BMB 655 Module 5 Catalog Valuation Assignment Example

Valuation of a 600-Song Publishing Catalog

[Student Name]

Southern New Hampshire University

BMB 655: Music Business Finance

Module Five Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Valuation of a 600-Song Publishing Catalog

Introduction

A songwriter who also ran a small publishing company in Austin, Texas, has decided to retire and sell his catalog of about 600 songs, mostly country and Americana, written by him and co-written with others between 1988 and 2019. He asks $3.6 million. The Nashville publisher, whose Milestone One analysis showed that a handful of titles and a single founder carry much of its income, is considering the purchase. This paper estimates what the catalog is worth to the publisher, using discounted cash flow, and tests the result against changes in assumptions and legal risks.

Historical Income

The seller provided three years of royalty statements by song. The net publisher's share, the income left after paying writers their shares, was $310,000 in 2023, $328,000 in 2024 and $342,000 in 2025, growth of about 5 percent a year driven by streaming. Two features of the income matter for valuation. It is concentrated: ten songs produce 54 percent of the total and the top two produce 23 percent. And it is old: about 80 percent comes from songs released between 1995 and 2012, and only 4 percent from songs released after 2015.

Income by song age, 2025

The recent growth of the middle group came largely from playlist placement of a few songs, which may not continue. Two songs from 2001 and 2004 account for nearly all of that growth after being added to large country playlists in 2023; without them, the middle group would have been roughly flat. Playlist placements can last for years, but they can also end without warning when editors refresh their lists, so a buyer should not assume this growth will persist.

Income also varies by source. About 46 percent of the catalog's net share comes from performance royalties, 41 percent from mechanical royalties and only 6 percent from sync, with the rest from print and miscellaneous sources. The low sync share reflects the seller's lack of a licensing effort rather than the songs' potential, which is relevant in Milestone Two.

The Discount Rate

The discount rate reflects what an investor in an asset of this risk should require. Damodaran (2012) recommends building it from a risk-free rate and premiums for the risks investors bear. Starting from a ten-year Treasury yield of about 4.3 percent, adding an equity risk premium of 4.5 percent and further premiums of 0.5 percent for the catalog's small size and 0.7 percent for its lack of liquidity gives a rate of 10.0 percent. Catalog buyers with access to cheap capital may accept lower rates, but this publisher is a small private company financing the purchase partly with debt, so the rate should reflect its own cost of capital.

Projected Income

Recent growth of 5 percent a year is unlikely to last for a catalog whose income comes overwhelmingly from songs twenty to thirty years old. Before streaming, the publisher's own older songs declined 6 to 8 percent a year; since streaming, about 3 percent. Allowing for some continued streaming growth in the near term and decline thereafter, a long-run rate of minus 1 percent a year is a reasonable central assumption. The publisher also expects savings from administering the catalog itself, but those are counted in Milestone Two as a benefit of the purchase rather than as part of the catalog's standalone value.

Valuation

With next year's income of $342,000 reduced by 1 percent, about $338,600, and a perpetual decline of 1 percent, the value equals the first year's income divided by the discount rate minus the growth rate: $338,600 divided by 0.11, or about $3.08 million. Brealey et al. (2020) note that this growing-perpetuity formula is a simplification of a year-by-year forecast; a ten-year explicit forecast with the same assumptions and a terminal value gives the same answer, because the assumptions do not change over time. The result equals about nine times 2025 income.

Sensitivity

Catalog value by discount rate and long-run growth, in thousands of dollars

The asking price of $3.6 million is supported only if the catalog's income keeps growing modestly forever or if the buyer accepts a return below 9 percent with a slight decline. Under the central assumptions, the price is about $520,000 too high. The grid also shows how much the answer depends on growth: moving from minus 1 to plus 1 percent changes the value by about $760,000 at a 10 percent rate, more than the gap between the asking price and the central value. That is why the buyer's view of the catalog's future, not the arithmetic, will decide the negotiation.

Termination Rights

United States copyright law allows authors who transferred their copyrights after 1977 to terminate the transfer after thirty-five years, within a set window, by giving notice. Passman (2023) explains that this right cannot be waived by contract. Two kinds of exposure follow. The seller's own songs, transferred to the buyer in 2026, could in principle be reclaimed by him or his heirs from 2061, so far in the future that the present value effect is small. More immediately, about 15 percent of the catalog's income comes from songs co-written with others who assigned their shares to the seller's company between 1995 and 2005; those co-writers can terminate from 2030 to 2040. Assuming half exercise the right in their first eligible year, the loss of income in those years reduces the value by about $90,000, bringing the central value to about $2.99 million.

Market Comparison

Recent sales of comparable independent catalogs of older country songs reportedly ranged from about 8 to 12 times net publisher's share, with higher multiples for catalogs with famous songs and recent hits. At nine times, the central value sits near the lower middle of that range, which is consistent with the catalog's age and concentration.

Conclusion

The catalog is worth about $3.0 million to the publisher on central assumptions, within a range of about $2.4 million to $4.3 million. The asking price of $3.6 million requires optimistic assumptions about growth or return. Milestone Two will weigh the purchase, including administration savings, financing and negotiation terms, against this value.

References

Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.

Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley.

Passman, D. S. (2023). All you need to know about the music business (11th ed.). Simon & Schuster.