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A slide from Kobalt CEO Willard Ahdritz's Rethink Music presentation.
By: Lisa Occhino
*Please first read PART 1: Changing the Game of Music Publishing.
Kobalt is expanding into label services, pulling from several more revenue streams than traditional publishing companies are able to do. Ahdritz says there are 5,000 artists on the label side, and sign-up for the service is open to everyone. “It’s a simpler process, a one-pager,” he says. “But in publishing, it’s quite a complex process with complex agreements. You need to register people worldwide. You need to have a certain amount of revenue or catalog for us to sign you [for a publishing deal].”
In 2011, Kobalt added neighboring rights to their services. This lesser-known but potentially very profitable field refers to broadcast performances royalties for artists and master-rights owners, not those paid to songwriters and publishers. “Many in the U.S. music industry harbor the illusion that American acts aren’t entitled to performance rights from foreign terrestrial-radio broadcasts,” Ed Christman explains in his Billboard article. “That’s because the United States has no such royalty itself, although those rights do exist for satellite radio and Web broadcasts. Nevertheless, the majors and most savvy independents generally get paid their label share of performance royalties from abroad, mainly by setting up offices outside the United States.” If an album was recorded or released in a foreign country within 30 days of its U.S. release, American artists are eligible to receive foreign terrestrial radio royalties. Ahdritz believes that the neighboring rights field is worth €1.5 billion annually and is underserved. Adding this service to Kobalt has given his company yet another competitive edge that comparable publishers now have to contend with, especially since Kobalt collects these royalties directly from societies around the world.
Continuing on their hunt for new revenue streams, Kobalt made a bold move by acquiring AWAL (Artists Without a Label), a U.K. digital music distributor. “By expanding into label services, Ahdritz says Kobalt is addressing a fundamental shift in the marketplace,” reports Christman. “With more artists opting against label deals to retain control of their masters, managers are discovering that a DIY approach to retail is more complicated than they realized.”
Ahdritz believes the time is right for a scalable and professional enterprise-grade operation to handle the challenges of the current music industry. “You can see what Kobalt has achieved in publishing,” he says. “In looking at the opportunity on the label side of the business, who better than Kobalt to take on the heat of those challenges and make it work?”
The publishing industry has been growing steadily 2-3% per year, but over the past decade or so, the entire game has changed. “An enormous shift has happened,” Ahdritz explains. “When I started Kobalt, it was a $7 billion industry, and 50% of my income was from mechanical royalties. Today, we’re at $10 billion, and mechanical royalties are at 15-20%. Publishing income was improved with income from video games, or streaming, or radio, or live – and that’s compensated for the big shift.”
But will those additional publishing revenue streams be enough to fully compensate for all the losses we’ve been seeing? “Everyone would like to have more income,” he says. “But if you’re just a songwriter, you have not really had lower revenues over the years. Obviously, if you’re a pop writer today you have even more income. Artists today who have lost a lot of record royalties are looking for more synchs. The key point is understanding that synchs are used as a way to drive awareness. It’s not about the revenue; it’s the exposure for acts. Snow Patrol broke out because of a ‘Grey’s Anatomy’ synch. So it’s money, but it’s also exposure.”
I also had the opportunity to interview Bill Werde, the Editorial Director of Billboard, who had this to say about the publishing business: “I don’t know that you’re going to see the same speed of the disaggregation of the majors in the publishing business that you’re seeing on the recorded side. What the majors can do in publishing is very different from what indies can do in publishing. If the game is to get your music purchased on iTunes or into the Spotify catalogue, an indie label these days can do that just as well as a major label. So then you start getting into some of the economics and the incentives of why you do this versus that.”
Although we may not be seeing the same speed of disaggregation on the publishing side as we are on the recording side, there is no doubt that independent, online DIY music publishers are quickly becoming a hot topic. TuneCore, a digital music distribution service, entered the publishing realm with the launch of their Songwriter Service this past November. They make it extremely easy to sign up (you literally just click a button), and the terms of the contract essentially represent an admin deal: they take a 10% fee and the songwriter retains full copyright ownership. For an upfront fee of $50, the service registers a songwriter’s copyrights with collection societies around the world, and claims that they will find royalties for you that you would otherwise have no way of getting.
On May 2, 2012, TuneCore announced that they have integrated with Topspin, essentially offering artists the entire music industry under one DIY roof. They are combining TuneCore’s worldwide digital distribution and publishing services with Topspin’s direct-to-fan, marketing, and promotional services.
This concept of a one-stop shop for independent musicians has been my prediction for what a prominent part of the future music industry would look like, so it’s very interesting to see that it’s already starting to happen. I’m sure that within the next couple of years, similar business models will be popping up all over the place, and thus competition for a new type of service will be created, giving artists and songwriters a plethora of options to choose from yet again. It is truly becoming a do-it-yourself industry, but my question is: if everyone can now “do it themselves,” how much more will artists have to do to cut through the noise and get noticed? In the past, the gatekeepers were the ones who had the biggest hand in deciding which artists would be known, and which wouldn’t. 20 years ago, there was no way you could be a successful artist if you weren’t signed to a record label. These days, you can become a star by going viral on YouTube, or make money by just having your music on iTunes. It’s gradually becoming easier and more commonly acceptable to not have any physical merchandise. And now, the next big wave is streaming and the “cloud.” They want you to feel like you own the music without actually owning anything – not even an MP3 file anymore.
So, where do we go from here? First of all, let me just say that I find it very intriguing and rather exciting to be living during this period of time. Mankind will never experience this transitional period in the music industry again. Technology has advanced so quickly, and some industries are struggling – or reluctant – to keep up. Since we are now capable of having such efficient systems and databases, there is no reason why the music industry should be holding onto old tactics just because it makes them feel like they have more power.
My vision of the future of the music industry is that artists, musicians, and songwriters will hold the power. Gatekeepers are barely needed anymore. A&R people are now acting more like managers. There’s simply not enough budget to spend on discovering, developing, and branding a new artist anymore; labels want pre-packaged deals with a built-in fanbase. They can no longer afford to invest that kind of time into an act.
Access to the internet also means access to potentially any information you want. Anyone who wants to inform themselves about the ins and outs of the music industry now has the means to do so. Educated musicians now know what to look out for. And just from my own personal observations, the number of people whose goal it is to get signed by a major label has dwindled down significantly over the past 10 or so years.
This is exactly why I think that companies like Kobalt and TuneCore are on to something. Since the labels are no longer doing the jobs that artists and songwriters want them to do, independent publishing companies are going to start picking up the slack – not to mention the bucks. No one knows for sure where the music industry will end up five years from now – heck, even five months from now. But one thing that’s for certain is that we’re watching the old model crumble, slowly but surely. What it will be replaced with remains to be seen.