menu
The Founder and Chairman of Kobalt Music offers a revolutionary business model that is reshaping the future of the creator economy.
One of the world’s largest, most innovative music publishers, Kobalt has spent more than two decades shaking up the industry – for the better. With a portfolio of around 700,000 songs, it represents hit songwriters, from The Foo Fighters and Paul McCartney to Wolf Alice, Roddy Ricch, Max Martin, and Stevie Nicks. That translates to over 40 percent of the top 100 songs and albums in the US and UK alone, and, for the financial year ending in 2021, a profit of $5.8 million on revenues of $519.4 million.
"We had this revolutionary concept: we decided to pay artists"
says founder Willard Ahdritz, a Swedish saxophonist and coder during his military service - turned entrepreneur who used the digital eruption in the 1990s as an opportunity to create a fair and transparent payment model for artists. ‘With streaming, it was clear to me that we would see an explosion in the volume of data and we needed big tech. I wanted to take the music industry into the digital age with a creator’s economy, based on the Agency Theory that aligned interest gives a higher return.’
Although to an outsider it might seem nonsensical, historically, songwriters have always been the last in the music chain to be paid, thanks to an overly complex system involving copyrights, royalty splits and collection societies – and that was before Napster and the birth of file-sharing. ‘As an artist, you give up your rights, it takes maybe two years to get paid and up to 75 percent of what you are owed disappears, so you have no understanding of how much money is coming in or when,’ says Ahdritz.
His solution was to build an accessible platform called KTech, collect as much global revenue data as possible (including from radio channels, physical album sales and companies such as Spotify and YouTube), and link it all together so that artists can see on their smartphone, in almost real time, what they are owed and therefore maximise their cash flow. ‘Introducing and scaling technology with structures so that musicians can see that a song has been played 500,000 times and how much money has been collected was completely new’ he continues.
As if this pioneering portal and unprecedented level of transparency wasn’t reason enough for songwriters to switch their catalogue to Kobalt, the company also branched out, taking an equally radical approach to other areas of the industry, such as contracts, recording and royalties. Artists are usually locked into contracts with publishers for the long-term, required to sign over the rights to their songs in return for recording advances, and agree to unfavourable royalty splits (typically, publishers take up to around 60 percent of royalties, another chunk ends up in a black hole because no-one knows the correct owner of a song, and collection societies take a cut, which slows the payment process significantly). Kobalt did the opposite: it allowed the artist to keep control of the copyright and took only 12.5 percent of royalties.
'The music industry has always had a very complicated web of administration behind the scenes, which is crazy, and it needed disruption,’ comments Cape Capital founder Alex Vukajlovic, who spearheaded the investment in Kobalt on behalf of Cape Capital and its clients, as well as seeding its ground-breaking fund which was set up in 2010 to buy or lend against royalties. ‘Having got to know Willard, I thought it was a great business which, at the same time, was trying to overthrow the three major record labels who had previously dominated the market. It was also a perfect example of a company which was doing well but also doing so much good for artists by helping them collect money faster and be more transparent. It was social impact at its best. It sounded ambitious but also realistic, so we decided to invest.’
A few years later, Kobalt expanded once again, buying AMRA, and transforming it into a global digital collection society. While other publishers might, for instance, spend months shifting money from a local office to a regional European hub and then onto the US before finally paying an American artist, Ahdritz simply cut out the middlemen and, in doing so, exposed the extent of the dysfunctional payment chain. ‘By having one global society I bypassed all those intermediary structures. I was the guy who told the wife about all the mistresses the husband had; I showed everyone how much money the other companies were sitting on,’ he jokes.
This year sees yet another new chapter for the company. In September, Kobalt sold a controlling interest to global technology and media-focused investment firm Francisco Partners. ‘The music industry is more valued again and it has become much more capital intensive; suddenly we needed more capital to continue so we had a review and a funding reset,’ explains Ahdritz, who remains as chairman. ‘The next big step for Kobalt is to continue the growth of our global collection society, and get more players involved.’
This then, is what the ethical future of the music industry looks like. Ahdritz estimates that since Kobalt was set up in 2000, it has moved $10 billion in value to creators through higher payouts and rights. He has also seen the model being mimicked in other spheres and forced heavyweight competitors to up their game (for example, Universal Music Group recently announced a new global services division). ‘Because of its bandwidth, music is usually quite an early adopter of change so we were at the front when it came to seeing what the digital economy could do,’ he says.
Ultimately, it was this forward-facing vision and unwavering conviction in doing things differently that reshaped the entire system, and appealed to Cape Capital’s values. The only real question is why no-one thought to do it sooner.
‘No-one likes to challenge the oligopoly; sometimes you need to come from the outside. 'We were on a purpose-driven mission, determined to smash it up and do the right thing,’ he concludes. ‘With digital, everyone thought the music industry was dead; I was one of the few who believed in its transformation.’ Thankfully, for artists and musicians, he has proved to be right.
