Capitalization of Digital Assets

Over there years there has been some discussion about valuing digital assets and registering them on the balance sheet like physical assets. Michael Moon discussed this as a sort of holy grail for DAM a number of years back. He posits that the weakest purchase motivator for systems is cost reduction and the strongest is an increase to the balance sheet with anything generating revenues a close second.

I read a blog of Jeremy Wilker’s on hidden costs of DAM and noticed a comment posted by Kristin Maija Peterson where she asked the question “What would it do to an organization’s balance sheet if their digital assets were insured by a third party? Would it increase the value of their digital assets, thereby increasing the value of the organization?”

This is a very interesting consideration for anyone who creates, sells or uses DAM. Certainly these digital assets have value. They have a fully burdened cost. They usually have some internal value whether past, current and future use. They potentially have a market value. Even from a common sense perspective, if you have decided to keep it, it must have some value (consideration of hoarding aside).

I recall that there were consideration to make allowances for this to GAAP that would easily allow companies rocognize digital assets on the balance sheet. In 2003, CIOinsight interviewed Michael Moon who had this to say:

  • “Any digital object that follows generally accepted accounting practice for asset recognition. So if you have any kind of digital object that you can show that you have reused for a period of greater than 18 months; have captured the development expenses associated with that particular object; and can directly link the reuse of that object to a discrete sale for a revenue event or a discrete cost savings; and have taken prudent measures to protect this asset, then generally accepted accounting practices will support you recognizing that as a financial asset on the balance sheet.”

Needless to say, a system would have to follow some accepted guidelines for tracking a digital asset to be able to capitalize it on the balance sheet. This is where DAM systems would shine but I haven’t really herard a lot lately about companies valuing their assets to enrich their balance sheet. I’m sure there could be concerns about a company like say, CBS or Time-Warner, suddenly appreciating in value by several billion because of a recalculation on digital file value. In many cases this would be entirely valid. For example, if LucasFilm had the Star Wars franchise, when they released the more recent trilogy of movies, every asset associated with the previous three would undoubtedly increase in value. However, if shareholders didn’t believe this value was real, they would start selling the stock which would actually drive down the market value of the company.

I’m getting into areas too complicated for me to speak cogently on but I am still interested in the valuation and capitalization of digital assets. After all this discussion, there is much I still don’t know:

  • Are companies doing it and to what degree i.e. just high quality images or are they valuing PowerPoint docs at any significant value?
  • What are the guidelines for valuation?
  • For companies that have done this, what has been teh market reaction to increasing asset value (you would think it would be positive but there is an element of trust here)?
  • Are most current DAM offerings sufficiently tracking assets to allow for easy valuation?

There is very little information – let alone first hand – on this subject so anyone aware of anyone doing this, please comment or make some information available.

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