Adding Fun and Games to Copyright Valuation…

The Music Industry Is Always Ahead

of the Publishing Industry…

Often by about a decade.

That seems to be the fact in the case of valuation of copyright. I assume that everyone has heard of major song writers and artists selling entire catalogs. Justin Bieber just did it, lots of older artists have done it for tons of money. Each deal is different and interesting. But they all had one thing in common. There was a valuation of the catalog of songs and such owned by the artist.

So thanks to a New York Law Journal article, some of the methods used to value an artist’s music catalog are discussed. They are the standard three I know and have talked about, with one major exception.

Now understand, writers, your books and stories and articles and collections and so on are your catalog. Yeah, I know you don’t think about that, but get used to it.

And by the way, a lot of these music catalogs are going to hedge and equity funds that will use the money for steady income for their investors. That means the managers will have a fiduciary duty to maintain and work the catalog and keep it fresh and earning over the years.

(Hmmm, remind me about equity funds as a way to protect writing assets and keep them alive and publishing into the future… hmmmm….)

Can you imagine King selling his catalog? Sure, I can. How about Koontz or the Cussler Estate? Sure And once it starts in books, hang on to your hat.

So in the last major post on this topic I said you should count the number of titles in your catalog, how long the copyright will last at best guess, and so on.

So you have how many titles you have, how much money those titles each has made over the last number of years, any licenses or contracts involved. Got all that? Good.

For the purpose of going forward, we are going to ignore the Cost and Market Approaches to valuation and just focus on the Income Approach. The other two only apply rarely in copyright and I talked about the cost approach a while back.

Now quoting the article directly because it is just easier than doing it any other way… Remember, this is from an article about music catalogs. Not book catalogs.

“The “income approach” estimates the value of a music catalog based on the annual royalty stream the music catalog is expected to generate in the future. If earnings are expected to remain stable into perpetuity, the annual income stream is capitalized (capitalization of earnings). If earnings are expected to change substantially from year to year or the holding period of the asset can be reasonably estimated, the discounted-cash-flow method is applied …”

The key with both of these is a number of factors, the biggest being trying to get an estimate of the future income of a catalog.

Factors that come into play are the popularity and trends (meaning you write vampire dog fiction and it is popular for a short time and then fades), the number of books in the catalog and how many of them are high earners and how many are middle earners and how many have not hit any stride yet.

So you look and judge each book in your catalog by not only historical sales, but by trends and genres and much more. (Yes, really complex.)

If after all that, your income from your catalog is steady and growing, then you can use a capitalization method. In music, this factor can be from 5 to 15, depending on life of copyright and a dozen other factors. No telling what it would be in books, but likely much, much higher.

So say your income per year is $100,000. and is steady and growing slightly and because of factors like you having estate planning and being in good health on top of that, the factor could be 15 or 3o or more.

Using just 15, that would mean your catalog value at the moment would be 1.5 million. (Kris and my combined catalog is far over 100,000 per year and we are healthy and have estate planning. You can do the math.)

This capitalization approach fits what Indie Publishers are doing.

The discounted cash flow method (or as I call it, the “Spoiling Banana” method takes in all sorts of factors, such as estate issues, short term copyright terms, possible copyright reversion actions by heirs, and so on. Also, it takes into account wild swings of income, like a movie deal one year and nothing for six more years. Things like that.

In this method, there is the nasty word diminution that is combined with the discount rate. Using that method, (got to figure both discount rate and diminution rate and deciding what they are is just a cluster f**k) the same $100,000 yearly catalog would be valued (if lucky) around $700,000.

So music industry using the Capitalization Method of the Income Approach is ahead of the book industry, as normal. The Capitalization Approach fits what I was struggling to find in my earlier post.

Thanks, Kris, for pointing me to the music industry. Some amazing articles on what is happening with all the catalog sales. And why.

Selling catalogs to Alternative Investment Managers of Equity Funds and Hedge funds is in our future. Books are property, and with the right management can continue on into the future, well past an author’s death.

Damn I love this new world.