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In the music industry’s hunt for royalties, no digital nook or cranny is too small to scour for income — even for the biggest hits.
The songwriting royalties of one song that reached No. 1 around the world two years ago totaled $4.76 million, most of which came from the usual places: iTunes, Spotify and radio stations.
Yet among the 900,000 sources of income counted by Kobalt, one of the song’s publishers — which provided a detailed accounting summary but declined to identify the track, to protect the privacy of its client’s financial information — there are plenty of obscure outlets likeSwedebeat, a provider of fitness media programs. Its 2,400 streams of the track in Norway resulted in payments to Kobalt of just $8.
In the sprawling world of online music, every dollar from every place like Swedebeat counts.
“These days it’s essential to collect every income stream one can,” said Mark Beaven, the manager of Dr. Luke, a Kobalt client who writes hits for stars like Katy Perry, Miley Cyrus and Kesha.
Since its founding in 2000, Kobalt has carved out an influential position in the music industry by tracking even the most minute points of data.
Now the company, whose roster also includes Beck, Gwen Stefani and Thom Yorke of Radiohead, believes it can corral even more money for its clients by simplifying the way that money flows around the world from every click, download and stream.
The company is taking aim at the lucrative but byzantine world of international copyright collection societies — the patchwork of organizations that, country by country, gathers money from radio, television and digital outlets and funnels it back to songwriters and publishers.
This structure, in place for decades, controls the flow of billions of dollars in royalties each year. But Kobalt’s founder, Willard Ahdritz, thinks that when it comes to the digital market, the system is rife with inefficiencies, delays and hidden costs.
So last year Kobalt bought its own collections group, theAmerican Mechanical Rights Agency, better known as AMRA. After renaming it the American Music Rights Association, Kobalt plans to start using the agency this summer as a central clearinghouse for digital licensing around the world, a change that Mr. Ahdritz believes could double or triple the amount that songwriters receive from digital outlets like Spotify. (Songwriters’ royalties are separate from the income that may be made by a song’s performers.)
900,000 Sources of Income for One Hit Song
Kobalt, a music publisher, tracks music royalties. Whenever a song is played or bought on services like YouTube, Spotify, Pandora, iTunes, Google Play or Amazon, Kobalt tracks it. For this (unidentified) hit song, millions of such transactions were ultimately divided into 900,000 distinct income sources the company calls royalty lines. Here is how they break down.
REST OF
WORLD
9,800
Broadcast TV
40,000
REST OF
WORLD
U.S.
10,000
EUROPE
20,000
Radio plays
55,250
Streaming
780,000
EUROPE
EUROPE
85,000
Physical albums
3,000
REST
EUROPE
Eur.
REST OF
WORLD
Other
6,750
EUR.
REST
UNITED STATES
670,000
U.S.
Boxes are sized according the number of royalty lines tracked among type and geography
Downloads
15,000
NOR-
WAY
“It is very clear that the music industry was not in good shape predigital,” Mr. Ahdritz said. “It was opaque, with old systems, a very territorial business. It needs a new structure to handle this new digital world.”
Publishers rely on national collection societies, like Sacem in France and GEMA in Germany, to compensate writers when their songs are played outside their home country.
But problems can easily arise, music executives say. A company like Spotify, for example, can represent thousands of sources of income, differentiated by country, account type and other factors. And each society maintains its own database of songs, making errors and conflicts almost inevitable. With accounting delays, it can take up to two years for a writer to be paid. And when money passes from one society to another, each takes a cut in the form of various taxes and fees, slicing away at the amount the writer ultimately receives.
Mr. Ahdritz said these costs can strip up to 75 percent of the royalty originally paid for music, including the share taken by a publisher; others in the industry estimated the total at 50 to 60 percent.
Kobalt’s attention to data has helped it become one of the fastest-growing music publishers. In a recent Billboard magazine survey, the company had stakes in 17.3 percent of the songs played on pop radio stations, putting it second only to Sony/ATV, the industry giant.
In 2012, Kobalt struck an administration deal with Paul McCartney’s company, MPL Communications, and last week Lee Eastman, Mr. McCartney’s lawyer, said the results were quickly apparent. “Within the first 12 months of switching, we had the benefit of a 25 percent uplift in collections and a faster and more transparent payment system,” Mr. Eastman said.
Moby, another longtime client, was more blunt: “Kobalt is more like a tech company than a music company. As a result, no one ever told them to steal from their artists.”
Through June 2014, the most recent fiscal year for which data is available, Kobalt reported a net loss of $19 million and about $203 million in revenue. Mr. Ahdritz said its publishing division turned a profit of $3.9 million but other investments resulted in the loss.
In the clubby world of music publishing, Kobalt is often dismissed as a company made up of efficient number crunchers rather than music specialists.
“I think music publishing is about more than collecting data,” said Martin N. Bandier, chief executive of Sony/ATV, whose catalog includes Beatles and Motown hits. “I think it’s about signing songwriters; working with those songwriters; maximizing, exploiting, creating opportunities for the songwriters; finding opportunities to createBroadway shows.”
In its early days, Kobalt challenged the music publishing world with a radical business model. While most publishers take ownership of song copyrights and split income 50-50 with their writers, Kobalt lets its writers keep those copyrights and charges administration fees of about 10 percent.
“When I started, I was like the guy who told the wife about all the mistresses,” said Mr. Ahdritz, a hard-charging Swede whose otherwise plain corner office contains a Viking helmet and a sword.
As digital music has spread, a clutch of new companies like Kobalt has emerged to analyze and process the vast amounts of resulting data. But all that data has also created complex new problems for the music industry.
According to Mr. Ahdritz and others, one result is that some countries’ collecting societies have been unable to handle the flood of information, leading to whole areas of the world where little or no money makes its way back to composers. Kobalt, Mr. Ahdritz said, receives “almost nothing” from digital streams in places like Russia, the Middle East, Latin America and Southeast Asia.
Defenders of the international system point to the societies’ deep knowledge of their local territories and the strength they provide through collective licensing agreements, which protect all musicians, from stars to unknowns.
“The truth is that the strength of collective management has never been so robust and so necessary for creators than it is today,” said Jean-Noël Tronc, chief executive of Sacem, the French agency.
For its next move, Kobalt wants to transform AMRA into a collection society for digital music outside the United States. Once registered through AMRA, songs could bypass the old system and be accounted for quickly and at much lower rates. Mr. Ahdritz said that for Kobalt’s clients, AMRA’s administration fee would be just 7.5 percent.
The accounting delays and absence of clear information have also contributed to the controversy about how much money musicians make from streaming, said Will Page, Spotify’s director of economics and a former chief economist at PRS for Music, the British collection society.
“Imagine a songwriter had a million-streams-a-day hit during Christmas last year and receives a check in June this year which doesn’t reflect the value, and then decides to criticize our model on blogs,” Mr. Page said. “The reality is that we paid in for that hit a month after its exploitation, yet the songwriter may well get paid out a year later.”
With AMRA, Kobalt says, that problem would largely be solved because major digital outlets like YouTube and Spotify could link their data logs with just one collection service — rather than the dozens of societies around the world — so greater royalties would be paid in a matter of weeks, instead of months or years.
“Part of the problem is that the music industry has been focused on the music,” Mr. Ahdritz said. “And that is what a lot of people in music have a passion for.”
“But my point,” he continued, “is that there is a day when you’re not on tour, when you are off the hits, and it is then that you think, ‘Where is the money?’ ”
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