Not too long ago, several listed companies bought the music rights of world famous stars such as Bob Dylan and Taylor Swift. The payoff of investing in music comes mainly from the revenue from streams. And the benefits do not seem to be that bad: for instance, since Sony bought Michael Jackson's music portfolio in 2016, its stock price has quadrupled (1).
Beyond the music industry, intangible assets and, in particular, intellectual property ("IP") rights are assuming an increasingly dominant position when it comes to the value of companies. In 2020, around 85% of the value of the United States stock index (the S&P 500) is determined by intangible assets (2). The reason is that intangible assets represent enormous potential. Companies can unlock this potential by making work of their IP portfolio. Building a solid IP portfolio does not have to cost a lot of money, and directly adds value to the company. Companies with a solid IP portfolio represent an attractive target for investors for five reasons.
1. IP can represent indefinite value
Unlike most other assets, the value of IP can increase indefinitely. Tangible assets such as real estate or cars have a fixed value and usually become less valuable or depreciated after several years. IP basically protects everything that has value in the company (the business, the brands, innovations, designs, trade secrets, software) and - if properly regulated and adequately protected in the organization - leads to an increase in the company value. Uber is a good example of this - it provides transportation services but the value of the company is not in its cars or staff.
2. IP can generate revenue in multiple ways
IP, like any other property, can be sold as independent right, can be used to enter into joint ventures or to gain a competitive edge. IP can also be used as a revenue model through licensing (of brands, technology or other IP). For example, companies like Microsoft or Disney partially depend on licensing revenue for their sales. The advantage of licensing is that the start-up expenses are limited, apart from the possible costs of IP protection.
3. IP reduces operational risks
By protecting and, where necessary or possible, registering IP, the company assures itself (in most cases) of a certain monopoly in a particular field. For example, a company that registers its trademarks in the most important countries of business more easily expands into those countries. Also, companies that protected their innovations, designs and trade secrets can scale up faster and more easily; they are a more attractive target for investors.
4. IP leads to competitive advantage and more attractive business partners
With the monopoly that IP rights can provide, a competitive advantage can be achieved and unfair competition from third parties can be blocked and counteracted. In doing so, the company also protects its trading partners. When a company does not protect its IP properly, trading partners may be less motivated when confronted with counterfeit products at dumping prices. Without the right protection, nothing can be done.
By protecting IP, trading partners are secured as well. This generally attracts a better quality of trading partners.
5. IP helps assure continuity of the business
By setting up the organization and contracts regarding IP in such a way that the company is assured of the correct licenses even after a transaction and is protected against insolvency or bankruptcy of a business partner, IP contributes to the continuity of the company and helps to prevent discontinuity.
Want to know more? Call Kriek Wille, Chris In 't Veld or one of the other members of the IP/Media team at Van Doorne or try our tool that helps identify IP opportunities and risks within your company.
To get an impression of the immaterial assets within your company, we have developed a tool that, by using a Q&A, provides an indication of your company’s Business of IP. Want to know what the tool and an (enhanced) focus on IP does for your company? We invite you to fill in our online 'light'-version here.
(1) source Google Finances
(2) 15% in 1975, click here