Kobalt’s ‘Unpolished Gem’ Has Come to Collect — Inside AMRA’s Aggressive Growth Plan
Written by djfrosty on May 15, 2023
Is there another $1 billion in global publishing royalties that rights holders can gain by using better technology? That’s what Kobalt CEO Laurent Hubert says.
When Kobalt was bought by Francisco Partners last September, the disruptive innovator known for its publishing administration clients like Karol G, Phoebe Bridgers and Max Martin said that a primary goal of this next chapter would be growing its little known and even less understood global digital rights collections society for compositions, the American Music Rights Association.
In the months since, Kobalt and its new owners have refined their strategy for scaling this “unpolished gem,” as Francisco Partners and Kobalt board director Matt Spetzler calls AMRA. Their first hurdle? Explaining what exactly the global mechanical and performance rights society focused on collecting digital-specific income can accomplish. “Too few people know what AMRA does,” says Hubert.
In an industry where, according to CISAC’s 2021 annual report, over 36% of global music publishing revenue royalties come from digital sources — a figure AMRA says will grow to 80% within five years — Kobalt believes AMRA can better leverage its technology and its direct agreements with digital service providers to streamline digital royalty collection across 212 countries, cutting out the friction or delays of a traditional performing rights organization (PRO). Their biggest licensees include some of the largest DSPs, like Spotify and Apple Music, but they are also working with promising new brands like China-based TikTok rival Kuaishou and others.
AMRA says it is a one-of-a-kind service, providing clients faster turnarounds for royalty collection (in six to nine months), more precise accounting for digital royalties and audit rights, and greater transparency that its executives say make AMRA clients and the wider industry a lot more money.
How much? AMRA CEO Tomas Ericsson estimates that clients can gain “as much as 30%” more royalties in certain regions. Hubert contends that if his companies can reduce the percentage of money that leaks from the $8 billion to $9 billion of royalties collected by the global music industry on the publishing side, excluding writer’s share — “leakage” that stems from high intermediary costs, poor matching, undercollection and underlicensing — AMRA and other players in the industry could grow the pie by another $1 billion for collection and distribution. AMRA could be a tool to help accomplish that, Hubert says.
Ericsson explains that AMRA can go to streaming services and “offer the entire catalog for Kobalt music publishing and an additional three publishers and an additional 180 writers to these streaming services, and we can give them those rights globally under one license. [The streaming services] report to us directly, and they pay us directly.
“In doing so, we can avoid a lot of noise, high fees, inefficiencies, poor technology and local issues,” Ericsson says.
Since its acquisition by Kobalt in 2015, AMRA has distributed almost $500 million in digital royalties on behalf of songwriters and rights holders. Managed as a separate entity under the Kobalt umbrella, AMRA generated $117.3 million in revenue in the fiscal year ending June 30, 2022, and the company currently expects AMRA will generate $150 million in revenue during this fiscal year. Hubert declines to provide specific financial targets but says he expects double-digit revenue growth this year from AMRA, and that its growth rate will substantially exceed Kobalt’s.
Apart from its DSP licensees, AMRA works with songwriters such as Julia Michaels, Lindsey Buckingham, Sam Hollander and independent publishers like Sundae Music Publishing, Anthem and Spirit. It’s also partnering with functional or mood-music companies, such as Strange Fruits, Vanity Snare Music, Lullify Music and Acrylic Records, whose music is popular on passive-listening playlists. Kobalt remains AMRA’s largest licensee, Ericsson says.
Kobalt, AMRA and its new owners are aligned on their aim to massively scale AMRA. Those owners are Francisco Partners, a California-based private equity firm that favors tech-forward music companies; MUSIC, the firm of music industry veteran and investor Matt Pincus; and Dundee Partners, the quietly influential family office of Stephen and Sam Hendel whose investments range from The Knitting Factory to the Fela! musical to music investing platform JKBX. Kobalt founder and chairman Willard Ahdritz and Hubert also have equity stakes in the company and have signed long-term contracts to remain in their roles.
Through interviews with all those stakeholders, AMRA’s emerging growth strategy has three prongs. The first is to expand its list of publishing clients, looking for small, medium and large indie publishers.
At a faster and larger clip, AMRA also aims to exploit opportunities with other niche music genres in the Latin and African markets in a bid to replicate the success it had partnering with mood-music companies. It also aims to take on more clients on the “long-tail end of the business” — songwriters who may not be published or affiliated but have steady streaming income.
This last prong of the strategy reflects the influence of Francisco Partners. In the past two years or so, the firm has invested $2 billion in six music companies, five of which are geared toward music creators, ranging from audio production and DJ’ing software and hardware to a plugin platform with marketing, distribution and authorization services. Managed under the umbrella of SoundWide, Francisco Partners says these companies have a combined 7 million users.
“We have seen the marketplace has shifted and grown around the creator community,” Hubert says. “We have the capabilities from a scaling and tech stack perspective to go after that market.”
AMRA faces hurdles if it’s to maintain formidable growth. Tracking digital royalties is challenging, given metadata errors and fast-growing use cases. The association is also held back when it comes to nondigital royalties, where existing laws and collection societies prevent it from operating as swiftly or accurately as it can with digital revenue. Songwriters in particular are the most restricted: They can use AMRA to collect their digital performance and mechanical royalties, as well as offline royalties, but the offline royalties still pass through a traditional PRO before reaching AMRA, meaning the writer will be charged two fees: one from the traditional organization, then a “significantly lower” fee from AMRA. Also, although AMRA collects in 212 countries, two of the world’s most royalty-rich nations, China and the United States, are not part of their offering due to local laws.
Still, AMRA will bring all of its promised efficiencies to the digital side, which is what the company anticipates will far outweigh offline royalties soon. The company believes it to be uniquely positioned to collect those royalties. As it likes to say: “AMRA is a category of one.”