11th August 2021How do you value music: 3 things you need to know

Revenues generated by the music industry peaked in 1999, mostly due to the physical CD market. In stark contrast, the industry reached an all-time low by 2014, propelled by piracy driven declines (even though music downloads had been growing for a decade). Fast forward to 2021 and access to music has never been easier and cheaper.

There are signs that a rebalance for artists and songwriters may be starting:

  • The revival of older catalogues that no longer rely upon the traditional purchase of physical music
  • The recent announcements by Sony that they plan to pay through digital revenue regardless of recoupment (for certain artists on both publishing and recording deals)
  • The current discussions around equitable remuneration for streaming

The market for the sale and purchase of music publishing copyrights and royalty flows has never been stronger. For example, selling rights to an experienced business could be more rational than leaving them to family where affairs can get complicated. Others may be looking to pass on their wealth to the next generation to minimise the taxes paid by their estates.

With streaming seeing year on year double digit growth, continued stability (as a result of recurring subscriptions) and steady royalty flows there is increasing demand from buyers and new ‘investors’ considering this as a viable investment class.

Rob Fowler, head of music royalty audits at HW Fisher brings over 30 years of working with high profile record labels and artists and explains what you need to know when it comes to making a valuation.

  1. What makes a good valuation?

There isn’t a simple answer. A music valuation requires a significant understanding of the income sources, royalty flows, deal structures and the lifecycle of a song or track.

This knowledge comes from direct involvement working behind the scenes along with accomplished royalty accounting and royalty audit experience. This in-depth knowledge enables you to ‘read the data’ with certainty and provides the intuition required to pin-point the factors that you need to consider.

To ensure a good valuation, the valuer shouldn’t merely be taking historic figures and reports at face value. Accessing data alongside the contracts should build a picture of where the value lies, whether that value may continue, whether it can be improved and also highlight any issues or anomalies that the purchaser may need to consider.

There are many factors to consider:

  • What proportion of performance income is radio air-play? Will this continue?
  • Who controls the copyrights and for how long?
  • Can the catalogue be moved?
  • Can you increase the value by moving the catalogue?
  • Are there any one-off royalty payments buried within the data that will not continue?
  1. What are some of the big changes in music valuations in the last 10 years?’

 Music popularity is hard to predict. In the last ten years we have seen more and more that it’s not just ‘evergreen’ catalogues that are being bought and sold.  Evergreens are relatively easy to value, but more regularly we are valuing compositions or masters that fall out of this category.

With the continued growth of streaming, the decline of physical and download exploitation and the age of the catalogues being valued there are now more factors that need to be considered and built into valuation models than ever before.

  1. Are the current market conditions a good thing?

The great thing to remember is that the songwriter or artist now has more opportunity to sell and ‘cash-in’ if they so wish. The value of music is being more widely recognised .

Now there are new investors in the market, in addition to the publishers or labels, there is clearly a more diverse type of catalogue that people are willing to buy. 

To build a positive future for music royalties, songwriters, artists and investors should exercise an element of caution when it comes to the underlying factors that can affect the valuation of their assets. You must also be sure that selling your rights (and potentially any control you had on them) is the right move.

Whether an investor or a rights holder decides to invest, sell or trade music rights, there should be a detailed consideration behind every aspect of music valuation and we would always recommend seeking the advice of a chartered accountant.

If you have any questions or to discuss your circumstances in more detail, please get in touch with Rob directly.

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Robert Fowler
Director - Forensic

(0)20 7874 1181
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