Day One.
In Data Room Lies I argued that a schedule of works is a claim rather than a fact, and that buyers should test it before they price a deal. This week we pick up where that one left off- what happens after the price has been paid and the claim has to become a working reality across every system that pays.
Operators should be under no illusion that once a deal completes- the paperwork is signed (with the lawyers laughing all the way to the bank), the cash has gone out and the press release is scheduled- the real work begins. On paper, the catalog now belongs to the fund- but of course the industry's systems don't know that yet.
Completion is Not Control
In most asset classes, ownership and cashflow move together. Buy a building, the right to collect rent comes with the title and the money quickly starts to flow.
Music doesn't work like that- and it can be a rude awakening when sophisticated and experienced investors first dip their toes into the asset class. As we explored in Operational Alpha there is a real cost to moving catalog that is rarely modelled. Despite legal ownership transfers at signing (or more specifically, control transfers), the record of ownership transfers slowly, society by society and hub by hub, on each organisation's own timeline. Unfortunately revenue follows the record rather than the contract- and the lag between them is a constant bug bear for acquirers. It also means this should form a strong facet of diligence- financial and legal due diligence are par for the course, but copyright due diligence (and its transfer cost) also always need to be considered.
This means the valuation model and the operational reality start out of step. The model assumes income continues without a break from Day One. In practice the income is, at best, still flowing through the old pipes, to the old owner. Worse still it is sitting in suspense while two parties claim the same share, and worst of all it is silently falling into the hands of another party.
What Actually Has to Move
Strip away the deal language and a catalog transfer is a long list of operational handoffs, each of which can fail on its own:
Notices and letters of direction. Every society, hub and licensee needs to be told, in the format they accept, that the money now goes somewhere else.
Administration. If the administrator changes, the works need re-delivering, typically via CWR. That delivery then needs to be acknowledged, not just sent. The difference between the two is (one place!) where income quietly fails to appear.
Merging works. Too often, new work registrations create duplicates that sit alongside old registrations rather than replacing them. This could be a whole other newsletter for another time, but it is something that needs to be monitored post delivery.
Recording links. As I’ve pointed out at length, matching happens separately, and sometimes as a distinct task, and at every hub. A clean transfer of work registrations is worth little if the ISRCs driving the income aren't linked to the correct and up to date work.
Distribution. Master recordings may also similarly need to be moved, and associated Neighbouring Rights if they formed part of the acquisition as well.
The dates. Reversions, term limits and termination windows don't pause for a transaction. A notice window that opens three months after completion is now the buyer's problem.
None of these steps is exotic (and the list isn’t exhaustive), but each one has to be done correctly, in the right order, and confirmed complete. Most importantly, somebody has to own it.
The Year One Blind Spot
Here is the part that makes Day One so dangerous: you won't find out it went wrong until much later.
As we looked at in The Life of a Stream, the gap between a play and a payment runs from six months to two years in the publishing ecosystem. The first statements after completion reflect usage from before completion, processed on registrations that will not yet have been updated. A transfer can fail silently for a year or more before the income shortfall appears, and flags as something to followup.
Conflicts make it worse. It is rare that the outgoing administrator's claim will have been withdrawn when the incoming one lands, as in economic terms there is little incentive for them to do so. Again this means duplicated works or works in dispute- and disputed works won't be paying anyone until the dispute is resolved.
The result is a J-curve nobody had in their model: a dip in realised income in the first year or two, which can be hastily written off as "transition noise". It is more than just noise though, and needs to be accounted for in both modelling and income tracking if the fund is going to start realising the full value of their latest purchase.
Day One Starts Before Signing
The funds that handle this well share a habit consistently: they plan the transition during diligence rather than after completion.
Every discrepancy found in the data room is already a Day One task. The duplicate registrations, the underclaimed shares, the top earners with no ISRCs matched, anything approaching any termination window. None of these gets easier after completion, but they do get more expensive as they become a cost rather than a negotiating position.
The list of diligence exceptions should become the transition plan, sequenced by revenue at stake. As per other recent newsletters, focus is key- on top works and in key licensing hubs.
It’s worth noting that this can also shape the deal itself. Holdbacks are a good tool to create leverage for clear seller obligations, and there should be an agreed approach to pipeline income. Registrations always have a reason for looking the way they do, but understanding that context (and its materiality) is always a conversation with those who have held previous stewardship. A rights transfer is never “one and done” in the real world- and with the music industry as highly relational as it is its worth being a good actor in all instances!
The Day One Test
Five questions every fund should be able to answer before completing an acquisition:
Do you know where the money actually flows? Which societies, hubs and administrators account for the bulk of income, and which of them need to hear about the transfer first?
Who owns the transition? A named person or partner accountable for every notice, delivery and acknowledgement, not a line in the admin agreement.
What is your acknowledgement rate? Not "have we sent the registrations?", but "how many have been accepted, and merged?"
Would you notice a shortfall within a quarter? If your first signal will be a disappointing statement in eighteen months, you won't find out in time to do anything about it.
What dates fall due in the first 24 months? Reversions, notice windows and term expiries, each with an owner and a trigger date.
Owning the Income
The market has become very good at pricing catalogs but is still surprisingly casual about taking possession of them. That gap is where a meaningful share of returns is won or lost, quietly and at the very beginning of what should be a celebratory period.
You buy a catalog at signing, but you only have its income once the industry's systems agree with you.
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