Beck (left), Lorde (center), and The Weeknd are some of Kobalt’s most
popular artists. (Photos courtesy of Wikimedia Commons)
The music industry has, to put it mildly, a reputation for being unethical. Links to organized crime, pay for play, and the use of questionable accounting practices to withhold royalties—especially to Black musicians—have existed almost since the advent of commercial sound recording at the turn of the 20th century. In the post-World War II era, an oligopoly of major record labels has limited competition through control of production, distribution, and marketing, and used its market power to foist exploitative contracts on up-and-coming artists.
While corporate interest in social responsibility accelerated dramatically in the 1980s and 1990s, and today’s business leaders increasingly view it as foundational to success in a variety of industries, the music industry’s high barriers to entry and oligopolistic structure have entrenched a century’s worth of bad practices. The “Big Three” major recording labels—Sony Music Entertainment, Warner Music Group, and Universal Music Group—continue to dominate the business, to the detriment of most musicians.
But a challenger has arisen to disrupt the oligopoly. Kobalt Music Group, founded in London, has embraced more ethical business practices and greater social responsibility through technology to achieve independent success. Founded in 2000 by Swedish saxophonist, engineer, and entrepreneur Willard Ahdritz, Kobalt launched on the principle of transparency and fairness to artists. It has since grown to be the largest music publisher after the Big Three. Kobalt turned a $5.8 million profit on revenues of $519.4 million for the financial year ending June 30, 2021, representing an upswing of nearly $72 million from the previous year. In 2021, its songwriters won 22 Grammys, seven Latin Grammys, nine Australian Recording Industry Association Music Awards, and four Swedish Music Publishers Association Awards. The company expects to generate more than $600 million this year and has managed to achieve this while offering its songwriters much higher returns than the Big Three.
While streaming services focus on the music listeners who purchase songs, Kobalt’s clients are those who write them. Its pitch to songwriters is simple: It offers a powerful platform through which it collects royalties quickly, accurately, and transparently, and offers bespoke contracts that leave them in control of their copyrights. Creators have noticed: Kobalt currently serves more than 700,000 songs, 30,000 songwriters, and 500 publishers, including luminaries such as Paul McCartney, Stevie Nicks, and songwriter Max Martin. Ahdritz estimates that in 20 years of business, Kobalt has created $10 billion in value for its clients through higher payouts, rights retention, and increased competition. “I have a new concept, a revolutionary concept in the music industry,” he says, laughing. “I am paying artists!”
Even though creators are fundamental to the music industry, they are often the least and last paid. This discrepancy has historically been due to unbalanced contracts—with powerful employers forcing creators to give up the rights to their music and accept lopsided royalty splits—as well as an unwieldy copyright system. This situation was exacerbated by the industry’s digital disruption at the end of the 1990s that drove the economic devaluation of music. While some were able to offset this with money earned from live performance, the shutdown of gigs due to the COVID-19 pandemic threw into harsh relief the precarity of most creators.
Furthermore, the explosion of digital music created a supernova of data that has overwhelmed the analog-era ways that the industry collects it, leaving artists in the dark about what they are owed and when they will receive it. Ahdritz founded Kobalt to illuminate this murkiness. Despite the big names on its roster, Kobalt seeks to establish a middle class of working music creators who are the lifeblood of the industry through Kobalt’s founding principles of “technology, transparency, and trust,” which, according to Ahdritz, benefit all stakeholders in the music ecosystem.
Kobalt’s success, which leverages technology to serve creators, offers a case study in the ethical use of technology to achieve social responsibility in an industry where this has proved an elusive goal. In doing so, it provides a road map for how other companies can rethink their use of technology and harness its power to increase profits and also achieve social responsibility goals. Such a strategy, Kobalt demonstrates, can be a powerful differentiator in the market, setting up companies of the future for success, even in industries resistant to change.
A Byzantine System
Understanding the economics of recorded music requires delving into the complex ways the industry exploits copyright. Sociologists Simon Frith and Lee Marshall call music copyright a “bundle of rights” that can be bought and sold and can also be split among several entities. To begin with, the composer and the performer of a song may not be the same person. Music copyright therefore distinguishes between a composition, which is the original song, and a recording, which is a particular recorded version of that song. This split generates two parallel infrastructures for making money from the song: music publishers and record labels.
The publisher is concerned with the composition. Depending on the circumstances, the publisher will give writers a cash advance; put them in contact with cowriters; register the song with collection societies; find placements for the song in commercials, TV shows, and films; and collect royalties. In return, publishers traditionally give advances for a publishing or copublishing deal, usually taking a 25 to 50 percent cut of royalties.
Record labels give cash advances to artists, provide development for the artist, distribute the music to retailers and streaming services, and oversee marketing efforts. In return, labels traditionally not only take around 85 percent of royalties, but also retain the rights to those songs.
A third set of players in the royalty ecosystem is collection societies, such as ASCAP and BMI in the United States and PRS in the United Kingdom. These organizations collect and distribute royalties on behalf of publishers and labels and take a cut of those royalties for doing so. Because each country has its own copyright regime, the ensuing red tape means it can take between 18 months and two years for money to reach creators.
This byzantine music copyright system, which incorporates multiple entities, kinds of copyright, and copyright regimes, practically invites transactional frictions. The speed and volume of data unleashed by the digital revolution have only amplified its inefficiencies, leaving creators who do not have the specialized knowledge and access to data vulnerable to exploitation by the companies through which the money flows. The proliferation of intermediaries, moreover, means many parties taking slices from the royalty pie, meaning less money for creators.
The digital revolution has therefore caused a host of problems for the music industry in general and for artists in particular. But ethical tech can offer solutions for tracking the complex value chain of songs, so that creators are empowered to claim their fair share of the proceeds.
Music Streaming: Devaluation or Opportunity?
Consumers are paying for recorded music in growing numbers, primarily through ad-supported listening or subscriptions to streaming platforms such as Spotify. After 15 years of decline due largely to rampant piracy, global music revenue has grown from a low of $14 billion in 2014 to $25.9 billion in 2021. Yet, the internet is filled with blog posts from creators who struggle to pay the rent. According to a recent survey by the UK-based Ivors Academy and Musicians’ Union, 82 percent of the 8 million (6.5 million) artists on Spotify make less than $270 a year. By contrast, .09 percent (7,500) of artists make more than $100,000 a year on the platform, Spotify reports.
This problem is not simple to solve, partly because no standard methodology for valuing a song exists. However, while different stakeholders make different claims, most agree a song is worth less than it was in the pre-streaming era. Critics of streaming services point out that streaming inherently devalues a song: In 1999 (the first year of digital disruption of the music industry, as defined by decreased revenue) an album or compact disc cost $15. The introduction of Apple’s iTunes Store in 2001 saw that drop to $9.99 and unbundled songs costing $0.99. In the United States, a subscription to Spotify, which provides access to more than 70 million tracks, ranges from a monthly rate of $4.99 for students to $15.99 for a family plan with six accounts.
With the value of recorded music decreasing, creators have been agitating for digital service providers (DSPs) such as Google, Spotify, and Amazon to pay them more. Currently, streaming services pay out 70 percent gross revenue to creators. Several creator-sponsored studies have argued that this share is too low and that streaming platforms should pay out around 80 percent.
However, a 2021 study by the UK government paints a picture that is decidedly more complex: The report agrees that the digital revolution has devalued music in the eyes of both consumers and DSPs. However, it also notes that proposed changes to the current model of streaming payment will only benefit a few creators. This means that many of the problems creators face are “upstream” from the services that deliver their songs to listeners.
Ahdritz, for his part, sees the services not as part of the problem, but as part of the solution. “I’m very proud, because from day one, when I started, I realized that the future was the digital,” he says. “It will kill the piracy, provide the product, and grow the industry.” What does not make sense, he says, is creators not being paid because of systemic problems in the music industry. For him, the focus on the value of streaming payments diverts attention from long-standing systemic problems.
First, the industry has an information deficit problem: A byzantine copyright system leads to transactions being missed or misrepresented or sent to the wrong place. Furthermore, intermediaries and collection societies siphon off money that might otherwise go directly to the creator. Whatever money eventually reaches creators is often not the full amount due and takes months or years to arrive. “We can’t have 200 collection societies [globally],” Ahdritz says. “It’s just the wrong structure.” Finally, the major labels have for decades coerced artists into signing long-term deals that prevent them from realizing their full market value and force them to relinquish the rights to their music and most of the royalties associated with it.
The Information Gap
Ahdritz believes that many creators are suspicious of streaming due to lack of information, not a lack of royalties per se. The data they receive about how and where their songs are being monetized is often opaque and incomplete, and the accountings and payments are too complex to be easily understood. This leads creators to suspect that they are not being paid the money they are owed.
He therefore built Kobalt to facilitate the free flow of data to creators. “I want all the data, because I’m here to pay,” he tells them. But a lot of work goes into capturing the data and presenting it in a way that artists can use for fair compensation.
A song can generate revenue many different ways, from being played at live concerts or on the radio, to physical album sales and digital downloads, to streams. That revenue must be collected from a vast number of entities. For example, streaming revenue must be collected from Apple Music, YouTube (and YouTube Music), Amazon, SoundCloud, and others. A full accounting requires tabulating billions of low-value, high-volume transactions, which demands a technological infrastructure adequate to the task.
Furthermore, different kinds and amounts of royalties are collected depending on the type of right being claimed, the type of asset, and the channel or format through which the asset is consumed. For example, a song played on the radio may garner royalties different from those of the same song performed live. Complicating matters, the same song may be owned by several people, each of whom may be represented by a different publisher and collection society, or performed by several people, each of whom is signed to a different label.
Music is consumed globally, which further complicates the value chain. A song played at a festival in the United States, for example, would generate performance royalties that would be collected by one of several collection agencies responsible for North America. If the author of that song is registered in the United Kingdom, that agency would likely channel payment through PRS, the largest collection society in the United Kingdom. In doing so, both agencies would take a cut, and the creator would receive payment only after up to two years.
In addition to these dizzying complexities, the industry lacks a unified format to identify ownership of music copyrights and a single database in which to store and access that data. As a result, a significant portion of royalties—between 10 and 40 percent—is paid to the wrong parties or ends up in a black box because the proper owner cannot be identified.
The industry has attempted to implement unique identifiers, such as the International Standard Recording Code (ISRC) for sound recordings and International Standard Musical Work Code (ISWC) for music works. Other technologies, such as blockchain, are also being explored. However, these initiatives languish, because labels and DSPs often fail to provide all the metadata needed by collection societies because of conflicting ways that stakeholders label and use it.
The upshot is that the legacy companies through which the money flows do not have the technological infrastructure to handle a globalized digital music marketplace. Vast amounts of money go uncollected, lost in administrative black boxes, or only reach creators, who rely on it for a living, at a slow trickle. Compounding this problem, creators often do not have access to the data about their music, leaving them vulnerable to exploitation.
Kobalt Music Group’s business model is built on prioritizing transparency in the digital era. To this end, Kobalt has built an easily accessible platform called KTech that enables artists to track rights ownership and royalty payments in close to real time. This offering is Kobalt’s unique selling proposition, explaining why so many artists have been switching their song catalogs to the company. Transparency, combined with close to real-time data collection, affords its core offering to creators: control. No matter what service a client is signed to, he or she can access all their data in almost real time through Kobalt’s KTech portal.
Take, for example, the DJ and producer Skrillex, who in an interview with Wired magazine gushed about the access it granted to the notorious “black box” of music industry finance. “The portal is insane,” he said. “The activity feed gives me awesome feedback—I can see that in Scandinavia they love a hard-core sound of mine. Or ‘Raise Your Weapon,’ a song I wrote with deadmau5 five years ago, is suddenly huge in Australia.”
The portal also allows Skrillex to control his synchronization rights for usage in television or film: “The other day, there was a request for my song ‘Bangarang’ from a French movie producer,” he says. “It shows the money offered, and I just OK’d it right there. It’s happening in real time.”
However, even if creators have access to and can understand their data, they often cannot benefit from it because of restrictive contracts. These contracts have been a cornerstone of the music industry since its inception; the business model for the Big Three and others has always been based on exploitive contracts. Kobalt’s ethical approach addresses this problem as well.
Exploitive Contracts
A further contributing factor to the precarity of creators is the royalty split between publishers and labels. Creators’ advocacy groups maintain that the split should be 50/50. It currently stands at 6/94 in favor of the labels. This imbalance means that writers who do not perform live receive very little income, and this share is further reduced if the song credits are split among several authors.
Ahdritz agrees with creators that a new revenue-sharing model is needed. “[The major labels] don’t want rebalancing because they keep so much of the money themselves in recordings,” he says. “But I think that [it should be] 50/50. So, the big question now is, in a digital world, why would it not be equal between songwriters and record labels?”
Creators often find themselves at odds with the companies that represent them commercially, such as publishers and labels. An increasing point of contention is contracts, which have traditionally required artists to sign over the rights of their songs to the label and locked them into long-term deals. This policy limits the risk for labels, which invest significant resources into emerging artists, but it has two effects detrimental to creators: On the one hand, if an act doesn’t succeed, the label will stop supporting them but may not let them out of their contract; on the other hand, it also prevents breakout artists from exercising their market power by moving to another label.
“The problem is that seven albums is probably your whole professional career,” Ahdritz says. “And in my opinion, I think that’s crazy. So, I think that has generated big discussions about fairness.”
Labels also limit their risk by requiring, in return for recording advances, that creators sign over the rights to their songs to the labels. This is rather like getting a mortgage to buy a house, and once it has been paid off, the bank still owns the house.
Kobalt does things differently: It offers its creators preferential royalty splits and allows them to retain control of their copyrights. This means that Kobalt does not extract as much money from its creators as traditional publishers and labels do. But it counteracts this to some extent with retention: 95 percent of Kobalt’s artists choose to extend their deals with the company. And it creates a powerful point of difference within the industry, which comes with a potent incentive for artists to leave the Big Three to come to Kobalt.
The Long Road to Profitability
Ahdritz is passionate about supporting artists this way because he is a musician himself. Born in the Swedish city of Örebro, he grew up fascinated by both music and engineering. These interests converged with the popularization of synth-pop music in the 1970s by bands such as Kraftwerk. After graduating with a degree in electrical engineering and serving in the Swedish Army as a software engineer, Ahdritz entered the music industry in the 1980s as a saxophonist and songwriter with the dance-pop band Andrea Doria, which also included future Hollywood film composer Mikael Sandgren. Having achieved some local success, the band signed a deal with a Swedish label to distribute and market their music. When a larger label bought that label soon afterward, it dropped the band along with most of the other signed artists.
In 1986, entrenched in Sweden’s music scene and living the precarious life of a musician, Ahdritz teamed with cofounder Klas Lunding to form his own label and publishing outfit, Telegram. Although Telegram came to represent some of the top acts in Sweden, Ahdritz ran into the same problems he had experienced as a creator: Complicated international royalty collections and a multitude of middlemen who took a cut of incoming royalties made it very difficult for him to pay his artists quickly, accurately, and fairly. Furthermore, the consolidated music industry, in which major labels leveraged their massive bank accounts, international distribution networks, and control over promotional outlets, meant that it was almost impossible to scale his business up.
Frustrated as both an artist and a businessman, Ahdritz quit the music business in 1991, selling his stake in Telegram to his cofounder, who would in turn sell the label to Warner Music Sweden two years later. Ahdritz went back to school, first at the Stockholm School of Economics and then NYU’s Stern School of Business. After graduating, he went to work for the London-based mergers and acquisitions giant LEK Consulting. There, he worked to develop a system for tracking passengers, flights, and baggage for British Airways and helped BA’s low-cost carrier GO develop its point-to-point system. But the saxophonist in him compelled him to keep an eye on the music industry, waiting for an opportunity to return.
As it happened, the music industry was about to undergo massive disruption. The peer-to-peer network Napster and then second-generation decentralized networks like Kazaa unleashed a wave of piracy that decimated the music industry’s bottom line. But while the industry saw the consumer internet as a threat, Ahdritz saw opportunity: The internet would democratize music creation and distribution, ultimately chipping away at the oligopoly of major labels and collection societies.
But the technology could only be revolutionary if it were underpinned by transparent practices. Ahdritz resolved to do something unheard-of in the music industry: He would maximize creators’ income by providing them with easy access to all the data about their music and by offering contracts that left them a larger cut of royalties and ownership over their copyrights. According to Tim Bunting, who as a general partner at Balderton Capital led the firm’s early investments in Kobalt, Ahdritz’s pitch was “I’m gonna pay you 18 months earlier and 25 percent more.”
With this goal in mind, Ahdritz started Kobalt in 2000. The company was founded on three principles: first, that the industry needed new technology to process the low-value, high-volume transactions of digital music payments; second, that transparency was a must, and therefore Kobalt’s clients, the creators, would have access to all their data via smartphone; and third, Kobalt would first and foremost be a service dedicated to maximizing creators’ cash flow. Its business model was built on the belief that transparency drives liquidity, which in turn drives volume.
“When you introduce transparency, rule of law, and regulations, people can transact and take away frictions, and volume goes up,” Ahdritz says. “Because it creates this circle that sends more money down to creators, then they can create more music, better music, higher quality music; they can tour more, create more fans who will buy more stuff.”
Kobalt initially acted solely as an administrative publishing company, meaning that it did not own any copyrights. Kobalt Music Publishing (KMP) offered administrative services such as ownership tracking and royalty collection. In contrast to standard publishing deals in which the author signs over the rights of the song as well as 85 percent of royalties, Kobalt allowed creators to retain their copyrights and took only 15 percent of royalties. Kobalt also did not lock in creators to onerous long-term contracts, as is standard industry practice.
In 2011, the company created Kobalt Neighboring Rights (KNR), which allowed it to collect royalties on the public performances of recordings. That December, it also purchased the UK-based digital distribution and artist services company AWAL (Artists Without a Label). AWAL provided Kobalt’s independent artists with advanced analytics and gave Kobalt access to AWAL’s digital retail partners, which included DSPs such as Spotify and Amazon. For its higher profile clients, Kobalt launched its Artist and Label Services division, which provided project management and marketing and proactively sought out sync deals, in which a song is used in media properties such as films or advertisements. As with KMP, deals with these new divisions were roughly the inverse of traditional artist-label deals, with Kobalt taking only a 15 percent cut and allowing the creator to retain control of the copyright.
In 2014, Kobalt purchased AMRA (formerly the American Mechanical Rights Agency), making it Kobalt’s collection agency for songwriter royalties. While Kobalt’s other divisions administered different aspects of music copyright, it still depended on country-specific collection agencies to collect the royalties. AMRA used Kobalt’s technology to collect global digital royalties. By cutting out the country-specific intermediaries, Kobalt was now significantly reducing friction in the value chain of a song, allowing it to pay creators more and faster than before.
“Instead of Spotify sending down terabytes and terabytes of data to 200 societies in the world, I take the global usage files, I match them in London, and I send one invoice between London and Stockholm [detailing] what Spotify does in 180 countries worldwide,” Ahdritz says. In an interview with Crunchbase, CTO Rian Liebenberg explained that “time to money” was an important metric for Kobalt. “Kobalt was effectively a registration and collection engine as a service to the music industry. It used to be about being the bank of the music industry. Now, it is basically that banking service plus a whole bunch of insights and analytics.”
By 2014, Kobalt had established itself as one of the premier independent music publishers, winning Music Week’s Independent Publisher of the Year in 2009, 2010, 2012, and 2013. Its tech-first approach to royalty collection and advanced analysis of DSP data enabled it to deliver more royalties, faster. In 2014, it raised $140 million in additional funding from firms such as MSD Capital and Balderton, and in 2015 it raised another $60 million from MSD Capital and Google Ventures (now GV), the investment arm of Alphabet, Google’s parent company. Kobalt was, in fact, part of Google Ventures’ inaugural investment round. These investments helped Kobalt scale AWAL and upgrade its technological infrastructure to handle the rapidly increasing volume and complexity of data. In 2015, it tracked one trillion transactions. In 2018, it tracked four trillion.
Kobalt also drove growth through its own investment firm Kobalt Capital Limited (KCL), which invested in music rights through acquisitions as well as advances. This business line enabled Kobalt to invest more money in its creators by allowing them to sell their copyrights at fair market value in return for extra capital. The establishment of KLC was prescient, as the value of music rights has exploded in recent years. Yet Kobalt was still not profitable. Ahdritz continued to believe in the potential of ethical tech to transform the industry, but Kobalt needed to prove its financial viability. Although it had grown to be the largest publisher outside of the Big Three, it had been for 19 years sustained by VC funding, with a total of negative $318.49 million in retained earnings to show for itself.
Kobalt turned the tide in 2020, when it sold AWAL and KNR to Sony for $430 million. The sale enabled Kobalt to become debt free with $315 million in cash. It also sold both KLC Portfolios: Portfolio I to the investment fund Hipgnosis for $322 million in 2020, realizing a $20 million gain, and Portfolio II to the investment giant KKR for $1.1 billion in 2021, which will affect the current fiscal year.
Selling AWAL as well as KCL’s portfolios not only puts Kobalt into the black but also allows it to focus on its core strengths of publishing and copyright administration. KMP saw a 9.7 percent increase in revenue over the previous year to $478.4 million, and AMRA enjoyed a 40.3 percent increase to $109.8 million on the back of an expanding streaming market. In the opening statement to Kobalt’s 2021 annual report, Ahdritz indicated that he would double down on this strategy, writing that achieving profitability has “paved the way for our third act: removing the frictions and spillage in the last mile of paying songwriters and rights holders with AMRA, our global digital society.”
Changing the Industry
In 20 years, Kobalt has used its ethical approach to its competitive advantage, attracting both superstars and rising independent talent through fair, flexible contracts and radical data transparency. Increasing the royalty pie benefits not only artists but also audiences, as fewer starving artists means more music to enjoy. Kobalt’s size makes it a formidable champion of music creators, but it is also capitalizing on broader trends in the music industry.
Chief among these currents is lowered barriers for entering the music business through the internet. Creators can now use cheap and powerful tools to reach, cultivate, and monetize fans without the need for labels, and fans in turn can now find creators more directly. This dynamic is generating an expanding pool of potential consumers and revenue as well as a growing number of independent artists. Although the size of the overall industry is growing, the independent segment of the music industry is accelerating the fastest. According to TechCrunch, Kobalt estimates that by 2028, more than 10,000 English-language artists will make more than $100,000 annually. By offering these artists flexible, bundled solutions to rights management, Kobalt has positioned itself as a leader in this growing part of the industry and provided the Big Three an impetus to change or be left behind.
But change has not come easy. As an early proponent of streaming as well as a disruptor in the realms of royalty collection, Ahdritz faced stiff resistance from both labels as well as collection societies. As Kobalt CEO Laurent Hubert recently recalled about the early days of streaming in Billboard magazine, “Back then, nobody wanted to talk about the transparency or the business’s digital transformation except for Willard. It was truly revolutionary, and Willard had to fight that battle at every corner to make it happen.”
According to new Kobalt President and COO Jeannette Perez, terms such as transparency, artist first, and portal are now commonplace in the industry because of Kobalt. And indeed, a raft of new, tech-savvy companies who cater to independent artists and subscribe to this view has arisen, particularly in the last 10 years. For example, the American audio distribution platform Bandcamp has a “fair trade music policy” whereby the platform promises to compensate artists “fairly and transparently” by paying out 85 percent of sales revenue daily. British musician Imogen Heap’s startup, Mycelia, which is a research and development hub seeking to create “a sustainable and vibrant music industry ecosystem,” pays out either 85 percent of revenue or 100 percent in exchange for a monthly fee. Indian streaming service Hungama has recently signed a “fair trade music” agreement with the Indian Performing Right Society Limited to create a “transparent and ethical value chain for authors, composers, and all music rights holders.”
Major publishers and collection societies have also taken notice, investing in the technological infrastructure that will allow them to collect royalties more effectively, share data more transparently, and deliver royalties to creators faster. Sony Music, for example, released a mobile app in 2017 that gives its artists real-time access to its royalty portal for data about their earnings. In 2019, it introduced a “cash out” service through which songwriters could request some or all of their earnings immediately, without incurring a fee, rather than waiting for the next distribution date.
Sony’s purchase of AWAL and Kobalt Neighboring Rights grants Sony more access to the independent market and enables AWAL to scale up using Sony’s existing artist services offering, The Orchard. Universal Music Publishing Group and Warner Chappell Music have also established client portals that provide real-time data, in 2020 and 2021, respectively. After 20 years of growth and a roster of many of the top-selling artists, the Big Three can no longer ignore Kobalt’s transparent business model and have finally started to follow in its footsteps.
For its part, Spotify in 2018 launched Spotify Publishing Analytics, which gives publishers access to Spotify’s global data with insights. And in 2021, it launched Noteable, a suite of services designed to support songwriters.
Kobalt’s Future
Kobalt has established itself as a leader in copyright tracking and collection. However, it now faces stiff competition. Digital native competitors such as admin publishing and neighboring rights company Songtrust and the digital distribution and admin publishing company TuneCore are making inroads into the digital rights space. For the moment these new players rely on country-specific collection societies, meaning that Kobalt’s centralized system allows it to offer more transparency and lower fees.
Furthermore, as Kobalt’s competition continues to improve its technological infrastructure and adapt to the changes that Kobalt has pioneered, it is unclear whether Kobalt will be able to maintain its market lead in copyright tracking. Given the importance of transparency, there are several industry initiatives such as the Mechanical Licensing Collective that seek to address “data disorganization.” However, these initiatives will require the entire industry to work together.
Lastly, allowing musicians to retain control of their copyrights has resulted in higher royalties, but it does to some extent limit Kobalt’s potential earnings. However, it increases the number of people who might make a career in music. Kobalt’s continued success will therefore hinge on its ability to maintain its lead in royalty collection efficiency and ability to tempt rising talent away from the traditional publishing deals offered by its competitors.
“We have moved the ship,” Ahdritz says. “We have educated people, and transparency is driving this.” Not only has Kobalt achieved profitability, which will allow it to continue its ethical tech mission into the future, but also, after 20 years of championing fairness in a profoundly unfair industry, it has shifted the dial on what artists will put up with. The Big Three can no longer operate with antiquated business models that exploit artists, and they are starting to shift in response to Kobalt’s innovations.
This story has implications that other companies and industries can learn from. Primarily, it demonstrates that forgoing maximizing profits so that your customers can be supported is a viable and winning business strategy. Rather than simply talking about corporate social responsibility and trying to implement it via one-off initiatives such as planting trees to offset carbon emissions, an entirely new business model can be implemented that has fairness built into its core. And ethical tech can be at the heart of this. Even in industries that have been entrenched in unfair business practices, and in which tech has been used to maximize profits at the expense of producers, this strategy is possible. Kobalt has not maximized profits, compared with the Big Three and other competitors. Yet because the pitch offered to artists and investors was so compelling, it was able to survive with VC funding (funders were convinced that a more ethical model was the future of the music industry) and eventually become profitable via artists being drawn to a publisher that empowers and supports them.
Ahdritz is now the chairman of KMG and CIO of Kobalt Capital and continues to invest in ethical tech companies in the music industry. A father of three, Ahdritz believes that industries need to adopt the ethical standards demanded by the next generation.
“I think [young people] are very driven by doing the right thing, and transparency and openness,” Ahdritz says. “So, I believe that to attract those people, we need to have much better proposals than we have had in the past. I hope what I can show with Kobalt is that doing the right thing is a great commercial decision.”
Read more stories by Giana Eckhardt & Tom Wagner.