---
sidebar_position: 0.5
title: "The Problem: Why Catalogues Are Hard to Value"
description: Information asymmetry creates a market for lemons. Sellers with good catalogues are penalised. Buyers discount everything. The mid-tier is locked out.
keywords:
- music catalogue valuation
- market for lemons
- information asymmetry
- metadata risk
- music rights due diligence cost
- Hipgnosis valuation gap
- uncollected royalties
- ISRC ISWC IPI
faq:
- q: "Why are music catalogues hard to value?"
a: "The seller knows the true state of their metadata but the buyer does not. There is no standardised, affordable way to close that gap — creating a textbook market for lemons where buyers discount everything and sellers of good catalogues are penalised."
- q: "How much in royalties goes uncollected due to metadata errors?"
a: "The Mechanical Licensing Collective in the US alone accumulated $427 million in unmatched mechanical royalties between 2007 and 2020. Globally, conservative estimates put unmatched royalties above $1 billion across all royalty types and territories."
- q: "What happened with the Hipgnosis Songs Fund valuation?"
a: "An independent forensic review in 2024 revealed a $690 million gap between two independent valuations of the same assets. 67 of 105 acquisitions had been overvalued and 75% of the portfolio was missing growth forecasts. Blackstone acquired the fund at a discount to both figures."
---
# The Problem — Why Catalogues Are Hard to Value
## The lemons problem in music rights
The core problem in the music catalogue market is information asymmetry. Sellers know the true state of their metadata. Buyers do not. And there is no standardised, affordable way to close that gap.
This creates a textbook ["market for lemons"](https://trackforge.studio/why):
**Sellers with good catalogues are penalised.** A rights holder who has invested in clean metadata, complete registrations, and accurate writer data has no credible way to prove it. Without a recognised quality metric, their catalogue is priced the same as one with incomplete data. Rational sellers of high-quality assets either accept a discount they don't deserve or withdraw from the market entirely.
**Buyers discount everything.** Unable to distinguish quality, rational buyers assume average (or worse) metadata health and price accordingly. Deals that should close don't. Capital that should deploy stays on the sideline.
**The market shrinks.** Over time, the highest-quality assets are priced out and the market is left with progressively lower-quality inventory. Everyone loses — owners, investors, and the creators whose royalties go uncollected.
## Why metadata is the whole game
When you buy a catalogue, you are buying the right to collect royalties. Those royalties only flow if the metadata is correct:
- Every recording needs an **ISRC** (International Standard Recording Code) to be identified on streaming platforms.
- Every composition needs an **ISWC** (International Standard Musical Work Code) to be identified in the publishing system.
- Every writer needs an **IPI number** to receive their share.
- Every work must be **registered** with the collecting societies in each territory where it earns.
If any of these identifiers are missing, incorrect, or inconsistent across systems, the payment chain breaks. The money doesn't disappear — it accumulates in suspense accounts, gets distributed to the wrong parties, or is eventually written off. The Mechanical Licensing Collective in the US alone accumulated $427 million in unmatched mechanical royalties between 2007 and 2020 — and that covers a single royalty type, in a single country. Globally, conservative estimates put unmatched royalties above $1 billion.[^mlc][^cisac]
```mermaid
flowchart TD
A["Recording Released"] --> B["DSP Streams Track"]
B --> C{"Metadata
Complete?"}
C -->|"Yes"| D["CMO Matches
to Rights Holder"]
D --> E["Royalty Paid"]
C -->|"No"| F["Suspense
Account"]
F --> G{"Claimed
Within
Window?"}
G -->|"Yes"| H["Late Payment
(months/years delayed)"]
G -->|"No"| I["Black Box
(redistributed or
written off)"]
style E fill:#2d6a4f,stroke:#40916c,color:#fff
style H fill:#e9c46a,stroke:#f4a261,color:#000
style I fill:#d62828,stroke:#e76f51,color:#fff
```
For a buyer, this means the yield you think you are acquiring may be materially lower than the headline figures suggest — and you have no reliable way to quantify the gap before closing.
## The due diligence bottleneck
The only current option for assessing metadata health is to hire a specialist advisory firm. The process costs $100,000–$300,000, takes 4–8 weeks, and produces a bespoke report that cannot be independently reproduced or compared to other assessments.[^sonar]
This works for megadeals. At $500M+, the cost is a rounding error. But look at what happens as deal sizes shrink:
| Deal size | Due diligence cost | Cost as % of deal | Feasibility |
| --- | --- | --- | --- |
| $500M+ | $100–300K | 0.02–0.06% | Standard practice |
| $50–500M | $100–300K | 0.06–0.6% | Marginal |
| $5–50M | $100–300K | 0.6–6% | Prohibitive |
| $1–5M | $100–300K | 6–30% | Economically impossible |
For the mid-tier catalogues that represent the majority of the market by count, traditional due diligence is economically impossible. This creates a hard barrier that locks out both buyers and sellers from the most capital-efficient segment of the market.
## What this means for you
**If you're a catalogue owner:** You may have spent years maintaining clean metadata, but you cannot prove it to prospective buyers without paying for expensive due diligence yourself — and even then, the report is not portable or verifiable by other parties.
**If you're a buyer or investor:** You cannot quantify the metadata risk you are taking on. Every acquisition is priced in the dark. The deals you don't do because you cannot assess quality represent lost opportunities.
**If you're a lender:** You cannot underwrite music rights without standardised quality metrics. The asset class remains unquantifiable, no matter how attractive the yield profile looks on paper.
## What happens when due diligence fails
The Hipgnosis Songs Fund provides the most documented case study of what happens when catalogue valuations are wrong.
Hipgnosis assembled a portfolio of approximately 45,000 songs through aggressive acquisitions between 2018 and 2022. In 2024, an independent forensic review revealed the scale of the problem:[^shottower]
| Metric | Before review | After review |
|---|---|---|
| Portfolio valuation | $2.62 billion (Citrin Cooperman) | $1.93 billion (Shot Tower Capital) |
| Value destroyed | — | **$690 million (−26%)** |
| Acquisitions overvalued | — | 67 of 105 |
| Portfolio missing forecasts | — | 75% |
The two independent valuers used different discount rates (Citrin Cooperman: 8.5%; Shot Tower: 9.63%), different growth assumptions, and arrived at valuations $690 million apart for the same assets. Blackstone subsequently acquired the fund for $1.6 billion — a discount to both valuations.[^sonar]
This was not fraud. It was the predictable outcome of a market where there is no standardised way to measure the quality of what is being bought.
## No price discovery, no market
In functioning markets, standardised quality assessments enable price discovery. Bond markets have credit ratings. Real estate has standardised appraisals. Equities have audited financial statements.
Music catalogues have none of these. Each advisory engagement produces a proprietary, non-comparable opinion. There is no portable quality score, no published methodology, and no way for a second party to reproduce the analysis. The result is that every catalogue transaction is priced in the dark.[^sonar]
This is the gap TrackForge fills.
**Next: [The Market — Music Catalogues as Financial Assets](./the-market)**
---
**Sources and notes**
[^sonar]: Research synthesis based on disclosed transactions 2019–2025 (Perplexity Sonar Deep Research, February 2026). Due diligence cost ranges, market concentration data, and valuation methodology analysis from 50+ authoritative sources.
[^shottower]: Shot Tower Capital independent valuation of Hipgnosis Songs Fund (March 2024). Prior valuation by Citrin Cooperman: $2.62 billion. Shot Tower valuation: $1.93 billion. 67 of 105 acquisitions valued below purchase price; 75% of portfolio missed growth forecasts.
[^mlc]: The Mechanical Licensing Collective. Historical unmatched mechanical royalties of $426.9 million accrued by 21 Digital Service Providers between 2007 and 2020.
[^cisac]: CISAC Global Collections Report 2025. 228 member societies across 111 countries collected €13.97 billion in royalties in 2024. The $1 billion+ global estimate for unmatched royalties is an extrapolation from MLC data across all royalty types and territories.