Case study information Flashcards
Learning the case study itself
You are ____ ___, a final-year trainee ICAEW chartered accountant, based in the ____ ____ at ____, ___ and ______
You are Les Alton, a final-year trainee ICAEW chartered accountant, based in the business advisory at King, Loach and Meredith
What is the name of the client? What do they do?
Jubal Limited, a music publishing company based in London
Who do you report to?
Rashid Mendis a partner in the business advisory unit
What is a music publishers’ main role?
To protect and license songwriters’ and composers’ rights to their songs and other musical compositions
How does Jubal make money primarily?
They take a writer’s songs, market them for distribution, thereby earning revenue, of which they earn a portion (known as royalties)
What activities help maximise royalties? (4)
Licensing, promotion, A&R (artist and repertoire, i.e., advising artists on routes to commercial success and connecting the with song producers), and dealing (buying and selling rights to song collections (catalogues))
The work that Jubal does is purely to the ____ of the songs, and not the rights of ____ and ___ ____
The work that Jubal does is purely to the writers of the songs, and not the rights of singers and other artists
Music rights are forms of IP. What are the two types?
1) Publishing rights: derived from composing the song and belong to its writer(s)
2) Master rights: derived from recording the song and belong to the owner of the original sound recording (which does not for part of Jubal’s work. Only publishing rights are concerned)
Publishing rights are split into two equal 50% shares. Which are these?
Writer’s share and publisher’s share
Why would an artist allow for a publisher to take 50% of publishing rights?
As they may not have the time, resources or skills to do their own administration (collecting and maximising royalties, admin such as tracking usage, negotiating contracts and enabling writers to be remunerated accurately and on time)
Give and define the most common publishing contract
Co-publishing contract: in addition to receiving all the writer’s share, the writer receives a portion of the publisher’s share (performance, mechanical, digital and synchronisation), whilst Jubal will retain the rest
How long are typical publishing contracts?
One year
What happens to the rights of all songs that the song writer wrote if they do not renew their publishing contract with Jubal?
These remain the property of Jubal
What are the four royalty types? Define each
1) Performance (live performances)
2) Mechanical (licenses for physical products, e.g. CDs)
3) Digital (streaming and downloading)
4) Synchronisation (use under license in media)
Venues that play music must have a ___ ______ ____, which creates _____ _______. These royalties are typically collected by ___ _______ _______ (PROs) and other _____ ________
Venues that play music must have a public performance license, which creates performance royalties. These royalties are typically collected by performing rights organisations (PROs) and other collection societies
What is the name of the overarching UK collection society for PROs? What are its two entities?
What do each of these entities do?
PRS for Music: PRS (Performing Right Society) and MCPS (Mechanical-Copyright Protection Society)
PRS: grants licenses for music use, collects performance royalties, distributes royalties when songs are played
MCPS: collects and distributes mechanical royalties when songs are sold in physical form (e.g., CDs)
How often does PRS and MCPS distributes royalties?
What do these distributions show?
PRS: every 3 months
MCPS: every month
Distributions come with a detailed statement showing which songs have been used, how and when
Spotify, for example, pays _____ royalties to Jubal via ______ societies, which are calculated as a share of Spotify’s own revenue by taking total streams in a month and determining the proportion that relates to Jubal’s songs.
Spotify, for example, pays digital royalties to Jubal via collection societies, which are calculated as a share of Spotify’s own revenue by taking total streams in a month and determining the proportion that relates to Jubal’s songs.
How much can songs generate from streams each year for Jubal?
£100k
What is the three-stage process for earning synchronisation royalties?
1) Licensing: company identifies songs and seeks permission from Jubal to use it, triggering negotiations for use.
2) Agreement and fees: a formal licensing agreement is signed, outlining rights granted to the company and fees payable to Jubal, along with frequency of royalty payments.
3) Reporting: to ensure accurate royalty payments, the company provides detailed reports on a song’s usage
Who collects royalties generated in other countries around the world?
Sub-publishers: they receive a share of royalties collected in their territories by the relevant local collection society
Define advances
An upfront payment against future earnings from use of the writer’s songs not yet released. The advance is recouped from the catalogue’s future revenue.
A writer is usually tied to a contract until the advance is recouped
Why are advances risky for cashflow purposes? What is Jubal’s historic stance on these?
If the songs are not used, no earnings are generated, and the writer does not have to repay the advance.
Jubal has intended to err on the side of caution and have rarely had to write off significant portions of advances
The worldwide music publishing industry has been dominated by which big three firms?
What does their vast presence in global entertainment allow them to achieve?
Universal, Sony and Warner
They can achieve significant economies of scope and scale, in particular by offering both publishing and record label services
What percentage is the UK music publishing revenue anticipated to grow by in 2024?
What is a large contributor to this growth?
3% (despite a weak economy and lower disposable incomes)
The popularity of streaming
In the year to 30 June 2023, in respect of ‘YeYeYe’, Jubal earned £87,000 of royalties revenue, with £_________ of royalty costs (amounts payable to Chester Rice, included in cost of sales”
£31,000
Define assigning
Transferring the ownership of rights
Define recoupment
Recovery of an advance through the receipt of royalty payments
Jubal is a _____-sized UK publisher co-owning the rights to and administering thousands of songs.
Jubal is a medium-sized UK publisher co-owning the rights to and administering thousands of songs.
All of Jubal’s contracts with its writers are co-publishing contracts: Jubal receives the publisher’s __% share of royalties and passes on a portion of these to the writer. The portion passed on is set out in each contract. It varies between writers and may be different for each royalty type; it currently averages around __%.
All of Jubal’s contracts with its writers are co-publishing contracts: Jubal receives the publisher’s 50% share of royalties and passes on a portion of these to the writer. The portion passed on is set out in each contract. It varies between writers and may be different for each royalty type; it currently averages around 40%.
Jubal is known for the quality of its song portfolio and its effective management of that portfolio, which covers a range of genres, including…?
Jubal is known for the quality of its song portfolio and its effective management of that portfolio, which covers a range of genres, including classical, rock, pop, jazz, country, rap and reggae
When was Jubal founded? Who by?
2001, by Vanessa Rowe
Rohan Gill is Creative Director. What are his responsibilities?
Signing and developing writers; negotiating contracts, managing song catalogues; working closely with writers to develop and promote their work
Tom Smith is Finance & Operations Director. What are his responsibilities?
Financial planning, budgeting, accounting and financial reporting; overseeing operations, including premises
Franco Armando is Publishing & Royalties Director. What are his responsibilities?
Administering copyrights and licence deals; calculating, collecting and distributing royalties; tracking song usage
Zara Tremain-Duncan is Marketing Director. What are her responsibilities?
Promoting the music by developing marketing strategies, co-ordinating promotional campaigns, managing public relations (PR) and engaging with audiences through a variety of channels; new business development
Andrea Xenophis is Legal & Compliance Director. What are her responsibilities?
Handling all legal matters, especially advising on IP and contract matters
Jubal earned nearly £__ million of global revenue for the year ended 30 June 2023, derived from four sources. These represent its share of royalties before distribution to writers.
Jubal earned nearly £55 million of global revenue for the year ended 30 June 2023, derived from four sources. These represent its share of royalties before distribution to writers.
Of the £55m earnt by Jubal in FY2023, what percentage did Digital, Performance, Synchronisation and Mechanical each make up?
Digital: 53.9%
Performance: 25.2%
Synchronisation: 16.1%
Mechanical 4.8%
What is the largest item of expenditure incurred by Jubal (at almost 50% of total expenses)?
What are the next three biggest items of expenditure incurred by Jubal (at around 40% of total total expense)?
Royalty costs
A&R, then Amortisation, impairment & depreciation, and personnel
What are the three key drivers of Jubal’s success?
Our skill in acquiring, commissioning, managing and marketing commercially popular songs. We do this by having a steady flow of new writers (whether through signing or by purchase of catalogues), retaining existing writers with attractive catalogues and the potential to write further hit songs; and not renewing contracts with writers that are unprofitable or otherwise not consistent with our strategy.
Exploiting our songs through all available channels.
Robust negotiation to optimise our share of royalties and efficient collection of these royalties.
What does Jubal find to be the best indicator of underlying operating performance?
EBITDA
Jubal KPIs for 2023: the below are Jubal’s KPIs for 2023 (including targets). Give actuals for each:
Revenue share: top ten writers (%) : 35
Average revenue per song (£) : 10,500
Average running cost per song (£) : 7,500
Portfolio growth rate (number of songs) (%) : 5.0
Sync placements in year (number) : 400
No. of streams of Jubal songs (million) : 20,000
Revenue share: top ten writers (%) : 33.9
Average revenue per song (£) : 10,594
Average running cost per song (£) : 7,830
Portfolio growth rate (number of songs) (%) : 2.1
Sync placements in year (number) : 322
No. of streams of Jubal songs (million) : 19,701
In FY2021:
Revenue was up 1.5%, driven by digital (____%) and sync (___%). Digital now accounts for over 50% of total revenue
In FY2021:
Revenue was up 1.5%, driven by digital (7.6%) and sync (2.2%). Digital now accounts for over 50% of total revenue
In FY2021, which market is described as “embryonic” for Jubal, where there was continued growth of sales?
Asia
In FY2021, cost of sales increased by only 0.5% (revenue by 1.5%). What drove this?
Increase in A&R costs (£181k) and decrease in purchase and sale of rights (£77k) (fewer abortive transactions for catalogues, 2 disposals of catalogues, only one new catalogue purchased)
In FY2021, EBITDA was down ____
In FY2021, EBITDA was down 3.3%
Which is- by far- Jubal’s largest asset category?
Intangibles (in FY2021, around 3/4 of total assets)
In FY2022, revenue increased _____%, and cost of sales by _______%
In FY2022, revenue increased 11.6%, and cost of sales by 11.9%
In FY2022, why did performance revenue and mechanical revenue return to previous levels?
Due to a full year of performance and shops being open all 12 months
In FY2022, what was the main contributor to cost of sales increase?
What was the second main contributor?
The purchase and sale of rights, up by £583k (54.2%). Jubal acquired two significant catalogues in the year, including complex legal issues for one which cost £210k
Personnel costs increase: £497k increase, due to bonuses
FY2023: revenue registered its highest annual growth in many years, ____%, from £42,596k to £54,855k
FY2023: revenue registered its highest annual growth in many years, 28.8%, from £42,596k to £54,855k
In FY2023, digital revenue increased by 40.4%, rom £21,046k to £29,552k. What drove this?
The “inexorable” rise of streaming as a means to play music
Performance revenue increase 17.2% in FY2023. What drove this?
New writers in Jubal’s portfolio and their music being played in more countries
Sync revenue grew by 22.5% in FY2023, partially driven by the licensing agreement with RhythmRide, which generated £____k of revenue in the months after signing
Sync revenue grew by 22.5% in FY2023, partially driven by the licensing agreement with RhythmRide, which generated £550k of revenue in the months after signing
In FY2023, revenue in Asia grew by nearly ___%
In FY2023, revenue in Asia grew by nearly 50%
Staff costs in FY2023 rose by £_____k (25.4%)
Staff costs in FY2023 rose by £997k
Royalties payable increased by 38.3% in FY2023. What drove this?
Several new contracts that were renegotiated with terms more beneficial to their established writers. Royalty costs are now just over 40% of revenue
In FY2023, A&R was up ____%, reflecting a full year of investment in relatively new writers and the significant work undertaken to identify new sync opportunities
In FY2023, A&R was up 49%, reflecting a full year of investment in relatively new writers and the significant work undertaken to identify new sync opportunities
What two factors drove amortisation in FY2023? (Increase of £871k, 15.7%)
1) Three new catalogues had been acquired in recent years
2) Holland & Co’s annual valuation suggested two of their older catalogues were underperforming and needed writing down
Personnel costs rose by £435k in FY2023, including a £____k bonus to the directors
Personnel costs rose by £435k in FY2023, including a £250k bonus to the directors
What was the largest driver of admin expenses in FY2023? How much did it increase by? What was the aim behind this?
Marketing and promotion: £967k increase (53.5%). This reflected the conscious decision to raise the profile of Jubal and its writers across the globe
Although EBITA rose by £2,559k (21.8%) in FY2023, EBITDA margin fell to ___%, largely due to higher royalties payable
Although EBITA rose by £2,559k (21.8%) in FY2023, EBITDA margin fell to 26.1%, largely due to higher royalties payable
How many catalogues were acquired by Jubal in FY2023?
How many catalogues did Jubal have at 30 June 2023?
None (oof)
79 catalogues (rights to 5,178 songs)
Accrued royalties payable: as there is a general presumption that royalties, both receivable and payable, will be settled with ______ months
Accrued royalties payable: as there is a general presumption that royalties, both receivable and payable, will be settled with 12 months, they are all shown as amounts due within one year
Over how many years are intangible assets amortised over?
10-25
Impairment: Intangible assets are valued each year by external valuers (Holland & Co) to assess for impairment. Holland & Co generally apply the ___-___-___ methodology unless a disposal is planned in the short term, in which case the _____ value is used. Where the value so determined is less than the carrying amount (after taking account of the annual amortisation charge), an impairment loss allowance is charged to profit or loss
Impairment: Intangible assets are valued each year by external valuers (Holland & Co) to assess for impairment. Holland & Co generally apply the value-in-use methodology unless a disposal is planned in the short term, in which case the disposal value is used. Where the value so determined is less than the carrying amount (after taking account of the annual amortisation charge), an impairment loss allowance is charged to profit or loss
Does Jubal engage in hedging transaction risk? Why?
No: they believe that over time gains and losses will be equivalent
Jubal continually seeks sync opportunities to increase the value of its songs and maximise royalties. The following are examples in the past 12 months:
Using a remix of the 2007 song ‘_____’, written by Dissima, in a major TV drama series. This generated £90,000 of sync revenue, as well as a large increase in streaming, encouraging further syncs of the song and a new version by another artist.
Placing an instrumental version of Tostoni’s ‘Euterpe’ as the soundtrack to the Christmas 2022 ad for a major car producer, generating £_______ of sync revenue.
The new recording of ‘YeYeYe’, written by _____ _______, being commissioned as the global trailer for a major update of the exercise platform RhythmRide, generating £28,000 of sync revenue.
Jubal continually seeks sync opportunities to increase the value of its songs and maximise royalties. The following are examples in the past 12 months:
Using a remix of the 2007 song ‘Juggle’, written by Dissima, in a major TV drama series. This generated £90,000 of sync revenue, as well as a large increase in streaming, encouraging further syncs of the song and a new version by another artist.
Placing an instrumental version of Tostoni’s ‘Euterpe’ as the soundtrack to the Christmas 2022 ad for a major car producer, generating £73,000 of sync revenue.
The new recording of ‘YeYeYe’, written by Chester Rice, being commissioned as the global trailer for a major update of the exercise platform RhythmRide, generating £28,000 of sync revenue.
What did Jubal launch in 2015 as part of its ESG strategy?
When does Jubal aim on being carbon-neutral by? How does it support eco-friendly practices?
The Jubal Trust, which supports music education in poorer communities through scholarships and instrument donations
- From digitising many activities to supporting reforestation projects
In _____ 2022, Jubal made an advance of £150,000 to Conrad. This was fully recouped by 30 June 2023
In October 2022, Jubal made an advance of £150,000 to Conrad. This was fully recouped by 30 June 2023
Every ___ months, Jubal sends a statement to Conrad summarising the total royalties for the period, together with a detailed schedule showing their source and how they have been calculated (song, usage dates, territory/ies, source, royalty type, units, royalty rate). Through an online portal, Conrad can see his statements and interrogate them with an ________ ________ tool
Every six months, Jubal sends a statement to Conrad summarising the total royalties for the period, together with a detailed schedule showing their source and how they have been calculated (song, usage dates, territory/ies, source, royalty type, units, royalty rate). Through an online portal, Conrad can see his statements and interrogate them with an interactive analytics tool
When do albums traditionally generate most music royalties?
How has streaming helped with this?
Within the first year of their release
It’s created more stable revenue flows spread over several years (which has caused a reassessment of established methods for valuing catalogues)
When seeking to buy or sell a catalogue, Jubal begins with a list of all the songs in the catalogue, their _____ ____ and detailed ____ reports for each song for each royalty type in each applicable territory for each year since release
When seeking to buy or sell a catalogue, Jubal begins with a list of all the songs in the catalogue, their release dates and detailed royalty reports for each song for each royalty type in each applicable territory for each year since release
In seeking to buy a catalogue, revenue is a key area for Jubal. What do they consider in relation to this? (1)
Growth rates: Future sales modelled per royalty type and per year, at the relevant royalty rates, based on historical patterns and expectations of decline or growth.
In seeking to buy a catalogue, catalogue overview is a key area for Jubal. What do they consider in relation to this? (2)
Number of songs: A larger catalogue may have a higher overall value.
Genres: Diversity can appeal to a broader audience.
In seeking to buy a catalogue, popularity and reach is a key area for Jubal. What do they consider in relation to this? (3)
Performance: Highest chart positions reached.
Online presence: Profile on social media channels.
Upcoming releases: Potential impact of any future songs.
In seeking to buy a catalogue, legalities are a key area for Jubal. What do they consider in relation to this? (2)
Contracts: Exclusivity, length and financial terms of existing agreements.
Registration and tracking: Accuracy of metadata
In seeking to buy a catalogue, reputation is a key area for Jubal. What do they consider in relation to this? (2)
Critical acclaim: Awards and positive reviews received by the writer and/or songs.
Brand: Market perception of the writer and/or songs.
In seeking to buy a catalogue, market is a key area for Jubal. What do they consider in relation to this? (3)
General: Current trends in music.
Growth: Potential increases in revenue types and consumer demand.
Streaming: Impact of changes in DSPs and consumer behaviour
What are the two methodologies that Jubal uses to value catalogues?
Market multiple method and income method
Define the market multiple method of valuing catalogues
This calculates a value by applying a multiple to what is known as ‘net publisher’s share’ (NPS) by reference to recent comparable transactions. NPS represents the publisher’s royalties revenue less royalty costs (amounts passed on to writers).
This method works best for catalogues with older (‘evergreen’) hits that have been played over a period of 10-15 years or more. Evergreen catalogues usually trade at 10x to 15x NPS; newer and/or less well-known ones, at 5x to 10x NPS. Multiples can be higher with competitive bids.
Define the income method of valuing catalogues
This method values a catalogue by estimating its future net royalties (again, measured by NPS) to calculate a present value (PV) on a discounted cash flow (DCF) model. It aims to view projected future revenue streams in the context of the risks associated with the catalogue’s ability to generate revenue. Jubal typically looks 7 years into the future as it considers that to be an appropriate horizon. Revenues beyond this point are ignored as they are considered highly uncertain.
Define NPS
Net Publisher’s Share (NPS): publisher’s royalties’ revenue less royalty costs (amounts passed on to writers)
Where is the market multiple method of valuing catalogues best used?
For older hits that have been plated over a period of 10-15 years or more.
Whose catalogue was sold to Austin in 2020, just five years after debut album in 2015?
Why was this?
Yongo
Declining popularity of the artist
Define metada
The term used for descriptive information and details associated with a song (such as basic information, ownership and rights, revenue split, identification numbers, performance information, technical details and PRO)
Why is accurate metadata important for efficient music publishing operations?
If royalties have not been registered or tracked correctly, or metadata has not been associated accurately with the songs, a catalogue may be undervalued
In _______ 2023, Jubal commissioned a review by consultants into the place of AI within its operations.
In September 2023, Jubal commissioned a review by consultants into the place of AI within its operations.
How has AI transformed talent discovery?
AI algorithms can analyse vast amounts of data from social media, streaming platforms and other online sources to identify emerging artists and predict their potential success. Publishers can use AI tools to discover new talent, assess market trends and make data-driven decisions about signing writers.
How has AI transformed songwriting?
Whilst it may not replace human creativity entirely, AI can assist writers by generating musical ideas or even creating entire songs based on specific styles or genres.
How has AI transformed personalisation?
Streaming platforms use AI algorithms to analyse listener habits and contextual data to personalise music recommendations. Publishers benefit from this technology by ensuring that their music reaches the right audience, resulting in increased exposure and revenue.
How has AI transformed royalty collection and distribution?
AI-powered platforms can track music usage. They streamline royalty collection processes by accurately identifying when and where in the world songs are played, ensuring that writers and publishers receive their fair share of royalties promptly and that unauthorised use of copyrighted material is identified and stopped.
How has AI transformed predictive analytics?
AI analytics tools process data to predict market trends, audience behaviour and the potential success of specific songs. Publishers can use this data to optimise marketing strategies, target specific demographic groups and make informed decisions on promotional activities.
What will AI expenditure be mainly comprised of? (5)
Subscriptions based on usage limits
Fees based on the amount of data processed
Storage costs, based on the amount of data stored in the AI database
Computer resources (AI databases typically require significant power)
Technical support and training
What are the three main ways Jubal aims on increasing revenue, profits and value by?
Balancing our portfolio of high-quality songs
Exploiting our portfolio
Exploiting technology.
How much did VG have to pay in settlements to publishers, writers and artists for unlicensed use of music in their video games?
£1m
How can technology be exploited to boost revenue?
We monitor technological advances that will enable us to identify and recover lost revenue, through pinpointing incorrect metadata or abuse through fraud and piracy.
We will create a scalable platform that can handle the exponential data growth driven by the shift of music consumption to streaming, and generally invest in technology, including AI, to support our operations.
How can a portfolio be exploited to boost revenue?
After acquiring a catalogue, we proactively manage it on an ongoing basis to maximise its earning potential and income growth, including through improved sync placement and usage, and through pursuing efficiencies in revenue collection.
We seek to exploit potential sync opportunities for all our songs, whether by placing them in ads, popular TV shows and/or films, as well as through other media such as fitness platforms and video games, where we see particular opportunity for growth.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Competition from other publishers
M, M
Our business model is robust and our portfolio is well diversified.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Loss of high-profile writers and failure to attract new writers
L, H
We regularly assess our writer portfolio and pay generous advances; the expertise of our A&R team ensures a steady flow of new talent.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Changes in the market environment and changing tastes
M, L
Our portfolio is well diversified by genre, age, territory and royalty type. We monitor industry data to identify trends.
In a downturn, as access to music (via streaming, etc) continues to grow, we would remain strong.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Threats from new technologies
M, M
Our in-house experts closely monitor all developments. We are confident that, overall, AI will benefit Jubal.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Unforeseen extended delay in collection of royalties
L/M, M
We monitor market intelligence and liaise closely with our collection partners on ways to reduce collection periods.
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Unlicensed DSPs, piracy, IP infringement
H, H
Through our in-house legal team and state-of-the art technology, we closely monitor usage of our songs and prosecute swiftly any infringement
What is the likelihood and impact for the following risk, and what is Jubal’s mitigation/response?
Key person
L, M
To broaden our expertise, we have continued to invest in growing staff, reducing reliance on any individual. Key staff have a 3-month notice period.
How are emerging risks monitored?
We manage them as appropriate through continual assessment and our half-yearly risk register review to ensure that procedures are in place to minimise their impact. In particular, we do not currently consider there to be a significant risk to our business arising from either foreign exchange or from environmental and general sustainability issues
What does the letter to the board show (from the artists)?
That they will strike if AI is implemented that infringes on their works
What is the minimum EBITDA margin target?
25%
