Music royalty audit: the case for running one before you buy
Before pricing a music catalogue, a royalty audit tests whether reported income survives contact with the underlying licences, splits and usage data.
Every catalogue acquisition begins with a number: a multiple, a projected yield, a headline valuation built on trailing royalty statements. Few of those statements have ever been tested against the underlying licences, splits and usage data that produced them. A royalty audit closes that gap before, not after, capital changes hands.
The distinction matters because a royalty statement is an assertion, not a proof. It tells a buyer what a collection society, distributor or administrator says was earned and paid. It does not confirm that the correct ownership shares were applied, that mechanical and performance income were reconciled against actual usage, or that historical underpayments, unmatched claims and reserve deductions have been resolved rather than quietly carried forward. Buyers who price a catalogue purely off submitted statements are pricing noise: numbers that look precise but have not been interrogated.
What a royalty audit actually tests
A properly scoped royalty audit examines the chain from usage to payment, not merely the payment itself. That means checking split sheets against registered ownership data, tracing income through each intermediary in the chain, from performing rights organisation to publisher to sub-publisher, and confirming that rates, territories and contractual escalators have been applied as written rather than as assumed. It also means identifying unclaimed or misdirected income sitting in black-box reserves, which is common in catalogues with international co-writes or older agreements that predate current metadata standards.
None of this requires forensic drama. It requires access to source documents, patience with reconciliation, and a willingness to treat every discrepancy as a question rather than an inconvenience. The output is not a single corrected number. It is a clearer picture of which income streams are contractually sound, which are exposed to dispute or clawback, and which have simply never been tested.
Why this belongs before completion, not after
Sellers have limited incentive to commission this work themselves. A royalty audit performed pre-completion, by or on behalf of the buyer, shifts the burden of proof onto the asset rather than the seller's narrative. It also gives lenders financing the acquisition a basis for covenant-setting that reflects verified cash flow rather than adjusted or normalised figures supplied by the vendor's advisers.
This is not a matter of distrust. Even well-run catalogues accumulate administrative drift over years of licensing deals, catalogue transfers and changes in collection agents. A royalty audit is simply the mechanism by which that drift becomes visible before it becomes the buyer's problem.
For private equity and family offices new to the asset class, the temptation is to treat music rights like any other yielding instrument: assess the coupon, apply a discount rate, move to signature. Music income is contractual and operational before it is financial. Its reliability depends on registrations, agent relationships and administrative diligence that a headline royalty figure cannot disclose on its own.
The multiple gets the attention. The audit trail decides whether it was ever real.