Investing in music catalogs? It’s Not Just Daisies and Butterflies — Our Latest Podcast

Your money is inside.

Investors continue to pile into music publishing catalogs for a more reliable return. But publishing assets come with their own portfolio of headaches — according to those investors who actively trade them.

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We’ve written extensively about the music industry’s famous “black box,” which refers to billions in royalties that remain unrecoverable. Today, investors are discovering how difficult royalty recovery can be, even with partners like Kobalt, Paradise Distribution and Exactuals.

Unfortunately, if you’re the owner of a substantial publishing catalog, you’re probably also the owner of a major headache involving data recognition, messy bookkeeping, fraud, and lost revenue.

But how serious is this problem?

In our latest Digital Music News podcast, recorded in Hamburg, Germany, I discussed this issue with two European investors actively invested in music publishing. They had 99 problems – at least.

“The problem is getting the money back from the various collection agencies, and that’s a nightmare,” said Thierry Baujard, founder of Europe-focused media investment firm Mediadeals.

“We lose a lot of money because of mistakes and errors. People don’t understand titles, and it’s lost in Latin America and elsewhere.

Baujard was honest with me. Getting paid for editing is a lot harder than he imagined.

“So it’s a big problem. So we have a pretty big publishing house specializing in film music, and getting the money back is taking a lot longer than expected. We see that there are a lot of errors.

But not just time — it costs a lot of money to get your money back.

“The problem is of course the cost we have to spend, the level we have to spend [to recover payments] — the money that comes back is quite low. So to pay someone to do it – we already have a company that takes 30% commission – I guess we have to live with it, but it’s very, very expensive.

I asked Thierry what was the solution to this mess. He answered with one word: lawyers.

“At the moment, the best solution we have is lawyers,” Baujard told me. “It’s kind of sad…it’s obviously very sad and also takes a lot of time and money.”

Baujard told me that he actually works with two legal teams and has to personally send lawyers to various PROs to make claims. He also hired a company that analyzes all the TV channels in the world and then compares all that data to the statements of the PROs.

The results are quite depressing.

“On two films, for example, there were a lot of differences,” Baujard said. “We know that this film was shown on 25 channels, and the collection agency says it was shown on 5 channels. So the question of course is whether the other 20 channels will arrive in the next 6 months. or not.

“Probably not,” I said.

Oke Goettlich, director of Göttlich GmbH, pointed to a desperate need for technological solutions.

“I’m invested in a publishing house,” Goettlich explained.

“There are challenges that aren’t solved by the old industry, and you have to implement this new technology – digital data interfaces, and even collect information about what songs have been played and where.”

I thought it was the work of PROs like GEMA, SACEM and ASCAP. But it doesn’t quite work that way.

“Many PROs collect money and distribute it to known artists, but not to those who are actually played. It is completely unbearable that the PROs, who distribute most of the money in this whole game, are not able to know exactly where that money belongs.

Goettlich has been struggling with rights issues for a long time. He started starting German distributor Finetunes over a decade ago and recently sold the company to The Orchard.

Here’s our podcast, which focuses more broadly on the issues investors face with startups and music investments.

(You can check out the Digital Music News podcast just about anywhere, including iTunes, Spotify, Google Play, Stitcher, or just listen to the embed below).