such as during the pandemic, Sound Royalties has created funding pools for free advances to creatives in need.
Also, the company believes in helping creatives beyond funding deals.
“We [meet] with all levels of creative people, including those who may be starting their careers,” says Bizenov. “So we're very committed to doing financial literacy seminars. We also talk to the most sophisticated creatives and their business teams and help them achieve their financial goals.”
Sound Royalties clients include (clockwise from top left) Tank, DJ Khaled, Rich Robinson, Alejandra Guzmán, Brent Faiyaz, Sonia Leigh and Dylan LeBlanc.
Illustration by Andrei Cojocaru
In the beginning, how did companies in the industry react to the advances you proposed?
Alex Heiche: Sound Royalties was started with the vision of providing artist-friendly funding using creativity-friendly funding solutions. So initially, we made advances from [income streams from performing rights organizations] ASCAP and BMI, and then we slowly grew from there, adding SESAC, and then we started adding publisher, label and distributor deals. In 2018 we made our first international transaction with PRS [for Music].
Michael Bizenov: Today, we've expanded to work in 18 countries and three continents with more than 160 payers around the world sending us payments to serve their customers, and we're launching new [payors] every month.
Did the music companies initially see you as an adversary in their relationships with their artists and songwriters?
Heiche: Payments see that we do not take their customers. We don't get in the way of their business. We do not distribute or publish. we are not a label or collection company. We stay in our lane, providing funding. We're there to facilitate something and facilitate the process so that we have good relationships on the payer side and on the creative side.
What is the source of your funding?
Bizenov: We have bank lines [of credit]. Since the beginning of last year, we have more than doubled our access to bank financing. We also self-finance some things from our profits. And we have access to two additional lines of private capital if we need it.
Did you have bank lines when you started?
Heiche: No, it started with funding [from] the balance sheet and from there. We pioneered this type of financing and advances. So it took time to build a track record to be able to walk it to the banks.
What kind of income streams do you want to focus on when making cash advances?
Heiche: Creatives earn many different streams of income and we work with most of them. As the industry continues to evolve, we've expanded beyond recording and composition [income] and started doing YouTube [income] advance financing.
Now we're even into entertainment production financing. We finance tours. We even offer bridge funding for creatives looking for a very short-term solution, perhaps selling a catalogue.
Do you create custom offers for each customer or offer a menu of options?
Heiche: The beauty of our model is that it's personalized, white-glove customer service. Every creative and every corporate entity that comes to us for funding can speak to a live person who understands what their needs are and develops options to address them.
You do not need documents such as tax returns or W2 forms with an application. How else are your cash advances different from a bank loan?
Heiche: The advance is strictly based on their rights and the provisions of those rights. We provide a one-page summary sheet so they can see the fixed cost at a fixed dollar amount for a set period of time. If it takes longer, there are no delays or penalties. The same if the payment comes earlier.
What are the minimum income streams and maximum advances you work with?
Heiche: We try to help the industry as much as we can and that's why the bar is as low as it is. Right now, the baseline for both is $5,000 per year per royalty stream. But we're over $10 million in advances.
You've said that building relationships is an important part of the Sound Royalties business plan. How does this help grow your business?
Bizenov: A large part of our business comes from referrals, and this is something we work hard for. “Customer service” is a mantra in our company because it's the right thing to do and it also grows the business.
We love the referrals we get from the managers, business managers, lawyers and companies out there. It is very flattering to us and very empowering.
When you make advances, how do you calculate risk?
Bizenov: There are probably about 12 or 14 inlets that go into ours [analysis]. It's the stuff you'd imagine: How deep is the roster? 85% of the income comes from two songs — [which] is it dangerous enough — or is it something more widespread? It is [a work] evergreen and out there for many years so you can watch the performance, or is it something relatively fresh? Based on this, we come up with a risk analysis and a price.
Does compensation come from all streams or do you choose to be paid from one or two streams? And do you get 100% recovery or just a portion?
Heiche: We can focus on specific flows that make the most sense and help a customer achieve what they are trying to achieve [in terms of cash flow]. Does the customer want to pay us back in one year or five years? If it's five years, for example, we might get less of their income stream per year, or for one year we might get more. Either way, the rest [of the income] let's get creative.
What is the average type of advance in terms of timing and recovery?
Bizenov: We'd rather see someone do it [deals] more conservatively and make sure they have a chance to earn their cash flow. This is why we have a very high return rate of customers who come back to us for more than one deal.
In terms of agreement terms, the average is three to five years. We can go further and we can go closer, but that's where the median would lie.
What is the value of advances made by Sound Royalties last year?
Heiche: As a private company, there are some restrictions on some data we can give out.
Can you talk about growth?
Bizenov: Our monthly volume increases by 50%. We are very proud of our level of growth.
You have also notified artists and the industry of unpaid royalties. How does this play into your business model?
Heiche: When a creative walks through our door, our rights specialists say, “Okay, so you're a songwriter. Who do you collect your author's fee from? Who publishes or administers you?' Once we start having this conversation.
And very often we find that creatives aren't collecting all the revenue streams they should, so we point them in the right direction. We constantly work with creatives, ensuring they understand the various income streams they are entitled to receive.
Bizenov: There are nuances. It's fragmented, for lack of a better term, because the incomes come from all different directions. So it's easy for things to fall through the cracks sometimes.
You have said that providing transparency to customers is very important. How else do you show this?
Bizenov: The day before the funding is scheduled to take place, we have a separate department that gets on the phone with the end user and goes over the mechanics of the deal. This team is trained so that if they sense hesitation or a lack of understanding, they stop the process to make sure the creative understands every aspect of how it works, what's coming, what's owed.
Our biggest nightmare is not not getting a deal. is someone out there saying, “Hey, [Sound Royalties] he didn't tell me everything.”
Are you saying your reputation is more important than making deals?
Heiche: We've developed a reputation over the years for being the good guys, and that's because of things like this independent compliance department that invites creatives to walk through everything to ensure there's transparency. If people have great things to say about us, it's because of our transparency.
This story appears in the November 16, 2024 issue Bulletin board.
from our partners at https://www.billboard.com/pro/sound-royalties-alex-heiche-michael-bizenov-interview/
