Kobalt invests $150m in independent artists to challenge ‘stupidity’ of traditional major label deals


Kobalt has combined its recording business under the AWAL brand, as it commits $150m in funding to spend on marketing and advances for artists.

In addition, AWAL is hiring 100 more employees, to bring its global headcount to approximately 200 people, while updating its artist-facing app with key financial data – including earnings information from Spotify, Apple Music and YouTube.

AWAL works with thousands of artists including the likes of Lauv, Bruno Major, Tom Misch, Nick Cave & The Bad Seeds, R3HAB,The Wombats and VÉRITÉ (pictured) – some of whom feature in a new marketing push from AWAL dubbed ‘I AM MY OWN LABEL’.

These acts share around a billion streams between them, with Lauv on 600m+ alone.

Kobalt offers them a range of services including digital distribution and music-data insights, plus funding, global marketing, A&R, and promotion. Crucially, it does so while allowing these acts to continue to own their copyrights.

MBW understands that emerging artists at the start of their career enter into a royalty sharing deal with AWAL which works out at around 85%/15% in favour of the performer.

As their career grows and AWAL invests more heavily, so Kobalt’s share of this money increases up to a top end of around 30-35%.

“We’re going to be extremely aggressive… We want to raise up the whole market.”

Lonny Olinick, AWAL

The company thinks such economics are going to heap yet more pressure on more traditional label deals, which have in the past seen artists take home around 15%-20% of royalties while giving away their rights.

Lonny Olinick, CEO of AWAL, told MBW: “We’re seeing the tidal wave of change right now in what drives decisions by artists, managers and lawyers. When people see the pace of money coming in when they control their own assets, the criteria of what they’re looking for in a team becomes much more about the capabilities around them and the deal structure.

“The capital [we now have] allows us to ensure these artists have everything they need in each stage of their career.”

Kobalt’s recorded music business has traditionally been a loss-making division of the company (in FY2016, it turned over $19.1m with an EBITDA loss of $8.5m) but the firm tells MBW these revenues grew 100%+ in 2017 to around $40m, and are on track to double again this year.

Olinick believes that AWAL’s new funding, combined with a strong A&R presence amongst those 100 new staff, will result in a sustainable recordings business for Kobalt – despite its refusal to take any ownership of its acts’ copyrights.

“We’ve built [AWAL’s] business for today’s market, as opposed to the market of 20 years ago,” added Olinick, in a subtle swipe at the major record companies. “From a cost structure perspective we’ve thought very carefully about how we build out resourcing – meaning we’re adding real value for our clients while getting a nice return on investment.”

Kobalt’s recordings business has often focused on heritage artists in the past. By contrast, AWAL’s structure is specifically designed to spot talent early and continually invest in their careers based on data.

Added Olinick: “Between the right headcount, the right [royalty] split, and being thoughtful and efficient in how we use capital, the way we spend money is significantly more efficient than what we’ve seen in the traditional label system. There is a nice margin for us to run a sustainable business.”

In typical style, Kobalt founder and CEO Willard Ahdritz echoed these sentiments – pointing out in matter-of-fact terms that he is not a fan of the high-risk, low-hit-rate structure of the blockbuster record business.

“We take risks early on with artists, but we are so much more efficient [than others], guided by data, that we can execute on a global scale,” he said of AWAL’s A&R strategy.

“We are fundamentally changing the cost structure of the recorded music business. The old model is $5bn in [a major company’s annual] cost, throwing pancakes at the wall and seeing what sticks – it’s extremely inefficient, not fair to artists and, to be quite honest, it’s stupid.”

“The old model is $5bn in [a major company’s annual] cost, throwing pancakes at the wall and seeing what sticks – it’s extremely inefficient, not fair to artists and, to be quite honest, it’s stupid.”

Willard Ahdritz, Kobalt

Having said that, Ahdritz is confident that AWAL’s new capital injection will allow it to compete with the industry’s biggest companies, and their biggest deals, when necessary.

“People said I was an idiot 17 years ago when I started Kobalt,” he said. “Now I believe we are going to transform the recordings business as much, if not more, than we have done in publishing.

“The economics of [AWAL] are even more beneficial to artists [than Kobalt’s publishing revolution, due to the numbers involved]. This will grow faster and stronger than what we have seen in publishing.”

He added: “When we see the right data, we can now match any cheques that are being offered out there.”

So, about that $150m.

A large chunk of it appears to have come from some capital raises Kobalt announced last year – first $75m from Hearst Entertainment, followed by another $14m round from Section32.

Olinick says that AWAL expects to have spent the full nine-figure sum within the next 12 months, dependent on market opportunities.

“We’re going to be extremely aggressive,” he said. “We want to raise up the whole market.”

He added: “There are no inefficiencies in this model because it’s truly global. In the traditional model, for example, you have local UK offices trying to maximise the local UK repertoire. We get rid of that inefficiency by adopting what is truly a global view of the market on behalf of our artists. That drives a level of focus, efficiency and service you don’t get in a traditional model.”

Ahdritz said that AWAL is already helping hundreds of artists make over $50,000 a year, with “many earning in the millions without signing away their rights”.

When asked whether companies like AWAL will put pressure on the margins achieved by the major record companies in their artist dealings, Ahdritz said: “Some very large companies have old school agreements across big catalogues, and they are having a great time today.

“But do I believe they need to do fundamental restructuring of their new recording [artist deals]? Absolutely. Because it’s clear that you can get 10X more money in our system – and be treated with a superior class of global service, keeping your rights. So perhaps other people need to rethink what they are doing.”Music Business Worldwide

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