The case in numbers
In March 2024, an independent audit of Hipgnosis Songs Fund by Shot Tower Capital valued the portfolio at $1.948 billion. Six months earlier, the fund had reported net asset value of $2.62 billion. The gap was $672 million, a 26 percent revaluation against a portfolio that had been actively administered, audited, and publicly listed.
The audit's specific findings made the structural problem visible. 67 of 105 acquisitions were worth less than purchase price. 75 percent of catalogues had missed growth projections by an average of 23 percent annually. Reported royalties had fallen from $134.2 million to $121.6 million year-on-year. Net asset value was overstated by approximately 8 percent through more than $4 million in contract errors and accrued-income double-counting. The fund lacked song-level tracking that the audit described as standard practice across the industry.
What this means for catalogue diligence
Hipgnosis was not an outlier in process. It was an outlier in scrutiny. Its diligence ran the standard playbook. Income statements reviewed. Contract chains examined. Ownership confirmed. Major dispute exposure mapped. The model that produced the acquisitions cleared every test that the market required of it.
The model was wrong. The diligence had answered the wrong question.
The two questions
Catalogue diligence answers one question well and another not at all.
Do we own what we think we own? It is not designed to answer: are we earning what we should be earning?
Standard diligence is legal-first, finance-second, data-light. Ownership and contractual position are confirmed by lawyers reading documents. Historical income is confirmed by accountants reading statements. Neither process tests whether the historical income reflects what the catalogue should have generated. That requires operational data analysis, not legal review.
Where the gap originates
Across forensic audits, the gap clusters in repeatable areas.
- Registration gaps. Works registered in core territories but missing in secondary ones. Income appears in one market and is absent in another.
- Sub-publishing misalignment. Outdated splits, expired agreements, incorrect territory control. Income flows to previous administrators or sits pending resolution.
- ISWC-ISRC mismatch. Recordings generate income but are not linked to works. Mechanicals are held or redistributed.
- Neighbouring rights underclaiming. Routinely absent from diligence models, despite representing meaningful income and requiring separate registration.
- CWR and data integrity issues. Incorrect submissions producing partial allocation, conflict states, or delayed distribution.
These do not appear on income statements as gaps. They appear as the absence of income that should have existed.
The framework that would have caught it
A forensic process models three layers of income, not one.
- Reported income. What statements show. Often understated.
- Generated income. What usage implies. Partially visible.
- Recoverable income. What data gaps obscure. Hidden.
The difference between reported and recoverable is the diligence gap. Standard models do not test for it. Forensic audits do. Shot Tower's findings on Hipgnosis were not buried in the financial statements. They were in the catalogue's underlying data integrity, and they surfaced only because someone went looking.
The methodology
A proper catalogue audit covers five workstreams. Territory reconciliation across societies to identify missing or inconsistent flows. Work-level validation to confirm ISWC presence and check for duplicates. Recording linkage to match ISRCs against works and identify high-usage recordings with weak work income. Royalty stream completeness across performance, mechanical, and neighbouring rights, each tested independently. Historical alignment of ownership changes against registration updates.
None of this is exotic. All of it sits outside the standard legal-and-financial DD process.
The financial implication
For a buyer, recovered income has three effects on the transaction. Immediate cash recovery from historical underpayments. Forward income uplift as future royalties flow correctly. Valuation correction as the catalogue is repriced against a corrected income base.
For Hipgnosis, the absence of forensic diligence at acquisition compounded into a $672 million revaluation at the portfolio level once external auditors looked closely. The gap was not invented by the audit. It was made visible by it.
Close
Catalogue valuation assumes income is correct. The system does not guarantee that.
Diligence that verifies ownership without verifying allocation prices a catalogue against what it has been paid, not against what it has earned. The gap between the two is where forensic audit operates, and where most acquisition models still do not look.