Two months ago, Kobalt — a startup whose technology tracks and collects music royalties from streaming music providers — acquired and revamped and royalty collection agency AMRA to ramp up its music licensing collection activities. Today, it is announcing its first licensing deal: a centralised, landmark licensing agreement with Apple Music.
AMRA tells that it has signed a two-year with Apple to track and collect royalties from tracks streamed via Apple Music. The deal covers all markets except for the U.S. and Canada. (North America is currently in limbo because of an ongoing antitrust investigation by the U.S. Department of Justice related to how two groups, ASCAP and BMI, currently handle payments.)
This is an important deal not just because it’s the first major agreement signed by AMRA since its Kobalt acquisition, but also because the streaming market that has been fraught for years with controversy over how artists get paid, and this is one more sign of how Apple wants to position itself as a partner, not adversary, to artists and music creators. That was a pattern Apple set when Eddy Cue responded to Taylor Swift’s boycott by reversing its royalty payment policy during the free trial period for Apple Music.
“Making sure artists and songwriters get paid fairly and accurately is important to us at Apple Music,” said Oliver Schusser, vice president, iTunes international in a statement provided to TechCrunch. “We believe the tech and music industries can work together to create better ways to collect royalties.”
Kenth Muldin, Chairman of the Board for AMRA, says the group is now also working on agreements with other digital streaming providers that are active in more than one territory, and those deals should be announced in the next few months. “Apple Music is the first to be concluded,” he says.
Royalty collection up to now has been a largely fragmented procedure, working on a national basis and case-by-case agreements. It’s an inefficient process that results not only in a lot of royalty leakage, particularly in smaller markets where specific deals have not been inked with local collection agencies; but also more costs to execute, and therefore fewer returns to rights holders.
Kobalt’s approach to the problem has been to tackle it with technology: its “KORE” technology involves a system of algorithms that identify when music, or even a fragment or sample of some music has been played across the long tail of streaming music services and then tally up those incremental payments into larger sums. In this regard, the Apple deal is key, but still just a drop in the bucket: Kobalt estimates the total number of streams globally across all services to be around 900,000.
Nevertheless, a deal with Apple Music is a major step ahead for Kobalt’s profile in the industry and a crucial vote of confidence for its approach to how to better monetise streaming music.
“AMRA was uniquely designed for this exact situation – a direct global deal with a major DSP to ensure rights-holders are fairly, accurately and transparently compensated for the use of their music globally,” said Tomas Ericsson, CEO of AMRA, in a statement. “It’s the perfect example of how a new structure and innovative technology will significantly improve returns and transparency for songwriters, artists and publishers.”
And with market leader Spotify — which works with Kobalt globally too — now valued at over $8.5 billion, it’s clear that streaming is becoming increasingly mainstream and those who offer streamed music need to step up in its game for how to work better with artists and music creators.
“I think DSPs over the last few years have come to realize that they share in the responsibility to ensure that songwriters and artists get paid,” says Ericsson. “This shift means it is no longer good enough for DSPs to just cut a large check to music labels and publishers, washing their hands of where the money goes from there. We know that the DSPs are paying money out, but in the enormous complexity of streaming, it is just as important for them to have the technical capabilities and processes in place to be able to efficiently process, match and report all of their usage data. And to do that as transparently as possible.
While AMRA and Kobalt say that their approach means significantly more transparency for the streaming music industry, there are still some gaps in how this will work.
For starters, we don’t yet know what a typical percentage per track will look like. “AMRA will have competitive rates and terms with all DSPs. Regarding how much we typically collect for one track, we do not yet have the data on that as we are just starting now,” Ericsson says. He adds that AMRA will be able to provide more detail on this matter “once we start receiving usage files from the services.” Typically, agencies collect around 10%, so the assumption is that Kobalt/AMRA’s approach will undercut that.
Kobalt helps to collect royalties for some 8,000 artists directly, including Paul McCartney, Dave Grohl, Maroon 5 and Skrillex, as well as some 500 larger publishing groups like Disney. Its IP ownership, through its own profitable publishing operation, includes artists like Steve Winwood. All together, today Kobalt oversees rights for hundreds of thousands of songs, including “half of the world’s top 100 albums,” in Kobalt CEO’s Willard Ahdritz’s estimation.
While we are still yet to see how AMRA collections may shape up, we do know more about how Kobalt itself works. In the year to June 2014, Kobalt posted a net loss of $19 million on revenues of $203 million, with its publishing division profitable ($3.9 million for the year) but other operations losing money. The company operates on economies of scale, and so the more royalties that it can collect, the better its returns will be.
Ahdritz in June explained to us that the $19 million loss worked out to $9 million negative EBITDA, but substantial non-cash items like options, withholding tax, foreign exchange and depreciations grew that to a net $19 million loss. “We are very well capitalized,” he said in reference to the company’s own financial position now. The company has raised $116 million to date, with investors including Google Ventures, Michael Dell’s fund and Balderton Capital.
“Both AMRA and Kobalt’s interests are aligned: we want artists and songwriters to get paid for all their music uses around the world. But to get there, applying the standard local licensing structure to today’s streaming world no longer makes sense, leaving too many countries and regions untapped,” said Ahdritz.
“I’m thrilled that AMRA’s unique ability to make direct deals with the leading streaming players who have a true global reach will allow Kobalt to deliver unparalleled speed, efficiency and transparency to our clients, as well as help grow the music industry as a whole.”