What exactly are intellectual property royalties?

Intellectual property royalties are payments made to the owners of intangible assets like patents, copyrights, or trademarks when others use those assets. For example, when a pharmaceutical company allows another company to produce its patented drug, or when a streaming service plays a song, the owners of those rights receive royalty payments. Companies in this theme specialize in owning and collecting these royalty streams.

How do royalty companies make money without making products?

Instead of manufacturing products themselves, royalty companies own the rights to valuable intellectual property and license those rights to others. They earn revenue when their IP is used, sold, or distributed by third parties. This business model eliminates manufacturing costs, supply chain issues, and many operational risks, often resulting in higher profit margins than traditional businesses.

What's the difference between a pure-play royalty company and other firms in this theme?

Pure-play royalty companies (like RPRX or SONG) focus exclusively on acquiring and managing intellectual property rights to generate royalty income. Their entire business model revolves around collecting these payments. Other companies in this theme (like DIS or IBM) have significant IP licensing divisions that generate substantial revenue, but they also operate other business lines like product development, services, or content creation.

How might digital streaming impact companies in this theme?

Digital streaming has created new revenue opportunities for companies that own music catalogs and entertainment IP. As streaming platforms like Spotify, Netflix, and Disney+ grow their subscriber bases globally, they pay ongoing royalties to use content. This creates predictable, recurring revenue streams for the IP owners in this theme, with potential for growth as digital consumption increases worldwide.

Why are pharmaceutical patents considered valuable royalty assets?

Pharmaceutical patents are particularly valuable because they protect unique drug formulations that can generate billions in sales and have strong legal protection. These patents typically last 20 years, during which time the patent holder can collect substantial royalties from drug manufacturers who want to produce the medication. Companies like Royalty Pharma (RPRX) specialize in acquiring these rights, providing investors exposure to pharmaceutical innovation without the risks of drug development.

15 handpicked stocks

Intellectual Property Royalties

Invest in companies that own the rights to valuable ideas, not just physical products. This collection features businesses earning high-margin income from patents, music catalogs, and character franchises — carefully selected by our analysts to give you exposure to the economics of innovation itself.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17