Kobalt Founder Willard Ahdritz on the New State of the Music Industry
Guest post from the Midem 2020 Digital Edition Keynote. Kobalt founder Willard Ahdritz looks at the radical but not altogether negative effects the pandemic will have on musicians and the music industry.
There is definitely a lot of passion at Kobalt for our mission to change the industry and make it better for everyone, from fans to rights owners to creators, so when I came up with the idea for Kobalt in 2000, I saw three clear themes. First, I strongly believed in the digital transformation and the opportunities that came with it. As you know, it was doom and gloom up until 2015 – people said streaming was death. But already in 2000, I thought that having access to music on a global scale was a huge opportunity. I also understood that there would be a problem of high volume, low transaction values that could be solved with technology and a centralized global platform.
Second, I feel for creators and musicians and, having been in the industry both as an artist and having run an independent record and publishing company using the major’s systems, I wanted to introduce transparency into the industry. Technology needs transparency, and I thought transparency drives liquidity, drives volume. And in this, I also saw a huge opportunity for creators to improve their relationship with fans and be able to go directly to them and actually for the first time in music industry history, have the upper hand in being the content creators. I always wanted to be a service provider in order to be aligned with creators.
And lastly, I also thought it was very important that, to be successful in this environment, Kobalt should be both a music company and a tech company. I wanted to have respect both in Hollywood and in San Francisco to work with creators, understand their needs, take care of their copyrights, and at the same time speak the language of tech people and create tools that would allow everyone to benefit from the opportunities I saw.
Kobalt Founder Willard Ahdritz
How the pandemic has changed the way Kobalt works
So as you know, we take care of 40,000 creators. Every week, we represent 50 – 70% of the Top 100 on the charts. We have 14 offices around the world so we have an organization to take care of and I think we all feel sad for all the suffering we see everywhere. Not just in the music industry but physical suffering, so it is a tough time for a lot of people. At Kobalt, we closed our offices around the world on March 10th. Being a tech company, all employees have a laptop and we are all used to working remotely, globally, across borders. Within 24 hours we were all up and running remotely and after a week, our productivity actually went up. I think that shows Kobalt’s great spirit and we realize that supporting our creators and making sure they receive their distributions is even more important during these tough times.
How the business has changed during the pandemic
If we talk revenue side first, there are some financial reports out in the market that say publishing will be up 3% this year and 3.5% next year. We see a bigger impact in areas like synch, given that major film and TV productions have stopped. We know that live, which in certain territories in Europe is a good income for publishers, is lost for the time being. Performance fees from restaurants and bars have suffered but having said that,
PROs are delayed and only very few societies pay out directly what they have. Most pay out six months, twelve months after they have collected. So we see this being drawn out but overall, I think we can say that if we are -10% this year, we believe that we will be at +20% next year, that people will bounce back, and we see certain productions starting again around the world. There is talk about production hubs where people work and live to start TV production again.
We are lucky in publishing and in recording. At AWAL, our recording arm, it’s very much business as usual. It’s a digital streaming label and we are working marketing remotely so overall, we are doing very well. What is exciting is that we do get a lot of songs. Creatives have continued to create even more today so I believe later in the year or next year we are going to see some fantastic songs, fantastic music that is just now being written.
Reports on the global music economy
Don’t worry, the genie is out of the bottle when it comes to music and streaming. My comment on Goldman’s report, which is a very detailed report and has a lot of good data, is that overall I believe that short-term publishing will be negative this year rather than the 3% growth they mentioned just because of the impact on synch, live, and the restaurants and bars I mentioned. Having said that, I think we are going to bounce back and have 20% growth next year in publishing overall. I agree on the longer term growth they see in the coming ten years. In recordings, I’m actually more bullish than the Goldman report this year; I think they are too conservative as the business has moved so much to online or streaming, so I think we are going to see bigger growth than they are seeing on that point. And one very interesting take-away from the IFPI report that came out a couple of weeks ago is that independents have grown 38% last year and artists direct 42%. And if you include that 12% of what the majors do is distribute independents, it was really a fundamental shift for independents and access, which I thought could happen when I started Kobalt. I think there is a huge opportunity now for the middle tier artists that I have pushed for and believed in to live on their music. We can see now hundreds of thousands of artists that can live on their art. On average, we saw that at AWAL, artists are getting twice as much from recording royalties than from their touring income. So that is a fundamental change in artist economics, and that was pre-pandemic. And obviously that is even more important today. We have artists that you have never heard of – even if you’re a huge fan of live music and cool bands. We have hundreds and hundreds of bands that you have never heard about making $100,000 or more per annum in royalties. And for me, that is a great success in itself for fans, for culture, and for the artists and creators.
How AWAL artists are making more from recording royalties than steaming
It is about what kind of contracts you have entered into and how you are making sure that your money is reaching you. We have full transparency at Kobalt so for example in publishing, within our management, we have our own global digital society called AMRA. AMRA has deals with the 30 biggest DSPs in the world. We take in the global usage files, we match, and we send one invoice to Spotify for the global consumption and claim. I have audit rights on my society, our clients have audit rights on the society, and
as you maybe know, that is not the case in the traditional society environments. We have control of the cost, control over the information, as do our clients. That obviously drives more. On the AWAL side, we are a service provider and we deliver a different kind of deal. Having said that, there are also great record labels who put in big risk money upfront to do that so obviously the deals are different in a way but I have always said that breaking online globally is very different today. Today, you can be #1 without having one video. You have to know how to navigate, how to promote, to work gradually cross border in one go instead of working in one territory and trying to replicate that in a different territory.
Why independents had so much growth in 2019
I think it is the access to music that people can see today. You know yourself how you explore music, how you access music, how artists are recommending other artists they like or fans are recommending. And the latest data suggests that half the people in the UK listen to music through Facebook today. There’s more interesting access to music coming. Think about Tik Tok, where were they on the map two years ago? And in this pandemic, I see people are investing in how they can enjoy live streaming, how they can use new tools and new services. I think the pandemic will fast forward the transformation. I believe that the music industry will be even bigger than what we thought it would be pre-pandemic. Fundamentally, 85% of people think that music is essential or very important. Fundamental human behavior has not changed, so I am positive.
How Paul McCartney came to Kobalt
I can only say what I believe myself, that I met his advisor and lawyer, Lee Eastman, who followed me over the course of 5/6 years where I told them what we do, how we work. They did their due diligence, saw us delivering. In the end, they came on board and they were very happy that we delivered what we had told them we would. I like to say that Kobalt is the smart people’s platform, and clients recommend clients.
I think up to half of our clients have been recommended by someone they trust or they work with and they see on our apps or portal what we have delivered for them. It is very humbling that Max Martin and Paul McCartney are competing for who has the most #1s on the Billboard charts, and they are both clients.
What I find exciting is that technology treats everyone the same. I am pleased to say that whether you are Paul McCartney or the new young band, you keep your copyrights and get the same great service. We learn something new, we develop something, and we roll it out to every client.
That is how I think we create a great industry, how we create value for everyone in the industry.