Years after Michael Jackson died, his estate was paid $750 million to buy out the remaining 50% of his collection of music royalties.
The strange thing is, the bulk of his collection of song royalties weren’t even his.
He had the rights to over 4,000 songs, including over 250 Beatles songs!
Ironically, MJ’s entry into the royalty world came from the very musician he would profit most from – Paul McCartney.
At one time, Michael Jackson and Beatles great McCartney were friends.
The lyrical heavyweights got to know each other in the 70s and co-wrote some of the greatest hits of the 80s.
But those weren’t the songs that paid off the most for Jackson. Instead, it was some of the Beatles’ own greatest hits which he had no part in writing at all – songs like “Hey Jude”, “Yesterday”, and “Let it Be.”
The Beatles’ Billion Dollar Blunder
When MJ and McCartney collaborated, McCartney shared with Jackson his regrets about losing his stake in Northern Songs - A publishing company he had set up with John Lennon to manage the rights to their music.
As an artist, McCartney had taken a short-term gain but missed out on a long-term opportunity when he gave away his rights. He tried to make up for this mistake by investing in the royalties of other artists.
Jackson listened and learned.
He joked with McCartney that one day he would own the Beatles songs.
That joke became reality in 1985 when he bought ATV Music, which owned the Beatles’ catalogue. But it wasn’t cheap.
The deal set Jackson back ~$48 million (and actually cost him his friendship with McCartney). But it would pay dividends for the Jackson estate for decades to come.
- The ATV collection of music was opened up for commercial use (much like a mine going into production) & the profits began streaming in.
Jackson eventually sold 50% of ATV to Sony for $95 million in the mid 90’s, a four bagger that still paid royalties every time the songs were used.
And the cash continued to come in until seven years after his death, when Sony purchased his remaining ownership of the company for $750 million.
That $48 million dollar investment into royalties resulted in a profit of over $800 million dollars. And that’s not even including the yearly revenue stream that the collection brought in.
Royalty Makes Rulers
Royalties occur in many industries outside of music too.
Another industry that has provided record profits for savvy royalty investors is the movie business.
Disney’s Marvel Cinematic Universe franchise has repeatedly broken numerous records at the box office and has raked in over $22.5 billion in revenues.
But back in 1998, Sony passed on the chance to buy the movie rights to Marvel’s comic book line for the rock bottom price of $25 million.
At the time, Marvel was emerging from bankruptcy and was desperate for cash. Sony failed to pull the trigger and missed out on what could have been one of the most lucrative investments in all of film history.
Paul McCarthy & Sony both learned a valuable lesson in royalties…the hard way.
A Low Overhead, High Profit Machine
Investment opportunities in royalties aren’t exclusive to the entertainment industry.
Warren Buffett compares buying royalties to owning a toll booth. Once you’ve got it, you’re getting paid every time someone passes through.
In the stock market, companies that have royalties deliver consistent returns and growth for their shareholders.
Here’s a chart of the 10 year returns of one such company (and in a market with a sliding commodity prices too)...