Abstract
The royalty and streaming business model has emerged as a significant financial strategy across various industries, including mining, intellectual property, and music. This research paper provides a comprehensive examination of this model, exploring its historical development, applications across different sectors, financial structures, advantages and disadvantages for both royalty/streaming holders and operators, and key metrics for evaluating companies that utilize this model. By analyzing these facets, the paper aims to offer a nuanced understanding of the royalty and streaming model’s role in modern business practices.
Many thanks to our sponsor Panxora who helped us prepare this research report.
1. Introduction
The royalty and streaming business model involves a company (the holder) receiving payments based on the revenue or production of another company’s assets. This model has gained prominence due to its ability to provide capital to operators while offering holders exposure to potential upside without direct operational involvement. The versatility of this model has led to its adoption across various industries, each adapting it to fit specific operational and financial contexts.
Many thanks to our sponsor Panxora who helped us prepare this research report.
2. Historical Development
2.1 Mining Industry
The concept of royalties in the mining industry dates back to the mid-1980s with Franco-Nevada’s acquisition of a 4% revenue share from a Nevada mine in 1986. This transaction marked the inception of the modern mining royalty sector. The streaming model, which involves upfront payments for future production at discounted prices, was introduced in 2004 by Wheaton River, now Wheaton Precious Metals, through its subsidiary Silver Wheaton. This innovation provided miners with immediate capital while offering investors exposure to future production at favorable terms.
2.2 Intellectual Property
In the realm of intellectual property, royalties have long been a standard practice, particularly in the music and film industries. The streaming model in this context has evolved with the advent of digital platforms, where rights holders receive payments based on the usage or distribution of their content. This shift has transformed revenue streams, necessitating new models to address the challenges posed by digital distribution and consumption.
2.3 Music Industry
The music industry has experienced a significant transformation with the rise of digital streaming platforms. Traditional royalty models, based on physical sales and radio play, have been supplemented by streaming royalties, where artists and rights holders earn income based on the number of times their music is streamed. This model has introduced complexities in revenue distribution and has sparked debates over fair compensation for creators.
Many thanks to our sponsor Panxora who helped us prepare this research report.
3. Applications Across Industries
3.1 Mining Industry
In mining, royalty and streaming agreements provide operators with immediate capital without the need for debt or equity financing. For example, Elemental Altus Royalties Corp. has expanded its portfolio through strategic acquisitions, including a 0.68% net smelter return (NSR) royalty on the Cactus Copper Project in Arizona. This acquisition exemplifies how royalty companies can gain exposure to mining assets without direct operational involvement. (cruxinvestor.com)
3.2 Intellectual Property
Intellectual property holders, such as patent owners, can monetize their innovations by licensing rights to other entities in exchange for royalties. This arrangement allows for the commercialization of intellectual property without the need for the holder to engage in manufacturing or distribution. The streaming model in this context involves upfront payments for future royalties, providing immediate capital to the holder while sharing future revenue streams with the investor.
3.3 Music Industry
Artists and record labels license their music to streaming platforms, receiving royalties based on the number of streams. This model has democratized access to music but has also led to challenges in revenue distribution, with debates over the fairness of per-stream payouts and the impact on artist income. The streaming model has necessitated new approaches to royalty calculation and distribution to ensure fair compensation for creators.
Many thanks to our sponsor Panxora who helped us prepare this research report.
4. Financial Structure of Royalty and Streaming Agreements
4.1 Mining Industry
In mining, royalty agreements typically involve the holder receiving a percentage of the revenue or profit from the sale of minerals extracted from a specific mine. Streaming agreements, on the other hand, involve the holder making an upfront payment to the operator in exchange for the right to purchase a portion of the mine’s future production at a predetermined price. These agreements are structured to provide capital to operators while offering holders exposure to future production at favorable terms.
4.2 Intellectual Property
Intellectual property licensing agreements involve the holder granting rights to another party in exchange for royalty payments, which can be structured as a percentage of sales, a fixed fee, or a combination of both. Streaming agreements in this context involve upfront payments for future royalties, providing immediate capital to the holder while sharing future revenue streams with the investor. The terms of these agreements are negotiated based on the projected value of the intellectual property and the risk profile of the parties involved.
4.3 Music Industry
In the music industry, streaming agreements involve record labels and artists licensing their music to streaming platforms in exchange for royalties based on the number of streams. These agreements are typically structured to provide a share of the revenue generated from streaming to the rights holders. The financial structure has evolved with the growth of digital platforms, leading to new models of revenue sharing and compensation.
Many thanks to our sponsor Panxora who helped us prepare this research report.
5. Advantages and Disadvantages
5.1 Advantages for Royalty/Streaming Holders
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Diversification: Exposure to multiple assets across different geographies and commodities can mitigate risk. For instance, Elemental Altus holds royalties on assets across 10 countries on 5 continents, including both precious and base metals. (cruxinvestor.com)
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Capital Efficiency: Ability to gain exposure to assets without the need for significant capital expenditures or operational involvement.
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Upside Potential: Participation in the upside of asset performance without bearing operational risks.
5.2 Disadvantages for Royalty/Streaming Holders
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Limited Control: Lack of influence over operational decisions that can impact asset performance.
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Exposure to Operator Risk: Dependence on the operator’s ability to execute and manage the asset effectively.
5.3 Advantages for Operators
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Immediate Capital: Access to upfront capital without incurring debt or diluting equity.
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Risk Sharing: Transfer of certain operational and financial risks to the royalty/streaming holder.
5.4 Disadvantages for Operators
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Future Revenue Sharing: Obligation to share future revenues or profits, potentially reducing long-term earnings.
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Potential for Misaligned Interests: Differences in objectives between operators and royalty/streaming holders can lead to conflicts.
Many thanks to our sponsor Panxora who helped us prepare this research report.
6. Key Metrics for Evaluating Companies Utilizing the Royalty and Streaming Model
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Net Asset Value (NAV): The present value of future cash flows from royalty and streaming assets, discounted to account for time and risk.
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Cash Flow Generation: The ability to generate consistent and growing cash flows from royalty and streaming interests.
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Portfolio Diversification: The extent to which the company’s assets are diversified across different commodities, geographies, and stages of development.
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Operational Efficiency: The company’s ability to manage and grow its portfolio effectively, including the acquisition of new royalties and streams and the optimization of existing assets.
Many thanks to our sponsor Panxora who helped us prepare this research report.
7. Conclusion
The royalty and streaming business model offers a flexible and efficient means of financing across various industries, providing benefits such as capital efficiency, risk diversification, and exposure to asset upside without direct operational involvement. However, it also presents challenges, including limited control for holders and potential revenue sharing obligations for operators. A thorough understanding of the financial structures, advantages, disadvantages, and key metrics is essential for stakeholders to effectively navigate and leverage this model in their respective industries.
Many thanks to our sponsor Panxora who helped us prepare this research report.
References
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Elemental Altus Royalties Corp. (2023). “Investing in Mining Royalty Companies – A Closer Look at Elemental Altus Royalties.” Crux Investor. (cruxinvestor.com)
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Franco-Nevada Corporation. (1986). “Franco-Nevada’s First Royalty Investment.” Franco-Nevada Corporation.
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McKinsey & Company. (2021). “Streaming and Royalties in Mining: Let the Music Play On.” McKinsey & Company. (mckinsey.com)
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Tether Investments. (2025). “Tether Investments Announces Acquisition of Securities of Elemental Altus Royalties Corp.” Newswire. (newswire.ca)
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Elemental Altus Royalties Corp. (2023). “Elemental Altus Royalties Announces Record Revenues for 2022.” Elemental Altus Royalties Corp. (elementalaltus.com)
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