Sound Royalties Celebrates 10 Years of Advances While 'Obsessed with Transparency'

Sound Royalties have been a resource for the music industry for 10 years, advancing money to artists, songwriters, producers and other entities against their royalty income streams. And if there is one message that the company consistently emphasizes, it's that Sound Royalties doesn't use clients' music rights as collateral, so it can never secure ownership of those rights.

In Sound Royalties' parlance, instead of loans, the company primarily provides advances, and recipients of those funds are collectively referred to as “creatives.”

Sound Royalties also makes it clear that it does not charge interest; instead, advances come with fixed fees expressed in dollars. The company also does not charge late fees, and a client's credit rating does not factor into any deals because the advance is repaid from one or more of a client's income streams.

Contrary to standard music industry practice, Sound Royalties do not require 100% recoupment from the income streams until the advance is fully paid off.

Depending on the deal, the company may only take some of the royalties of an assigned income stream from one of the creative's music companies — labels, distributors, publishers or collection rights organizations, which are collectively known as “payors,” according to Sound Royalties — and it will pass through the remainder of income to the client.

Since 2021, Sound Royalties has been owned by GoDigital Media Group and the investment firm MEP Capital.

Alex Heiche, with a background in software for high tech and in special finance firms, founded the company in 2014. As he explains, Sound Royalties is not “a label, publisher or distributor. We don't replace them; we work in concert with them.

“So when creatives come to us, we provide the financing, but they stay with these excellent companies that they've chosen to work with,” he says. “And we're not taking a percentage of future income. The advance is a fixed dollar amount for a fixed period of time. We're obsessed with transparency.”

Company executives also emphasize their pursuit of a relationship-based business.

“Part of Alex's original vision is that we really try hard to create relationships,” says Sound Royalties president Michael Bizenov, who joined the company in 2018 after a career in consumer banking and mortgages. “We're not here just to do transactions. They are important to us, yes, because it's a way to grow a business. But we want to do it in a very healthy way.”

That's also why in times of industry turmoil, like during the pandemic, Sound Royalties set up funding pools for cost-free advances to creatives in need.

Also, the company believes in helping creatives beyond financing deals.

“We [meet] with all levels of creative people, including those who may be starting their career,” Bizenov says. “So we're very committed to doing financial-literacy seminars. We also are talking to the most sophisticated creatives and their business teams and helping them meet their financial goals.”

In the beginning, how did industry companies react to the advances you were proposing?

Alex Heiche: Sound Royalties was launched with the vision to provide artist-friendly funding using creative-friendly funding solutions. So initially, we made advances from [income streams from performing rights organizations] ASCAP and BMI, and then we slowly evolved from there, adding SESAC, and then we started adding publisher, label and distributor transactions. In 2018, we did our first international transaction with PRS [for Music].

Michael Bizenov: Today, we've expanded to working in 18 countries and on three continents with over 160 payors around the globe that are sending payments to us to service their clients, and we're onboarding new [payors] every month.

Did music companies first see you as adversarial to their relationships with their artists and songwriters?

Heiche: Payors see that we're not taking their clients. We're not getting in the way of their business. We don't do distribution, nor publishing; we're not a label or a collection society. We stay in our lane, providing financing. We're there to facilitate something and ease the process, so 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 early last year, we have more than doubled our access to bank financing. We also self-fund some things out of 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 out?

Heiche: No, it started off with funding [from] the balance sheet and growing from there. We pioneered this type of financing and advances. So it took time to build a track record to be able to walk banks through it.

What kind of income streams do you like to focus on when making advances?

Heiche: Creatives are earning a lot of different income streams, and we work with most of them. As the industry continues to evolve, we expanded beyond sound recording and composition [income] and started doing YouTube [income] financing for advances.

We are now even in entertainment production financing. We do tour financing. We even offer bridge financing for creatives looking for a very short-term solution as they're maybe selling a catalog.

Do you put together custom deals for each client or offer a menu with options?

Heiche: The beauty of our model is it's a bespoke, white glove customer service. Every creative and every company entity that comes to us for financing gets to speak with a live person that understands what their needs are and develops options for them to review.

You don't require documentation like tax returns or W2 forms with an application. How else are your advances different from a bank loan?

Heiche: The advance is based strictly on their royalties and projections of those royalties. We provide a one-page summary sheet so they can see the fixed cost in a fixed dollar amount for a fixed period of time. If it takes longer, there are no late fees or penalties. The same if payment comes sooner.

What are the minimum income streams and maximum advances that you work with?

Heiche: We try to help as much of the industry 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 go over $10 million for advances.

You've said that building relationships is an important part of the Sound Royalties business plan. How does that help grow your business?

Bizenov: A big part of our business comes from referrals, and that's something that we work hard on. “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 that we get from the managers, business managers, attorneys and companies that are out there. It's very flattering to us and very reinforcing.

In making advances, how do you calculate risk?

Bizenov: There are probably about 12 or 14 inputs that go into ours [analysis]. It's the things that you would imagine: What is the depth of the catalog? Is 85% of the income coming from two songs — [which] is pretty risky — or is it something that's more spread out? Is [a work] evergreen and out there for a lot of years so you can trace the performance, or is it something that's relatively fresh? Based on that, we then come up with a risk analysis and a price.

Does your recoupment come from all streams, or do you choose to be paid back from one or two streams? And do you take 100% recoupment or only a portion?

Heiche: We can focus on specific streams that make the most sense and help a client achieve what they're trying to accomplish [in terms of cash flow]. Does the client want to pay us back in one year or five years? If it's five years, for example, we may take less of their income stream per year, or it's one year we may take more. Either way, the rest [of the income] we pass through to the creative.

What is the average type of advance deal in terms of timeline and recoupment?

Bizenov: We'd rather see somebody do [deals] more conservatively and make sure they get a chance to get their cash flow. That is why we have a very high return rate of customers who come back to us for more than one deal.

As for deal terms, the average is three to five years. We can go longer and we can go shorter, but that's where the median would lie.

What is the value of advances that Sound Royalties made last year?

Heiche: As a private company, there are some limitations on some data that we can give out.

Can you talk about growth?

Bizenov: Our monthly volume is growing by 50%. We're pretty proud of our level of growth.

You have also alerted artists and the industry about royalties that weren't paid to them. How does that play into your business model?

Heiche: When a creative comes through our door, our royalty specialists say, “OK, so you're a songwriter. Who do you collect your writer's share from? Who does your publishing or administration? We just started to have that conversation.

And quite often we find that creatives aren't collecting on all the income streams that they should be, so then we point them in the right direction. We're constantly working with creatives ensuring that they understand the various income streams that they're entitled to receive.

Bizenov: There are nuances. It's fractionalized, 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 clients with transparency 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 walks through the mechanics of the deal. That team is trained so that if they feel hesitation or lack of understanding, they stop the process to make sure that the creative understands every aspect of how it works, what's coming, what's owed.

Our biggest nightmare isn't getting a deal; it's somebody out there saying, “Hey, [Sound Royalties] didn't tell me everything.”

Are you saying your reputation is more important than doing deals?

Heiche: We've developed a reputation through the years of being the good guys, and that's from things like this independent compliance department having a call with the creative walking through everything to ensure that there's transparency. If people have great things to say about us, that's because of our transparency.

This story appears in the Nov. 16, 2024, issue of Billboard.