Buying & Selling Copyrights
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Buying & Selling Copyrights
Buying and selling of copyrights has become one of the biggest parts of the music business. In this day and age where technology for music production, duplication, and distribution continues to expand and advance it is extremely vital to the copyright owners to maintain ownership or auction off their material to the highest bidder. Some of the basic concepts that go into buying or selling music publishing catalogs are the purchasing of assets, the purchase price, the calculation of net income, salaries, and purchase price multiples. The purchasing of assets involves the process by which the buyer acquires only the assets of the seller and not the corporation or other legal entity that owns the musical compositions. In this situation the right to use the music publishers name is usually transferred to the buyer while the legal entity is retained or dissolved by the seller.
The actual purchase price is normally based on the average annual net earnings of the selling company over the most recent 3 to 5 fiscal or calendar year. The net income of a catalog is most always the gross royalty income received by the selling company less all royalties they paid to songwriters and other third parties. It is calculated by a choice of two methods: the cash basis and the accrual basis. The cash basis formula involves the buyer taking the gross royalty income received by the seller during a particular period minus the amount of songwriter and other third party royalties paid out during that period. A more reliable method is the accrual basis of net income computation in which the buyer takes the gross earnings received during a year. Besides these computations and numbers salaries and other costs of doing business are also added into the equation of determining the price.
When a music publishing company or a catalog of songs go up for sale a document is forwarded to all potential buyers called the prospectus. The document is anywhere from 3 to 5 pages for a small catalog to 200-400 pages for a major publishing operation. In the prospectus is a brief history of the company being sold and its place within the entertainment industry. Also the companys financial information such as income statements are included in the prospectus. Several charts which list the top-earning compositions and the net income and earnings are also posted. Current contacts are