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How Kobalt is betting on music’s middle class and DIY stars
Streaming services have made music ubiquitous, driving more exploration by consumers who don’t have to pay for each song or album individually. Musicians are correspondingly able to find their own niche of fans scattered around the world.
(This is the third installment of our EC-1 series on Kobalt Music Group and changes in the music industry. Read Part I and Part II.)
As Spotify gained rapid adoption in his native Sweden in 2006, Kobalt’s founder & CEO Willard Ahdritz predicted music streaming and the rise of social media would increasingly undercut the gatekeeping power of the major label groups and realign the market to center more on a vast landscape of niche musicians than a handful of traditional superstars.
Both of these predictions have proven directionally true. The question is to what extent and how are industry players actually realigning as a result?
What musicians need in addition to the administrative collection of their royalties (explained in Part II) is a menu of creative services they can tap for support. Kobalt’s AWAL and Kobalt Music Publishing divisions provide such services to recording artists and songwriters, respectively, and do so on purely a services basis (getting paid a commission but not taking ownership of copyrights like traditional labels and publishers do).
Niche middle class vs. Global superstars
Image via Getty Images / rolfo eclaire
The whole music industry is growing substantially due to streaming music’s mainstream penetration in wealthier countries and increased penetration in emerging markets.
As the overall pie is growing, the non-superstar segment of the market is indeed growing faster than the superstar segment, taking over a larger portion of industry royalties.
According to data from BuzzAngle, the top 500 songs in the US in 2018 accounted for 10% of on-demand audio streams — a dramatic decline in market share compared to 2017 when the top 500 songs accounted for 14% of streams. Stepping back, the top 50,000 songs made up 73.2% of all US streams in 2017 but that declined to 70.5% in 2018.
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How Kobalt is simplifying the killer complexities of the music industry
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.
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
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