The Discount for Doubt
Catalog diligence is what happens when a buyer has to price the record behind the revenue.
A catalog buyer does not start with the songs. They start with a folder.
Royalty statements going back five years. Assignment agreements. Writer and publisher splits. Society registrations. ISRCs and ISWCs that may or may not point at each other. Sub-publishing deals, some of them for the life of copyright. Side letters. Open claims. A reserve schedule. And somewhere in there, a spreadsheet someone built by hand.
The buyer is not only buying the songs in that folder. They are buying a belief: that the songs will keep earning after closing, and that the record underneath them will hold up when a stranger has to rely on it.
The last piece I wrote argued that the royalty statement is not the operating record, because a statement is built to move money, not to prove why the money moved. Catalog diligence is what happens when someone has to price that gap. A statement tells a buyer what a catalog earned. It does not tell them whether the rights, splits, registrations and history behind that number are coherent enough to survive a change of owner.
That is the question diligence is actually asking. Not “is this a good catalog,” but “can I rely on this record after I have paid for it.”
Where the record gets exposed
Experienced buyers are not naive about this. They verify. Legal diligence confirms the seller owns what they are selling and traces chain of title, following the rights from the original work through every assignment and license. Financial diligence rebuilds the income from scratch, pulling statements from every source, reconciling them, and testing whether the net publisher’s share the seller is claiming is the share the contracts actually produce.
That second test is where the record gets exposed. Here is a simplified diligence example. A seller represents that it keeps 25 percent of a song’s income. Diligence finds the writer was supposed to receive 75 percent but was only ever paid 70. The seller’s real retained share is not 25 percent. It is 30 percent of an obligation it underpaid, which means the headline net publisher’s share was overstated, which means the price was too high. The number was not false. The record underneath it was incomplete.
Now multiply that across a few thousand works: foreign sub-publishers on life-of-copyright terms, co-writers who changed performing-rights affiliation mid-stream, ISRCs that were never linked to their ISWCs, ownership claims that quietly sum to more than 100 percent. The real diligence problem is not whether the documents exist. It is whether they are complete and consistent enough that an outsider can rely on them without rebuilding the catalog’s past first.
The same pattern shows up lower down the market, well before anyone is pricing a billion-dollar bond. In one rights-ops conversation, the issue was not whether the track had earned. It was whether anyone could connect the earning version back to the final split and the right work registration without opening three inboxes and a decade of PDFs. The income was never in doubt. The record behind it was.
The market already prices the doubt
Here is the part the market does not say out loud. It already has a solution for records it cannot fully trust. It prices the doubt.
When a buyer cannot get comfortable that the record will hold, the deal does not stop. It gets instrumented. Part of the purchase price comes as a holdback. Some of the consideration sits in escrow, sometimes with a clawback if collections come in short. The seller gives representations and warranties, then indemnifies the buyer if they turn out to be wrong. There are post-close true-ups, reserves against disputed income, and audit rights held open for years. There is even insurance for the gap: representations-and-warranties policies exist in part to reduce the escrows and holdbacks a deal would otherwise need, which makes them, functionally, a market for the risk that a seller’s account of its own catalog is incomplete, stale, or later challenged. Cleaner records reduce the need for all of this protection. Messier ones require more of it.
None of this is dysfunction. It is sophistication. Escrows, indemnities, reserves, true-ups, insurance, and an entire profession of catalog auditors are not side details. They are the machinery the market built because the operating record, today, often cannot travel cleanly enough for an outsider to rely on it without additional protections. Every one of those mechanisms is the cost of doubt, written into the deal.
What it looks like when the doubt is written down
You do not have to take my word that this machinery exists. Once a catalog is large enough to be financed in public markets, the doubt stops being a private negotiation and becomes a disclosed, numbered structure.
Take Concord Music Royalties, a securitization backed by a catalog of more than a million assets that an independent firm valued at $5.1 billion, assembled in part from catalogs Concord acquired, including the former Round Hill Music royalty fund. When KBRA rated the 2024 series of notes, you could read the doubt priced straight into the deal. The notes carried initial overcollateralization of 48.2 percent and 47.7 percent across the two series, with a requirement to maintain at least 40 percent, which means the catalog has to be worth far more than the debt it backs. There is a reserve covering six months of interest in case collections are delayed. And there is a separate $20 million contingent-liability reserve, set aside specifically against $68.6 million in third-party payments the catalog still owed to other rights holders. On top of that, an independent agent revalues the entire catalog every year, for the life of the deal.
Read that structure again. A buyer paid for the income, and then the market layered on overcollateralization, an interest reserve, a dedicated reserve for unresolved payments owed to others, and an annual outside revaluation. That is not a deal that takes the record at face value. That is a deal that prices, in cash, the possibility that the income record still carries obligations, timing gaps, or claims that a new owner has to absorb.
The buyers are no longer insiders
That cost used to stay in the room. A publisher bought a catalog from another publisher, both knew the territory, and the discount for doubt was a private negotiation between people who understood the same back office.
That is not who is buying anymore. Music rights have become a financial asset class. KBRA has now rated close to $13 billion of music royalty bonds since 2020, more than triple what it had rated by 2023, across an issuer base that has roughly doubled in three years. When a catalog gets financed this way, the people relying on the record are bondholders, rating agencies and institutional credit investors who were never in the room. As the buyers shift from insiders to outsiders, the standard quietly changes. It is no longer enough for the record to be good enough for the people who already know the catalog. It has to be good enough for someone who does not.
The test underneath the test
So the real question in a catalog deal is not whether the seller has documents. Every seller has documents. The question is whether those documents are complete, consistent and traceable enough to become the buyer’s operating record on day one, without the buyer having to reconstruct the catalog’s past in order to trust its future.
That is the test underneath the test, and the market currently answers it with money: with holdbacks, escrows, reserves and insurance premiums, paid over and over, deal after deal, because the record arrives unable to speak for itself.
The next phase of catalog diligence will not be won by the buyer with the longest checklist. The checklists are already long. It will be won by whoever can tell, before the deal closes, which records are actually defensible, and which ones are about to become someone’s reserve, indemnity claim, or post-close surprise.
That is the problem I spend my time on: making rights, lineage and settlement records easier to verify before they turn into disputes. Because a catalog does not only trade on what it earned. It trades on how much doubt the next owner has to carry after closing. The less of that doubt the record forces them to price, the cleaner the deal becomes, and the more confidently the catalog can be valued.
Source notes
KBRA, Concord Music Royalties, LLC, Series 2024-1 Pre-Sale Report, October 8, 2024: catalog valuation, asset count, Round Hill and Mojo collateral contribution, overcollateralization levels, reserve accounts, the contingent-liability reserve, third-party payments owed, and annual valuation mechanics.
KBRA rating-action page for Concord Music Royalties, Series 2024-1.
Music Business Worldwide, May 2026, reporting KBRA’s music royalty ABS figures since 2020.
Chubb and IRMI descriptions of representations-and-warranties insurance as a mechanism that can reduce or replace escrows and holdbacks.
Review of Accounting Studies paper on representations-and-warranties insurance and valuation uncertainty.
Music and Money, “Buying and Selling Music Catalogues,” for the simplified net publisher’s share diligence example.