Swedish Successes: Kobalt Music Group

Swedish Successes: Kobalt Music Group

Trust is good, but control is better,

according to Swedish entrepreneur William Ahdritz, founder and chairman of Kobalt Music Group. Kobalt Music Group is a collection of music companies mainly focussed on publishing, synchronisations, acquiring and selling copyrights, recorded music, copyright collection, and neighbouring rights. However, since the company’s founding in 2000, it has not operated at a profitable level yet. Therefore, what can Ahdritz do to take control and turn the company around?

In the year 2000, Ahdritz felt that royalties were being collected inefficiently and decided to found a company, Kobalt Music Group, with a singular mission; “Making the music industry more fair and rewarding for creators.” He wanted to give artists, songwriters, musicians, labels and publishers the freedom and transparency they needed to build their careers. (Kobalt, n.d.). Kobalt does this by utilizing non-traditional deal and business structures. Additionally, Kobalt has developed new technology that simplified the process of tracking and collecting royalty payments (Cleverism, n.d.).  

To achieve this mission, Ahdritz founded a music group containing several different sub businesses These can be broken down into 5 different entities:

Kobalt Music Publishing 

Kobalt Neighbouring Rights

AMRA (American Music Rights Association) – Kobalt’s version of a PRO (Performance Rights Organization) (Lunden, 2015)

Kobalt Capital (an investment firm focussed on copyright-acquisitions) (Musically, 2020)

Kobalt Label Services – Also known as AWAL (Artist Without An Label), music distribution and development

One of the industries Kobalt Music Group is active in, the publishing industry, is a volatile, but profitable industry. The division responsible for publishing is called Kobalt Music Publishing. Currently there are five big publishers active in this sphere, of which three are backed by ‘major’ companies; Sony/ATV Publishing (Sony Music Corp.), Warner/Chapell (Warner Music Group), and Universal Music Publishing Group (Vivendi) (Ingham, 2020). See Figure 1 for an overview of the market share division between these companies and Kobalt.

Figure 1

Market share of music publishers in the United States from 4th quarter 2017 to 1st quarter 2019

Note: Statista, 2021

As can be seen, Kobalt has been competing with Warner over who has the largest market share when rising up to the #3, only to lose it back to Warner. The industry changes from quarter to quarter and, as such, one can assume it is quite volatile.

Besides the volatility, the publishing industry is rife with consolidations, takeovers, mergers, and acquisitions. Big companies can be absorbed into even bigger companies and the industry is never the same from one year to the next. For example, recently, Downtown Music Publishing was sold to Concorde (Paine, 2021), and Bob Dylan sold his entire catalogue to Universal Music Publishing Group (Sisario, 2020). Additionally, Kobalt Capital, a different division within the Kobalt Music Group, also purchases copyrights, such as the music publisher Songs (Sisario, 2017) and sells copyrights, for example their deal with Hipgnosis for $322 million (Musically, 2020).

One of the reasons Kobalt has succeeded in breaking into the industry as a new player and maintaining their position was by offering superior technology. However, one can assume that the other three ‘major’ publishers will ‘reverse engineer’ technology of their own, and thus match the product level being offered across the field. What sets Kobalt apart are their non-traditional publishing deals; a songwriter can opt in and out at any moment’s notice, and the artist is charged a severely reduced percentage in comparison to other publishers (Alberti, n.d.). Besides their technology and innovative deal structures, it also seems Kobalt excels as a business, since they have won the Publisher of the Year award at Music Week several years since 2009 (Cleverism, n.d.), and recently won the ASCAP Pop Music Publisher of the Year Award (Stassen, 2020). Therefore, it makes sense that even superstars such as Paul McCartney would sign to Kobalt (Sisario, 2015). If the competition becomes fierce in the publishing industry, and Kobalt would lose market share, they fortunately have other business revenues as a music group, which can keep the company moving forward.

As mentioned before, Kobalt Music Group consists of several businesses. This means that they are not only dependent on publishing income for the financial health of the music group. They have expanded into music recordings with AWAL, neighbouring rights, and have acquired a Performance Rights Organisation called AMRA (Lunden, 2015).

Paradoxically, they are generating significant revenue, however, it seems that the Swedish music group is still operating at a loss. In 2019, their revenue grew to $543.4 million but at the same time their total losses equalled to $56.8 million (Musically, 2020). It seems they have opted for growth over profit. Furthermore, when looking closer, see Figure 2, the different revenue streams per company become apparent. These are the statistics from 2019 compared to the year before;

Figure 2

Kobalt Music Group income streams divided by company and compared to the year before

Company nameGrowth or decline of revenue streams compared to the year beforeAmount of revenue
Kobalt Publishing (including Kobal Capital)+27.9%$405.3 million
AWAL+86.1%$111.5 million
Kobalt Neighbouring Rights-25.4%$6.2 million
AMRA+46.3%$65.6 million


Note: Musically, 2020

It is apparent that Kobalt Publishing and Capital have by far the largest income revenue streams. Second to that is AWAL, their distribution and label services division. However, in February 2021, AWAL was sold to Sony for $430 million (Musically, 2021). It seems that this was an effort on Kobalt’s side to focus on their other businesses, since they also sold their neighbouring rights department to Sony in that same deal (Ingham, 2021). One can assume this means a short-term cash infusion for Kobalt Music Group and eventual ceasure of the income streams from these companies. Currently, Kobalt will be mainly dependent on Kobalt Publishing, Kobalt Capital and AMRA. This means their main activities will consist of publishing, synchronisations, buying and selling copyrights, and copyright licenses, and revenues. 

To strategize for Kobalt on how to turn the music group profitable, one can assume that the easiest way to increase profits is by cutting losses. Kobalt, for the past 21 years, has followed an aggressive growth strategy, by which they would raise capital investments to further finance their growth and operations (Musically, 2020). The actual need for profitability will flow from their long term strategy. If their strategy focuses on growth, it would seem better to focus on capital raising and expansion. However, if their strategy is to sell off a part or the entire company, it would be more sensible to increase the profitability to encourage interest (Paine, 2020). Based on Aswad (2020), Kobalt is potentially preparing for a sale, therefore, it would appear it is time to cut costs for Ahdritz and the team. There should be enough revenue to sustain the company based on their market share and the fact that the worldwide value of performance royalties alone in 2018 equaled to $8.5 billion and, moreover, is estimated to have grown to $11.7 billion in 2020 (Stone, 2020).

Control, which is so important to Ahdritz, will prove to be the key to turn around Kobalt Music Group. If their strategy is a sale of the company, they will need to cut down on costs. However, if the strategy is continued growth, they will need to raise capital and expand. Following these strategic changes, Ahdritz will have to trust on these decisions and for events to unfold. Perhaps trust and control combined will provide the ultimate combination.

References

Alberti, A. S. (n.d.). Kobalt Music Group: Redefining Music Publishing. http://www.thembj.org/2011/12/kobalt-music-group-redefining-the-role-of-a-music-publisher/

AMRA (n.d.). AMRA. https://www.amra.com/

Aswad, J. (September 16th, 2020). Kobalt Music Responds to Sale Rumors With a Long ‘Maybe’. https://variety.com/2020/music/news/kobalt-music-sale-rumors-maybe-1234772924/

Cleverism (n.d.). Careers at Kobalt Music Group. https://www.cleverism.com/company/kobalt-music-group/

Ingham, T. (February 1st, 2021). SONY MUSIC BUYS AWAL AND KOBALT NEIGHBOURING RIGHTS FROM KOBALT MUSIC GROUP. https://www.musicbusinessworldwide.com/sony-music-buys-awal-and-kobalt-neighbouring-rights-from-kobalt-music-group/

Ingham, T. (March 3rd, 2020). The Three Major Publishers Generated More than $3.2 Billion in 2019 — That’s $369,000 Per Hour. https://au.rollingstone.com/music/music-features/the-three-major-publishers-generated-more-than-3-2-billion-in-2019-thats-369000-per-hour-8114/

Kobalt (n.d.). About. https://www.kobaltmusic.com/company

Lunden, I. (June 8th, 2015). Kobalt Quietly Acquired AMRA To Launch Its Own Global Collection Group For Digital Music. https://techcrunch.com/2015/06/08/kobalt-quietly-acquired-amra-to-launch-its-own-global-collection-group-for-digital-music/

Musically (April 1st, 2020). Kobalt revenues grew in its last fiscal year – but so did losses. https://musically.com/2020/04/01/kobalt-revenues-grew-in-its-last-fiscal-year-but-so-did-losses/

Musically (February 2nd, 2021). Sony Music’s $430m Awal acquisition makes waves. What next? https://musically.com/2021/02/02/sony-musics-430m-awal-acquisition-makes-waves-what-next/

Musically (November 2nd, 2020). Hipgnosis ups the ante with $322.9m Kobalt Capital deal. https://musically.com/2020/11/02/hipgnosis-ups-the-ante-with-322-9m-kobalt-capital-deal/

Paine, A. (April 26th, 2021). Concord acquires 145,000 music copyrights from Downtown in huge publishing deal. https://www.musicweek.com/publishing/read/concord-acquires-145-000-music-copyrights-from-downtown-in-huge-publishing-deal/083132

Paine, A. (Spetember 17th, 2020). Kobalt responds to reports of sale plan. https://www.musicweek.com/publishing/read/kobalt-responds-to-reports-of-sale-plan/081158

Sisario, B. (December 8th, 2017). Songs, Music Publisher of Lorde and Diplo, Bought by Kobalt. https://www.nytimes.com/2017/12/08/business/media/songs-music-publishing-kobalt.html?searchResultPosition=3

Sisario, B. (December 7th, 2020). Bob Dylan Sells His Songwriting Catalog in Blockbuster Deal. https://www.nytimes.com/2020/12/07/arts/music/bob-dylan-universal-music.html

Sisario, B. (June 8th, 2015). Going to the Ends of the Earth to Get the Most Out of Music. https://www.nytimes.com/2015/06/08/business/media/going-to-the-ends-of-the-earth-to-get-the-most-out-of-music.html?searchResultPosition=4

Stassen, M. (June 17th, 2020). KOBALT WINS ASCAP POP MUSIC PUBLISHER OF THE YEAR AWARD. https://www.musicbusinessworldwide.com/kobalt-wins-ascap-pop-music-publisher-of-the-year-award/

Statista (January 8th, 2021). Market share of music publishers in the U.S. Q4 2017-Q1 2019. https://www.statista.com/statistics/983264/quarterly-market-share-of-music-publishers-us/

Stone, J. (2020). The State of the Music Industry in 2020. https://www.toptal.com/finance/market-research-analysts/state-of-music-industry

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