What due diligence looks like when someone buys a catalogue
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When someone buys a catalogue, due diligence is how they check what they are paying for before they pay: that the seller owns it, that it earns what the statements say, and that nothing will stop the money afterwards. It runs on documents the seller supplies, song by song, and whatever it cannot prove the seller promises in writing.
- Due diligence on a catalogue sale checks that the seller owns what is being sold, that it earns what the statements show, and that nothing will stop the payments. At Hipgnosis Songs Fund in 2024 it ran in three strands: a valuation, a quality of earnings review and a legal review.
- The request is per song. One purchase agreement filed with the SEC asks, for each song, for its ISRC or ISWC, its writers, its release year, the share being sold, the original assignor, who pays it and how often, and three to five years of quarterly royalty data.
- Ownership is checked through chain of title, the signed agreements that moved each right to the seller. Recording a transfer with the US Copyright Office is voluntary, so a search shows only what somebody recorded.
- Liens, unrecouped advances, legal holds, missing consents, rights that revert and payors still paying the seller can each stop the money after a sale. A letter of direction tells a payor to pay the buyer instead.
- What diligence cannot prove, the seller warrants: good title, no liens, no claims, accurate data. In the filed agreement those warranties survive indefinitely, and the seller indemnifies the buyer for any breach.
What is due diligence when someone buys a catalogue?
Due diligence is the buyer’s check that you own what you are selling, that it earns what you say, and that nothing will stop it. Everything else in a sale is negotiation. This part is evidence.
The clearest public example ran after the money had already moved. In 2024 the new board of Hipgnosis Songs Fund, a London-listed fund that had made 105 acquisitions, commissioned a review of its assets. Its announcement of 28 March 2024 names the strands: a valuation by Shot Tower Capital, a financial review by BDO and a legal review by Reed Smith. Shot Tower’s summary of its findings calls BDO’s part a quality of earnings review.
Those three strands are the shape of diligence at any size. One asks what the income is worth, and that is a page of its own. One asks whether the income is real. One asks whether the seller has the right to sell it, and whether anybody else can take it away.
The seller’s side of the work is written into the agreement. Jukebox Co., a company that buys shares of song royalties and sells them on to investors, filed its asset purchase agreement with Coda Songs LLC with the SEC in November 2023. In it the seller agrees to make any catalogue information available on request, and warrants that the information is “true, complete, and accurate.”
The price is what a buyer hopes. Diligence is what a buyer can prove.
What will a buyer ask you for?
A buyer asks, song by song, what you own, who pays it, how often, and three to five years of quarterly royalty history. Not a catalogue total. A row per song.
The Coda Songs agreement’s Schedule One is the request in its plainest form. For every recording or composition in the sale it asks for the ISRC or ISWC; the recording artist and the songwriters; the release year; the type of copyright and the type of income interest; the original assignor and the term of the interest; the third party that pays it and that payor’s accounting schedule; and three to five years of historical quarterly royalty data.
Then it asks, in plain questions, about everything that could interrupt that income. Are there unrecouped balances, rights to cross-collateralise, legal holds, suspensions or other encumbrances on the song or the recording? Are there contractual reversions that would affect the royalties? Have you received a reversion or termination notice? When was the copyright first assigned, and where has it gone since?
The answers fit in a row. An earlier agreement the same company filed, with an individual seller in May 2023, shows the payor columns filled in: the payor is BMI, the accounting schedule is “Quarterly + 45 days,” the term is “Life of copyright.”
Some of those fields have answers nobody can change. A recording keeps its codes through a sale — the buyer’s side of that has its own page — and the release year is whatever the release says. The rest is your register, and the register’s columns are built to answer exactly this list.
Every question on it has a yes or a no. “I’d have to check” is neither.
How does a buyer check that you own it?
A buyer traces chain of title: every signed agreement that moved each right from its writers and performers to you, in order, with dates. Chain of title is the sequence of signed documents that carries ownership of a copyright from its authors to its current owner.
That is why the schedule asks for the original assignor and every assignment since. Each link is a signature. A conversation, an invoice or a payment is not a link, and paying the producer is where a chain most often turns out to be one short.
Then the buyer reads the public record, and the public record has a limit. In the United States, recording a transfer with the Copyright Office is voluntary; what recording buys is priority between conflicting transfers and constructive notice, and section 205(c) gives that notice only when the work is registered and the document identifies it. The Copyright Act also counts a mortgage of a copyright as a transfer of ownership under section 101, so a lender’s claim can sit in the same records.
So a search proves what somebody chose to record, and nothing about what they did not. When it does turn up two transfers of the same right, which one wins is a question with its own rule, and a buyer will want it answered before closing.
The paper also has to describe what the seller says it describes. Shot Tower found that the Hipgnosis fund’s disclosures had presented more ownership and administration rights than the fund actually held: a material number of its catalogues were a fractional share of the songs’ income, with no copyright and no control. Owning a song and owning a share of what it pays are different things to own, and a buyer reads which one each agreement actually grants.
And some of the paper was not there. The fund had paid $2.2 billion for its 105 acquisitions, and Shot Tower reported that the acquisition files were missing key documents, agreements related to chain of title among them, and that it could not tell whether those documents had never been obtained or were “just unable to be located.” Two billion dollars of songs, and some of the paper filed under ‘it’s around here somewhere.’
A missing link does not mean the right is not yours. It means nobody can show that it is, which across a table comes to the same thing.
How does a buyer check the income?
A buyer rebuilds the income from the royalty statements themselves, song by song, and tests every summary figure against them. Your summary is a claim. The statements are the evidence.
The financial strand has a name. A quality of earnings review is an accountant’s measure of the income a business can sustain, worked out by adjusting its reported results, one-off events among them. BDO, which did the review at Hipgnosis, describes it in those terms and tells buyers to ask for supporting documents wherever they can.
At Hipgnosis the numbers came from statements, and two firms reached them separately. The board’s announcement of 4 March 2024 reported Shot Tower’s figure of $121.7 million of cash net revenue for the twelve months to 30 June 2023, after third-party royalties and administration, and called it consistent with the $119.4 million BDO derived for the twelve months to 30 September 2023 in its quality of earnings analysis.
The fund’s own summary measure did not survive the same treatment. Shot Tower reported that neither it nor BDO could reconcile the fund’s Pro Forma Annual Revenue figure, in total or catalogue by catalogue, and gave an example: for the Nettwerk catalogue, the measure showed $4.27 million for the six months to 30 September 2023, where the statements showed $1.72 million gross and $0.50 million net.
Then the money that will not come again comes out, which is where the valuation takes over. And the buyer looks for money owed and not yet paid: the Coda Songs agreement hands the buyer royalties held for unidentified payees or on legal hold, which is to say the black box and anything frozen in a dispute.
A statement is evidence. Everything else is a story about a statement, and the buyer’s accountant is paid to read it that way.
What can stop the money after the sale?
A buyer looks for liens, unrecouped advances, legal holds, missing consents, rights that revert, and payors that will keep paying the seller. None of them shows on a royalty statement. Each shows up later, as money that does not arrive.
Liens first. A mortgage of a copyright is a transfer of ownership under the Copyright Act, and the seller in the Coda Songs agreement warrants that no “security interest, lien, mortgage, or other encumbrance” has been granted in what is being sold.
Then what is already owed against the income. An unrecouped advance is money a payor paid out early and takes back from royalties before paying anyone. Cross-collateralisation lets a payor recover an advance on one song from the royalties of another. A legal hold is a payor freezing royalties while a claim is disputed. The schedule asks about all three, and the seller warrants that, to its knowledge, no advance is unrecouped and no hold is in place.
Then permission. Some rights cannot be sold without somebody else’s consent, and Shot Tower found that the Hipgnosis adviser had, more than once, closed an acquisition without the third-party consents it required.
Then time. In the United States an author can terminate a grant decades after making it, and a buyer counts the years: Shot Tower’s valuation assumed an average remaining life of 32 years for the fund’s US copyright interests, based on a review of termination rights. The Coda Songs schedule asks whether a termination notice has been received, and for the date of the original assignment, which is where the termination clock starts.
Last, the payors. A letter of direction is an instruction from a writer, artist or producer to whoever pays them, telling that payor to pay the new owner instead. That is Shot Tower’s definition, and its report adds what happens without one: the money is paid in the original name into an account the new owner controls, which it calls a DACA.
Not every payor takes a letter. SoundExchange’s FAQ says it pays performer money only to the performers, companies they wholly own, their heirs and estates, performer societies it has agreements with, and producers, mixers or engineers holding a letter of direction signed by the featured artist. A buyer is none of those, and who SoundExchange pays is its own page.
The Hipgnosis report shows what this part costs when it is skipped. Shot Tower found catalogues where income was not flowing, because of disputes or because letters of direction were not being honoured. It gave that income no value in its price, and wrote that an arm’s-length buyer would put any recovery into an earnout — a part of the price paid later, and only if the money turns up. The fund had bought the income. The money had other plans.
Owning income and receiving it are two different events. Diligence is how a buyer makes sure the second one follows the first.
What does the contract promise if diligence misses something?
Warranties promise what diligence could not prove, from good title to accurate data, and an indemnity makes a false one the seller’s cost. A warranty is a written promise that a stated fact is true. An indemnity is a promise to pay the other side’s losses if one is not.
The Coda Songs agreement’s list runs from (a) to (s). The seller warrants that it has the right to sell; that it holds, or holds an option to buy, good and marketable title; that nothing has been pledged or mortgaged; that the songs are original and infringe nobody; that no claim, audit or investigation is pending; that no advance is unrecouped and no hold is in place; and that the catalogue data is true, complete and accurate.
Four words carry a lot of that weight. Several of those warranties open with “to Seller’s knowledge”: that nobody else can validly claim the rights, that the songs infringe nobody, that no claim is pending. In the company’s May 2023 agreement, the first two carried no such qualifier.
Then how long they last. The Coda Songs agreement says the seller’s warranties survive the end of the agreement indefinitely, and the seller indemnifies the buyer against any claim, cost or legal fee arising from a breach of any of them.
The comfortable version — the buyer checked, so whatever the buyer missed is the buyer’s problem — is bullshit. Diligence decides what a buyer pays. The warranties decide who pays when something turns out to be wrong, and in that agreement the answer is the seller, with no end date.
This is the part of a sale to put in front of a lawyer of your own, before you sign and not after. Our recommendation: read every warranty as a sentence you may be asked to prove later, and ask which of them can carry “to Seller’s knowledge.”
What should you have ready before anyone asks?
Have three to five years of statements per song, every agreement in chain-of-title order, and a written answer to every encumbrance question. That is our recommendation, and all three come straight off the request list above.
Statements first. Keep every statement from every payor as it was issued, for at least the years a buyer will ask about, and be able to produce each song’s figures from them rather than from memory. The valuation starts from the same pages, so the number a buyer reaches will be the number those statements support.
Then the paper, in order. For each song, the agreement that made you its owner, and every one before it back to the writers and performers, each signed and dated. If a link is missing, find it or replace it now, while the people who can sign it are easy to reach. If two of your records disagree about who owns what, settle which one is right before a buyer finds both.
Then the questions. Write an answer to each: every advance outstanding and what it is recouped from, any cross-collateralisation, any hold or suspension, any reversion clause, any termination notice received, every assignment and its date. A written “none” is an answer. A blank is a question the buyer gets to ask for you.
Then run the audit against your own register before anyone else does. A buyer is going to read all of it. Better that the first reader is you.
FAQ
Does selling your royalties sell your copyright?
Not necessarily. The Coda Songs agreement sells a share of each song’s royalties and states that the buyer acquires no copyright and no administration or distribution rights, only “a passive income interest.” What moves in a sale is what the agreement says moves, and nothing else.
Who gets the royalties paid between signing and closing?
Usually the buyer, through the effective date. Shot Tower’s report on Hipgnosis Songs Fund describes it as common for a catalogue purchase to take an effective date at the start of a royalty accounting period, with cash the seller receives after that date and before closing credited to the buyer as a purchase price adjustment at closing. The Coda Songs agreement gives the buyer the royalties payable on or after the effective date, “regardless of when earned.”
Can a buyer audit you after the sale?
Under the Coda Songs agreement, yes. The buyer may audit the seller’s books once in any twelve months and within three years of a statement, at the buyer’s cost, unless the audit finds an underpayment of 5% or more, in which case the seller pays the shortfall with interest and the cost of the audit.
Sources
- Shot Tower Capital, Hipgnosis Songs Fund: Due Diligence Findings, Valuation Conclusions (28 March 2024; Internet Archive copy of the fund’s upload) — the three strands; the key findings on ownership and administration rights, consents, chain-of-title documents and letters of direction; the letter of direction and the DACA defined; income not flowing and the earnout; the termination-rights assumption; the 105 acquisitions and their price; the Pro Forma Annual Revenue measure against statement data; the effective date.
- Hipgnosis Songs Fund, Update on Due Diligence, Valuation and NAV (RNS, 4 March 2024) — Shot Tower’s statement-level review and the $121.7 million figure; BDO’s $119.4 million from its quality of earnings analysis.
- Hipgnosis Songs Fund, Final Due Diligence Findings (RNS, 28 March 2024) — the separate legal and financial due diligence reports by Reed Smith and BDO.
- Jukebox Co. and Coda Songs LLC, Asset Purchase Agreement (5 November 2023), Exhibit 6.2 to Jukebox Hits Vol. 1 LLC’s Form 1-A/A (SEC EDGAR, filed 7 November 2023) — Schedule One and its questions; the warranties and their knowledge qualifiers; survival; the indemnity; the passive income interest; the effective date; money held for unidentified payees or on legal hold; the audit right.
- Jukebox Co., Purchase Agreement with an individual seller (May 2023), Exhibit 6.2 to Jukebox Hits Vol. 1 LLC’s draft offering statement (SEC EDGAR, 24 May 2023) — the completed schedule row and the unqualified warranties.
- U.S. Copyright Office, Recordation of Transfers and Other Documents — recording is voluntary; priority and constructive notice.
- 17 U.S.C. § 205 (Cornell LII) — constructive notice only for a registered work the document identifies.
- 17 U.S.C. § 101 (Cornell LII) — a transfer of copyright ownership includes a mortgage.
- BDO USA, BDO Knows: Transaction Advisory Services (12 December 2016) — quality of earnings in a transaction, and supporting documentation for each adjustment.
- SoundExchange, Frequently Asked Questions — the payees it will pay performer money to.
Every page cited here was read on 5 October 2026. The two Hipgnosis Songs Fund announcements were read as issued through the London Stock Exchange’s RNS, from Investegate’s archive; Shot Tower’s findings were read from the Internet Archive’s copy of the file the fund published, because the fund’s website now redirects elsewhere, and its figures were checked against the ones the announcements repeat. Both agreements were read on SEC EDGAR. They are one buyer’s agreements for shares of royalty income rather than for copyrights, and they show what one filed agreement asks and promises, not what every buyer will. The Hipgnosis findings are cited as the fund’s board published them. Nothing here is legal, tax or financial advice: an agreement to sell a catalogue is a document for a lawyer of your own.