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Kobalt Music Founder/CEO Willard Ahdritz, left, at the Rethink Music conference.
PART 1: Changing the Game of Music Publishing
By: Lisa Occhino
Although there are many great things about the music industry, it is also unfortunately notorious for a lack of transparency, and as a result, screwing over countless artists and songwriters. Amidst all of the payola, withheld royalties, empty promises, and sneaky tactics, what gives me hope for the future of the music industry, specifically the publishing aspect, is that there are certain individuals who not only see that there is a huge problem with the old system, but are actually trying to do something about changing it. The brains behind companies like Kobalt Music and TuneCore (to be discussed in “Part 2: Do We Even Need Record Labels Anymore?”) are putting the power back into the artists’ and songwriters’ hands with fair deals, efficient systems, and most importantly, transparency.
Let’s take a look at your typical administration deal. In order to make this deal, the songwriter usually must have a lot of bargaining power. Unlike other types of publishing agreements, absolutely none of the copyright ownership is transferred to the publisher; the writer retains 100% ownership of the songs. The term of the contract tends to be much shorter – usually two to three years, but in some cases just one year with one option. There is usually no song plugging on the publisher’s end, and advances are rare. The publisher’s only responsibility is to take care of administrative duties. The usual fee is about 10-15% of gross income.
With songwriters, artists, and musicians increasingly demanding more transparency in all aspects of the music industry, it seems that admin deals are now becoming more of a trend in the publishing world. In fact, some new, independent publishers only offer admin deals to songwriters. This new business model is generally frowned upon, or even laughed about, by the major publishers who have been around since the beginning. The majors’ way of making money has always been to sit on it for as long as possible, sometimes for three to five years, to generate interest on it before they begrudgingly fork it over to the songwriters.
Enter new publishers like Kobalt Music, who cut down royalty payment time by an average of two years. Kobalt may not be squeezing every dollar they can get out of the royalties to keep for themselves, but I firmly believe that their customer service and trust-based relationships with their clients will ensure them a long and successful future.
By delivering royalty payments with more transparency and accountability, Kobalt Music has grown a superstar roster of artists and songwriters, including Pearl Jam, Joss Stone, Max Martin, Lukasz “Dr. Luke” Gottwald, Kelly Clarkson, Herbie Hancock, Skrillex, and OneRepublic’s Ryan Tedder. Kobalt’s system cuts out the middlemen, and as a result they are able to deliver faster and larger royalty payments to their clients – specifically, an average of 25% more revenue than other publishers in about half the time.
They currently have a 98.5% retention rate; quite obviously, they must be on to something. According to an article in the January 2012 issue of Billboard, Kobalt claims to give their clients superior global tracking by granting them online access to a wide range of all the information that makes up a royalty statement.
However, some major publishers are finally starting to catch on to songwriters’ increasing demand for transparency, and are making moves right alongside Kobalt to keep their clients happy. For instance, Universal Music Publishing Group launched Royalty Window in 2008, which allows clients to track and analyze information about their royalties online. BMG Rights Management has launched a similar online system. In 2009, Sony/ATV Music Publishing also introduced their new royalty processing system, while EMI Music Publishing has overhauled their entire royalty tracking system over the past five years.
I had the opportunity to interview Kobalt’s Founder and CEO, Willard Ahdritz, at the 2012 Rethink Music conference. Ahdritz explained that the idea for Kobalt arose out of frustration with the inefficiency of the technological systems and databases used in the music industry, especially when compared to other industries. When he worked in the airline industry, he “saw how you could take care of data and transparency, and how other industries were running efficiently. It was a culmination of the artist experience on the frontline… and also from an industry structure point of view.” Through his experience as the co-founder of Sweden’s Telegram Records and Publishing (now part of Warner Music) and signing hit songwriters such as Max Martin, Ahdritz gained extensive insight on the systematic issues within the music industry.
“I had hits throughout the world, and I was waiting two to three years for my money,” he explains. “And you were getting statements that you couldn’t understand… I was very frustrated, and my artists were even more frustrated… so through my own experience, I have a need for transparency and a need for trust.”
So what is exactly is Kobalt doing differently from other publishing companies? According to Ahdritz, they are “taking code and tech people and changing the existing industry structure.” He “removed the middle man, put in the simplest organization, coupled with a scalable relational database management system capable of handling billions of transactions.”
Some people might assume that since Kobalt is a service company and not taking any copyright ownership that their songwriter agreements are typical administration deals with no advances or creative team. Not so. “I have 60 synch and creative people… We have as many synch pitchers as Universal,” says Ahdritz. “In the latest Superbowl, we had four ads. We have hundreds of licensing deals per week. Which you can understand – we have 15% of the market share.” Kobalt has secured $50 million from five investment firms, which will be used to pay out advances, and also to fund its new artist-services business.
Ahdritz expressed that from his point of view, he is “one hundred percent certain that the music industry would gain value if they had a more open approach rather than the current business practices.” However, when asked if he thinks other publishing companies will follow Kobalt’s lead in terms of business model and structure, he replied, “We don’t usually comment on other companies. We see ourselves as different. You need to ask them.”
But he did explain that services are better if risk is lower, and that’s where he sees Kobalt heading. “We’ve seen a big consolidation of existing players – people are buying, buying, buying,” he says. “But for new catalogues, I think we can see that Kobalt is taking a significant share of new work. With more tools, more information, and more service, people are going say, ‘This is my best choice.’”
Click here to read “Part 2: Do We Even Need Record Labels Anymore?” which includes an interview with Billboard Editorial Director Bill Werde.