Music Catalog Valuation techniques

💡 𝗧𝗵𝗲 "𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗲𝘀" 𝗠𝗲𝘁𝗵𝗼𝗱: 𝙌𝙪𝙞𝙘𝙠 𝙑𝙖𝙡𝙪𝙚 𝙎𝙣𝙖𝙥𝙨𝙝𝙤𝙩
You apply a multiple (a ratio) to the catalog's current earnings to estimate its value. The multiple is determined by information publicly available for other comparable transactions. For example, if you believe an appropriate multiple is "14x" and you earn $100 thousand annually on average, then the catalog should be worth $1.4 million. The Multiples method is actually the equivalent to saying "earnings will grow at constant rate, every year and forever". This method is straightforward and simple, but overlooks the catalog's specificities.

🎯 𝗧𝗵𝗲 "𝗗𝗖𝗙" 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 (Discounted Cash Flow): 𝘿𝙚𝙚𝙥𝙚𝙧 𝘿𝙞𝙫𝙚
You project the catalog's expected future earnings, taking into account as many factors as you can or want: global industry trends, songs consumption trends, legal or operational constraints over time, reversions, and any other relevant metric. The value of the anticipated future earnings is then calculated from today's perspective. This method is precise and robust but can lead to a sense of false precision.

Both methods have merits but the DCF approach offers deeper insights and precision, reflecting the dynamic nature of the music rights and the fluctuating income streams they can generate. Most buyers lean towards the DCF method, seeking a complex and holistic understanding of the value rather than just a snapshot based on past performance. Every music project is unique: a catalog with a declining audience, limited to mature markets or relying heavily on marketing efforts will yield a much lower multiple than an organically growing catalog, engaging new or younger audiences or carried by streaming - 𝘢𝘯𝘥 𝘵𝘩𝘢𝘵'𝘴 𝘢𝘣𝘴𝘰𝘭𝘶𝘵𝘦𝘭𝘺 𝘧𝘪𝘯𝘦!

⚠️ Remember: Valuation isn't an exact science - you can only 𝙚𝙨𝙩𝙞𝙢𝙖𝙩𝙚 a value, then try to understand the potential 𝙧𝙞𝙨𝙠𝙨 and 𝙪𝙥𝙨𝙞𝙙𝙚𝙨 associated with this estimate. The only real number is the final price which is only the outcome of a negotiation! ⚠️

At Clarty, we guide our clients through the complexities of music catalog valuations with expertise and insight. Our work relies on the 𝗗𝗖𝗙 method but always contextualizes the value in a 𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗲𝘀 environment and establishes the link between both perspectives. Navigating this landscape with precision not only empowers rights holders but also cultivates a more transparent and equitable market for music IP transactions.