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How Kobalt is simplifying the killer complexities of the music industry

Published September 11, 2019

Backed by over $200 million in VC funding, Kobalt is changing the way the music industry does business and putting more money into musicians’ pockets in the process.

In Part I of this series, I walked through the company’s founding story and its overall structure. There are two core theses that Kobalt bet on: 1) that the shift to digital music could transform the way royalties are tracked and paid, and 2) that music streaming will empower a growing middle class of DIY musicians who find success across countless niches.

How a Swedish saxophonist built Kobalt, the world’s next music unicorn

This article focuses on the complex way royalties flow through the industry and how Kobalt is restructuring that process (while Part III will focus on music’s middle class). The music industry runs on copyright administration and royalty collections. If the system breaks — if people lose track of where songs are being played and who is owed how much in royalties — everything halts.

Kobalt is as much a compliance tech company as it is a music company: it has built a quasi “operating system” to more accurately and quickly handle this using software and a centralized approach to collections, upending a broken, inefficient system so everything can run more smoothly and predictably on top of it. The big question is whether it can maintain its initial lead in doing this, however.

The business of a song

Image via Getty Images / Mykyta Dolmatov

How a Swedish saxophonist built Kobalt, the world’s next music unicorn

Published August 9, 2019

You may not have heard of Kobalt before, but you probably engage with the music it oversees every day, if not almost every hour. Combining a technology platform to better track ownership rights and royalties of songs with a new approach to representing musicians in their careers, Kobalt has risen from the ashes of the 2000 dot-com bubble to become a major player in the streaming music era. It is the leading alternative to incumbent music publishers (who represent songwriters) and is building a new model record label for the growing “middle class’ of musicians around the world who are stars within niche audiences.

Having predicted music’s digital upheaval early, Kobalt has taken off as streaming music has gone mainstream across the US, Europe, and East Asia. In the final quarter of last year, it represented the artists behind 38 of the top 100 songs on U.S. radio.

Along the way, it has secured more than $200 million in venture funding from investors like GV, Balderton, and Michael Dell, and its valuation was last pegged at $800 million. It confirmed in April that it is raising another $100 million to boot. Kobalt Music Group now employs over 700 people in 14 offices, and GV partner Avid Larizadeh Duggan even left her firm to become Kobalt’s COO.

How did a Swedish saxophonist from the 1980s transform into a leading entrepreneur in music’s digital transformation? Why are top technology VCs pouring money into a company that represents a roster of musicians? And how has the rise of music streaming created an opening for Kobalt to architect a new approach to the way the industry works?

Gaining an understanding of Kobalt and its future prospects is a vehicle for understanding the massive change underway across the global music industry right now and the opportunities that is and isn’t creating for entrepreneurs.

This article is Part 1 of the Kobalt EC-1, focused on the company’s origin story and growth. Part 2 will look at the company’s journey to create a new model for representing songwriters and tracking their ownership interests through the complex world of music royalties. Part 3 will look at Kobalt’s thesis about the rise of a massive new middle class of popular musicians and the record label alternative it is scaling to serve them.

Early lessons on the tough road of entrepreneurship

Image via Kobalt Music

It’s tough to imagine a worse year to launch a music company than 2000. Willard Ahdritz, a Swede living in London, left his corporate consulting job and sold his home for £200,000 to fully commit to his idea of a startup collecting royalties for musicians. In hindsight, his timing was less than impeccable: he launched Kobalt just as Napster and music piracy exploded onto the mainstream and mere months before the dot-com crash would wipe out much of the technology industry.

The situation was dire, and even his main seed investor told him he was doomed once the market crashed. “Eating an egg and ham sandwich…have you heard this saying? The chicken is contributing but the pig is committed,” Ahdritz said when we first spoke this past April (he has an endless supply of sayings). “I believe in that — to lose is not an option.”

Entrepreneurial hardship though is something that Ahdritz had early experience with. Born in Örebro, a city of 100,000 people in the middle of Sweden, Ahdritz spent a lot of time as a kid playing in the woods, which also holding dual interests in music and engineering. The intersection of those two converged in the synthesizer revolution of early electronic music, and he was fascinated by bands like Kraftwerk.

3 lessons from Roblox’s growth to gaming dominance

Published July 16, 2019

Our recently published EC-1 on Roblox recounts the origin story and growth prospects of the company. But there’s one more piece to the story: what Roblox’s impact will be on gaming and the broader startup industry, if the company manages to multiply its current 90 million users.

Sources: TechCrunch, VentureBeat, Roblox

We’ve distilled three key ideas out of the EC-1 — lessons that may apply not only to game developers and gaming entrepreneurs, but also to the broader startup industry.

Lesson 1: UGC is a missed opportunity in games

Roblox has shown that user-generated content (UGC) is a missed opportunity for much of the game industry. The company aspires, in a way, to be the YouTube of games. And it is succeeding, with 50 million experiences from 2 million creators to date.

The game industry generally has two problems with UGC. One is the games themselves: AAA games today are too complex, and lack the flexibility and simplicity needed for robust UGC. Roblox shows that a simpler look and feel is a valid alternative to today’s super-sized, beautiful AAA games. (Minecraft proved much the same.)

The other problem is the greater complexity of making games than, say, videos or music. Roblox solved this problem by building its own game engine, which is designed solely to output Roblox-style experiences.

But increasingly, engines like Unity are capable of accomplishing similar feats: games are getting easier to build. It’s now possible that savvy entrepreneurs could build a platform like Roblox, without building an entire game engine.

Lesson 2: New opportunities in gaming are still coming

The game industry is infamously cyclical. New platforms emerge, become promising, then grow overcrowded and competitive. Usually, this cycle relates to hardware (the iPhone, virtual reality helmets, game consoles like the Nintendo Switch) or massive changes in consumer behavior (the emergence of Facebook, the early growth of the internet). But Roblox, a pure software play, shows that exceptions could exist.

It’s still early days. Roblox reported that it paid out $30 million to game developers in 2017, doubling to $60 million in 2018. Developers receive a quarter of the revenue made from their games, with another quarter covering payment processing and another quarter covering cloud hosting. Its top 10 developers made about $3 million on average each. Seven of its games have also entered a “billion plays” club:

Meep City – 3.7 billion visits
Jailbreak – 2.8 billion
Royale High – 1.7 billion
Murder Mystery 2 – 1.7 billion
Work at a Pizza Place – 1.6 billion
Adopt Me – 1.3 billion
Welcome to Bloxburg – 1.0+ billion

Adopt Me, a newer game, hit 440,000 concurrent users in June, a new record for the platform.

When a new platform appears, it’s usually found by amateur developers first. That’s certainly the case with Roblox: its successes are being created almost exclusively by first-time game developers in their teens and twenties. At some point, professional developers are likely to conclude they can do at least as well. The current market is particularly exciting because many games are fairly simple and lightweight — recent breakout hits like Camping 2 and Weight Lifting Simulator 3 are significantly smaller than comparable games on other platforms.

For entrepreneurs interested in creating new platforms or portals Roblox’s success as a combined game engine and self-contained platform also shows that opportunities still exist — if you have the patience to wait for them to mature.

Lesson 3: Patience can create amazing growth cycles

It took Roblox 15 years to grow to its current point. But most of that growth is recent: as seen in the chart above, Roblox experienced 10x growth in about 3 years, from 9 million users in February 2016 to 90 million in April 2019.

So what went into the decade or so during which Roblox was a much smaller platform? As we tell it in the origin story: a great deal of work, and very little paid acquisition.

In its early years, Roblox did buy users, to seed a user base while it worked on an impossibly large vision that included a game engine, platform, social features, a creator community, and its own games. But after a few years, it stopped buying users.

All of its growth since has been organic. That’s from two main sources: word of mouth, and YouTube users who watch one of the many Roblox streamers. Of course, any company can try to do the same. But Roblox had the patience to build a unique product — one which took years of work to even reach partial completion.

The key to it all was long-term adherence to a long-term goal: the creation of a new category, which it calls “human coexperience”. Today, Roblox still can’t be called part of a new category; it’s a game platform. But with more years of work, it may eventually get there.

For more on the Roblox story, see Part 1: The Origin Story, and Part 2: The Business Plan.

How Roblox avoided the gaming graveyard and grew into a $2.5B company

Update: TechCrunch corrected “2 million experiences” to be 50 million experiences from 2 million creators. We also provided more context of the revenue breakdown of payments made on Roblox to developers.

Digging into the Roblox growth strategy

Published July 12, 2019

Could Roblox create a new entertainment and communication category, something it calls “human co-experience”?

When it was a small startup, few observers would have believed in that future. But after 15 years — as told in the origin story of our Roblox EC-1 — the company has accumulated 90 million users and a new $150 million venture funding war chest. It has captured the imagination of America’s youth, and become a startup darling in the entertainment space.

But what, exactly, is human co-experience? Well, it can’t be described precisely — because it’s still an emerging category. “It’s almost like that fable where the nine blind men are touching and describing an elephant.

Everyone has a slightly different view,” says co-founder and CEO Dave Baszucki. In Roblox’s view, co-experience means immersive environments where users play, explore, talk, hang out, and create an identity that’s as thoroughly fleshed out (if not as fleshy) as their offline, real life.

But the next decade at Roblox will also be its most challenging time yet, as it seeks to expand from 90 million users to, potentially, a billion or more. To do so, it needs to pull off two coups.

First, it needs to expand the age range of its players beyond its current tween and teen audience. Second, it must win the international market. Accomplishing both of these will be a puzzle with many moving parts.

What Roblox is today

One thing Roblox has done very well is appeal to kids within a certain age range. The company says that a majority of all 9-to-12-year-old children in the United States are on its platform.

Within that youthful segment, Roblox has arguably already created the human co-experience category. Many games are more cooperative than competitive, or have goals that are unclear or don’t seem to matter much. One of Roblox’s most popular games, for instance, is MeepCity, where players can run around and chat in virtual environments like a high school without necessarily interacting with the game mechanics at all.

What else separates these environments from what you can see today on, say, the App Store or Steam? A few characteristics seem common.

For one, the environments look rough. One Robloxian put the company’s relaxed attitude toward looks as “not over-indexing on visual fidelity.”

Roblox games also ignore the design principles now espoused by nearly every game company. Tutorials are infrequent, user interfaces are unpolished, and one gets the sense that KPIs like retention and engagement are not being carefully measured.

That’s similar to how games on platforms like Facebook and the App Store started out, so it seems reasonable to say Roblox is just in a similarly early stage. It is — but it’s also competing directly with mobile games that are more rigorously designed. Over half of its players are on smartphones, where they could have chosen a free game that looks more polished, like Fortnite or Clash of Clans.

The more accurate explanation of why Roblox draws big player numbers is that there’s a gap in the kids entertainment market. So far, only Roblox fills that gap, despite its various shortcomings.

“The amount of unstructured, undirected play has been declining for decades. [Kids] have much more homework, and structured activities like theater after school.

One of the big unmet needs we solve is to give kids a place to have imagination,” explains Craig Donato, Roblox’s chief business officer. “If you play the experiences on our platform, you’re not playing to win. You go into these worlds with people you know and share an experience.”

Games like The Sims tried to do the same, but eventually faded in the children’s demo. Roblox’s trick has been continued growth: it provides kids with an endless array of games that unlock their imagination. But just like we don’t expect adults to have fun with Barbie dolls, it’s unlikely most adults would enjoy Roblox games.

Of course, it would be easy to point at Roblox and laugh off its ambitions to win over people of all ages. That laughter would also be short-sighted.

As David Sze, the Greylock Partners investor who led Roblox’s most recent round, pointed out: “When we invested in Facebook there was a huge amount of pushback that nobody would use it outside college.” Companies that have won over one demographic have a good chance of winning others.

Roblox has also proven its ability to evolve. At one time, the platform’s players were 90 percent male. Now, that’s down to about 60 percent. Roblox now has far more girls playing than the typical game platform.

Evolving to new demographics

How Roblox avoided the gaming graveyard and grew into a $2.5B company

Published July 11, 2019

There are successful companies that grow fast and garner tons of press. Then there’s Roblox, a company which took at least a decade to hit its stride and has, relative to its current level of success, barely gotten any recognition or attention.

Why has Roblox’s story gone mostly untold? One reason is that it emerged from a whole generation of gaming portals and platforms. Some, like King.com, got lucky or pivoted their business. Others by and large failed.

Once companies like Facebook, Apple and Google got to the gaming scene, it just looked like a bad idea to try to build your own platform — and thus not worth talking about. Added to that, founder and CEO Dave Baszucki seems uninterested in press.

But overall, the problem has been that Roblox just seemed like an insignificant story for many, many years. The company had millions of users, sure. So did any number of popular games. In its early days, Roblox even looked like Minecraft, a game that was released long after Roblox went live, but that grew much, much faster.

Yet here we are today: Roblox now claims that half of all American children aged 9-12 are on its platform. It has jumped to 90 million monthly unique users and is poised to go international, potentially multiplying that number. And it’s unique. Essentially all other distribution services offering games through a portal have eventually fizzled, aside from some distant cousins like Steam.

This is the story of how Roblox not only survived, but built a thriving platform.

Seeds of an idea

(Photo by Steve Jennings/Getty Images for TechCrunch)

Before Roblox, there was Knowledge Revolution, a company that made teaching software. While designed to allow students to simulate physics experiments, perhaps predictably, they also treated it like a game.

“The fun seemed to be in building your own experiment,” says Baszucki. “When people were playing it and we went into schools and labs, they were all making car crashes and buildings fall down, making really funny stuff.” Provided with a sandbox, kids didn’t just make dry experiments about mass or velocity — they made games, or experiences they could show off to friends for a laugh.

Knowledge Revolution was founded in 1989, by Dave Baszucki and his brother Greg (who didn’t later co-found Roblox, but is now on its board). Nearly a decade later, it was acquired for $20 million by MSC Software, which made professional simulation tools. Dave continued there for another four years before leaving to become an angel investor.

Baszucki put money into Friendster, a company that pre-dated Facebook and MySpace in the social networking category. That investment seeded another piece of the idea for Roblox. Taken together, the legacy of Knowledge Revolution and Friendster were the two key components undergirding Roblox: a physics sandbox with strong creation tools, and a social graph.

Baszucki himself is a third piece of the puzzle. Part of an older set of entrepreneurs, which might be called the Steve Jobs generation, Baszucki’s archetype seems closer to Mr. Rogers than Jobs himself: unfailingly polite and enthusiastic, never claiming superior insight, and preferring to pass credit for his accomplishments on to others. In conversation, he shows interests both central and tangential to Roblox, like virtual environments, games, education, digital identity and the future of tech. Somewhere in this heady mix, the idea of Roblox came about.

The first release

Nine lessons on how Niantic reached a $4B valuation

Published May 1, 2019

We’ve captured much of Niantic’s ongoing story in the first three parts of our EC-1, from its beginnings as an “entrepreneurial lab” within Google, to its spin-out as an independent company and the launch of Pokémon GO, to its ongoing focus on becoming a platform for others to build augmented reality products upon.

The Niantic EC-1

It’s not an origin story that serves as an easily replicable blueprint — but if we zoom out a bit, what’s to be learned?

A few key themes stuck with me as I researched Niantic’s story so far. Some of them – like the challenges involved with moving millions of users around the real world – are unique to this new augmented reality that Niantic is helping to create. Others – like that scaling is damned hard – are well-understood startup norms, but interesting to see from the perspective of an experienced team dealing with a product launch that went from zero to 100 real quick.

The reading time for this article is 21 minutes (5,125 words).

Build on top of what works best

Everything Niantic has built so far is an evolution of what the team had built before it. Each major step on Niantic’s path has a clear footprint that precedes it; a chunk of DNA that proved advantageous, and is carried along into the next thing.

Looking back, it’s a cycle we can see play out on repeat: build a thing, identify what works about it, trim the extra bits, then build a new thing from that foundation.

Harry Potter, the Platform, and the Future of Niantic

Published April 12, 2019

What is Niantic? If they recognize the name, most people would rightly tell you it’s a company that makes mobile games, like Pokémon GO, or Ingress, or Harry Potter: Wizards Unite.

But no one at Niantic really seems to box it up as a mobile gaming company. Making these games is a big part of what the company does, yes, but the games are part of a bigger picture: they are a springboard, a place to figure out the constraints of what they can do with augmented reality today, and to figure out how to build the tech that moves it forward. Niantic wants to wrap their learnings back into a platform upon which others can build their own AR products, be it games or something else. And they want to be ready for whatever comes after smartphones.

Niantic is a bet on augmented reality becoming more and more a part of our lives; when that happens, they want to be the company that powers it.

This is Part 3 of our EC-1 series on Niantic, looking at its past, present, and potential future. You can find Part 1 here and Part 2 here. The reading time for this article is 24 minutes (6,050 words)

The platform play

After the absurd launch of Pokémon GO, everyone wanted a piece of the AR pie. Niantic got more pitches than they could take on, I’m told, as rights holders big and small reached out to see if the company might build something with their IP or franchise.

But Niantic couldn’t build it all. From art, to audio, to even just thinking up new gameplay mechanics, each game or project they took on would require a mountain of resources. What if they focused on letting these other companies build these sorts of things themselves?

That’s the idea behind Niantic’s Real World Platform. This platform is a key part of Niantic’s game plan moving forward, with the company having as many people working on the platform as it has on its marquee money maker, Pokémon GO.

There are tons of pieces that go into making things like GO or Ingress, and Niantic has spent the better part of the last decade figuring out how to make them all fit together. They’ve built the core engine that powers the games and, after a bumpy start with Pokémon GO’s launch, figured out how to scale it to hundreds of millions of users around the world. They’ve put considerable work into figuring out how to detect cheaters and spoofers and give them the boot. They’ve built a social layer, with systems like friendships and trade. They’ve already amassed that real-world location data that proved so challenging back when it was building Field Trip, with all of those real-world points of interest that now serve as portals and Pokéstops.

Niantic could help other companies with real-world events, too. That might seem funny after the mess that was the first Pokémon GO Fest (as detailed in Part II). But Niantic turned around, went back to the same city the next year, and pulled it off. That experience — that battle-testing — is valuable. Meanwhile, the company has pulled off countless huge Ingress events, and a number of Pokémon GO side events called “Safari Zones.” CTO Phil Keslin confirmed to me that event management is planned as part of the platform offering.

As Niantic builds new tech — like, say, more advanced AR or faster ways to sync AR experiences between devices — it’ll all get rolled into the platform. With each problem they solve, the platform offering would grow.

But first they need to prove that there’s a platform to stand on.

Harry Potter: Wizards Unite

Niantic’s platform, as it exists today, is the result of years of building their own games. It’s the collection of tools they’ve built and rebuilt along the way, and that already powers Ingress Prime and Pokémon GO. But to prove itself as a platform company, Niantic needs to show that they can do it again. That they can take these engines, these tools, and, working with another team, use them for something new.

The definitive Niantic reading guide

Published April 10, 2019

In just a few years, Niantic has evolved from internal side project into an independent industry trailblazer. Having reached tremendous scale in such a short period of time, Niantic acts as a poignant crash course for founders and company builders. As our EC-1 deep-dive into the company shows, lessons from the team’s experience building the Niantic’s product offering remain just as fresh as painful flashbacks to the problems encountered along the way.

As we did for our Patreon EC-1, we’ve poured through every analysis we could find on Niantic and have compiled a supplemental list of resources and readings that are particularly useful for getting up to speed on the company.

Reading time for this article is about 9.5 minutes. It is part of the Extra Crunch EC-1 on Niantic. Feature illustration by Bryce Durbin / TechCrunch.

I. Background: The Story of Niantic

Google-Incubated Niantic, Maker of Ingress, Stepping Out on Its Own | August 2015 | In August of 2015, Niantic announced that it would spin out from Google and become an independent company. As discussed in WSJ’s coverage of the news, Niantic looked at the spin out as a way to accelerate growth and collaborate with the broader entertainment ecosystem.

An Equity deep dive on Patreon

Published April 8, 2019

The popular TechCrunch podcast Equity this week launched a new series called Equity Dive, wherein a host interviews the writer of the latest edition of the Extra Crunch EC-1.

If you’ve ever wanted to know everything there is to know about Patreon, the platform that connects creators with fans and their wallets, then this is the show for you. TechCrunch Silicon Valley editor Connie Loizos speaks with Eric Peckham who spent hours upon hours meeting with the Patreon team to learn its origin story and the ins and outs of its business practices to get the company to where it is today.

As Eric says:

The way to think about how Patreon has evolved is I see it in kind of three stages, which was this initial crowd funding platform, and then evolving beyond that to try and be a destination platform for consumers where there would be great content that you just go to Patreon to find and you go to discover creators, kind of a marketplace model. They moved away from that. That was somewhat of a gradual shift and essentially the decision was it’s not good to be stuck in this game of trying to be yet another destination platform for consumers competing with YouTube and Instagram and every single media site out there. Really the opportunity and mission underlies our work is about helping creators and enabling all these independent creators to sustain themselves and to build thriving businesses.

They shifted, they now describe themselves as a SaaS company actually, which is very different from framing yourself as kind of a consumer destination. The long and short of it is they see this opportunity, which is a growing market of independent creators around the world who are building fan bases, and for that particular type of SMB they want to provide essentially the full suite of tools and services that they need to run their businesses.

For access to the full transcription, become a member of Extra Crunch. Learn more and try it for free.

Connie Loizos: Hi, I’m Connie Loizos and I’d like to welcome you to our first Equity Dive. Once a month we’re going to be dedicating an entire episode to a deep dive into the life of one company. This month I’m joined by Eric Peckham, who has reported extensively on the crowd funding membership platform Patreon. Hi Eric.

Eric Peckham: Hey Connie, excited to be here for the first Equity Dive.

Connie Loizos: Same, so Eric you and I ran into each other first in Berlin but we don’t know each other very well. I’d love to hear more about you. You’re based in LA, and from what I understand you are a media industry analyst. Is that correct?

Eric Peckham: Yes, so I cover through both my own newsletter Monetizing Media, the happenings of the global media and entertainment industry. It’s kind of a very business minded lens on media and entertainment.

Connie Loizos: Well I read your extensive coverage on Patreon and it was really impressive, and I wondered considering how much you wrote, is this sort of a long interest of yours this company or how did you decide to settle on this for your first deep dive for TechCrunch?

Eric Peckham: Yes, it was an exciting process digging into this. We made a short list of exciting companies, a lot of unicorn companies or late stage startups we thought were about to become unicorns, and Patreon jumped out for a number of reasons. One is as someone who runs his own newsletter I have had subscribers to that newsletter suggest creating a Patreon. I’ve looked into it before, so I had a little bit of a creator perspective of just wanting to better understand Patreon and other options in the market. I think from a bigger picture, more of a Silicon Valley perspective, Patreon’s a really fascinating company. They’ve raised over $100 million from top PC firms like Index, CRV, they’re the dominant player in this space they’re targeting, but it’s kind of them versus just the big social media platforms. There isn’t the startup that’s comparable in size to it and it’s really trying to own this whole territory of independent content creators, surveying them with different business tools or services.

Connie Loizos: It is really interesting to think the David and Goliath story involves a $100 million venture backed startup versus, as you say, I know these big players Facebook, YouTube. Let’s start at the beginning, so you decided on Patreon for reasons that I can certainly understand now. How did you set about pitching them on this idea? Because obviously you were going to need a lot of access to them, a lot of their time.