Pop star Taylor Swift / Image: Eva Rinaldi

Having been stuck at home for the best part of a year, you’ll be forgiven for being all caught up in the tantalising show biz gossip.

Kim Kardashian and Kayne West’s recently announced divorce may well offer some lessons to the private client industry. But for now, wealth managers may want to turn their attention to Taylor Swift.

It seems Ms Swift and ex-label boss Scooter Braun are “never, ever, ever getting back together”. Following arguments over Mr Braun’s ownership of her early music, Ms Swift has started re-recording any music that he owns, so she can have full control over its use.

What does this have to do with wealth management? 

Dividends fell hugely in 2020, dropping 49 percent in Q3 alone according to Hargreaves Lansdown. So it is unsurprising wealth managers have been turning to other forms of investment to provide clients with income.

One alternative investment that is fast growing in popularity is royalty investing, particularly in songs and film scores.

There’s plenty of money to be made in it too.

Royalty Exchange, an online auction provider for song royalties, recently facilitated the sale of Rhianna’s 2008 single Don’t Stop the Music for $203,000 for a 10 year-term. In the past 12 months the song has earnt $40,400 in royalties.

Jay-Z’s Empire State of Mind sold for $190,000 for a 10-year licence, having gained $32,733 in royalties in the past year.

Ms Swift’s music is also in high demand.

In November, it emerged Mr Braun had sold her master recordings to US private equity firm Shamrock Capital in a deal reportedly worth more than $300 million.

The sale attracted controversy, given Ms Swift and Mr Braun’s public feud.

Shamrock Capital were quoted in The Guardian, saying: "Taylor Swift is a transcendent artist with a timeless catalogue."

However, Ms Swift was not impressed the sale had taken place without her knowledge. In a statement shared on her Instagram and Twitter pages, she wrote: "Artists should own their own work for so many reasons, but the most screamingly obvious one is that the artist is the only one who really *knows* that body of work."

Therefore, she has taken the decision to re-record her earlier music, which she does not own, so she can have total control of it. This month she released the her first re-record, of her 2008 single Love Story. It sounds almost identical to the original.

Shamrock Capital told The Guardian: “We made this investment because we believe in the immense value and opportunity that comes with her work. We fully respect and support her decision and, while we hoped to formally partner, we also knew this was a possible outcome that we considered."

Does this pose a risk to royalty investors?

Essentially, it depends on how you choose to invest in music.

Every song has two copyrights: The composition – for the song as it is written (i.e. the lyrics and melody); and the sound recording – for the song as it is recorded (what you actually hear).

If you choose to buy the sound recording, like Shamrock Capital did, then an artist re-recording their music will pose a risk to future returns, as fans flock to the "new" version.

In general, buying a sound recording is considered a less good investment. Songs are often covered and you would then miss out on royalties from all of these versions if you only owned a specific recording.

However, if you buy the composition you will earn royalties on any version of the song, so won’t see any impact on your yields if an artist were to re-record their music.

A spokesperson for Royalty Exchange confirmed this.

“Most investors on Royalty Exchange are buying royalties generated by the composition copyright (publishing or public performance royalties). Therefore if a song is re-recorded, there is no change to or impact on the royalties generated by the composition.”

Hipgnosis Songs Fund, a £1.2 billion trust with a 4 percent yield that owns a large catalogue of songs, also invests in this way.

Chief executive and founder Merck Mercuriadis told thewealthnet: "We completely support Taylor Swift’s right as an artist to re-record her songs.

“We buy song copyrights and we earn royalties regardless of whether it’s an original recording, a re-record, a cover, a sample or an interpolation."

Given this approach, investors could potentially stand to increase their yields if artists re-record their songs, making it a more attractive investment.

Perhaps, therefore, royalty investing could prove to be a “love story” for wealth managers after all…