Business

“The middle class is growing, and it’s only going to accelerate with AI,” says Laurent Hubert, CEO of Kobalt. It’s a sentiment that’s widely held in the music industry today and one that’s backed by hard data. According to Luminate’s Midyear Music Report for 2024, the number of mid-tier artists — those earning between 1 million and 10 million on-demand audio streams — grew to 29,253, a 5.1% increase from the first half of 2023 to the first half of 2024. That number is set to grow even more in the coming year.

Though the recorded music sector has already moved fast to capture the value amassed by these middle-classers by creating or acquiring distribution and artist services companies, the publishing industry has yet to do the same. Currently, there are DIY songwriter administration services, like Songtrust and Sentric, that automate practically all services and are open for anyone to sign up for a one-year minimum term; and traditional music publishers — like the majors, Kobalt and other indies — that selectively offer advances and sometimes take a piece of copyright ownership in exchange.

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But as Jacob Paul, director of creative strategy at Kobalt, stresses, “there’s a lot of people in-between. The middle class is growing year on year, and yet this community is still locked out of publishing earnings because publishing is so complicated.” Enter: KOSIGN, Kobalt’s new platform targeting the creator middle class. Whether it’s an anti-establishment-minded songwriter who wants to be independent forever, a fast-rising singer-songwriter who wants to hold for another year before signing a traditional deal, or a seasoned vet who needs a place to collect their royalties in between publishers, KOSIGN promises to be a high-tech, transparent solution for those with about $5,000 or more to collect. It’s not for the “long, long tail” says Paul, but it’s not just for bankable stars either.

There’s no advance, but there are also no strings attached. A KOSIGN agreement operates on a rolling quarterly basis, can be used on a partial or full catalog, and features an 80% writer/20% publisher royalty split. And some KOSIGN writers will have the ability to upstream to Kobalt if desired.

For the Kobalt team, it feels like a win-win. With KOSIGN, “underserved artists,” as Jeanette Perez, president/CCO, puts it, have the ability to collect royalties that are nearly impossible to collect without a publishing partner, while Kobalt captures value from middle-class talent and forges bonds with tomorrow’s stars before its competitors are even looking. “We’ve found the market is chomping at the bit for this type of solution,” says Paul. “The inbound interest for KOSIGN is already incredible.”

What sparked the idea for KOSIGN?

HUBERT: We looked at the market and what we’ve seen in recorded music is that there was a large market [of up-and-coming artists] that was being serviced by distribution companies but there was no equivalent on the publishing side. We saw an opportunity to target an underserved market, and it is one that is also growing. We believe that AI will also flex that. We said that we have to be in this space. We have the capabilities from what we’ve built over the last 20 years. We have a best-in-class platform, and the idea was to… provide that service to a market that deserves [more help.]

Kobalt was the original home of AWAL, one of the biggest success stories in the artist services/distribution market today and now home to talent like Laufey, Jungle, Djo and more. In 2021, Kobalt sold AWAL to Sony Music. What did you learn from building AWAL that could apply to KOSIGN, which also targets a similar demographic of music creators?

HUBERT: What was interesting with AWAL is we really designed this not as a label service business but as an artist service business, so really focusing on the need of the creator. In that particular case, it was the artist. With KOSIGN, it’s the writer. We learned from AWAL that we had to find a path to minimize friction, and also, we needed to learn how to speak to that audience. It’s a different audience than your traditional one.

PEREZ: One of the theses behind AWAL, even back then, was this growing middle class of artists. That has just held through year after year. That is something else that we ported into the thesis for KOSIGN. The other important thing then and now is the idea that you can give artists flexibility.

It seems that the recorded music side of the industry has gone all-in on companies like AWAL — the artist service companies — since that flexibility is what many middle-class or rising artists want. To date, there has not been a good equivalent on the publishing side. Why do you think that is?

PAUL: The advantage Kobalt has had is that we’ve always been a service company. We’ve always been oriented that way. Because when we first launched, even 25 years ago, we weren’t launching on a model of copyright acquisition. I think traditionally, the publishing industry was predicated on the idea of acquiring copyrights and not necessarily the idea of servicing, but for Kobalt, even at its first founding, we started with the idea that we’d have admin deals, and we’re gonna have three-year terms.

At Kobalt, every three years, we have to re-earn [our writers’] trust so that they stay here. We’re not 50% owners of their copyrights. So I think Kobalt already had the service orientation, and I think that’s what helped us to view this middle market as a group to be serviced and not a group to merely be acquired.

PEREZ: Scaling a publishing platform is much more challenging than scaling a recorded music distribution platform. The number of sources you have to collect from on the publishing side is tenfold what you have to collect from on the recorded music side. You have to have an infrastructure and a foundation to then unlock that.

HUBERT: The challenge is that we have to manage the complexity [of publishing collections] in a way that still works on a pure unit economics as you go down the deal curve. We’ve been able to do that. It requires enormous amounts of resources.

There are some options on the market for DIY songwriters today, including Songtrust and Sentric, but unlike KOSIGN, these companies are open to all and really target the smallest creators. What did you learn from watching those companies develop?

PAUL: One thing that we’ve learned is that being open to everyone and prioritizing openness and volume doesn’t work from a scalable service perspective. That’s never been our interest. That’s a key difference between KOSIGN and others who are in this space. We very much want to be accessible in the sense that it’s extremely easy to apply and to join, you can get going very quickly, but we’re not really interested in touching the long tail where, frankly, there isn’t enough out there to collect to justify a Kobalt level of service. That’s the critical difference. It’s what allows us to not compromise on the level of core admin service that we’re providing.

There’s some other critical differences. One is our infrastructure, which we believe remains best in class. We think that client experience, the actual going-onto-the-portal, and the beauty and simplicity of the [app], is peerless. And then the last thing I would say is that when you look at the publishing terms of service for KOSIGN, we truly think that they’re the most flexible in the industry. Our goal here is to have something that’s not only simple to use and simple to understand but is truly simple from a deal perspective.

How does KOSIGN provide a competitive advantage for Kobalt?

PAUL: We really look forward to seeing KOSIGN as a pipeline for Kobalt in cases where it is right for the artist… KOSIGN allows us to open a door much earlier and much more often. We’re in a landscape creatively where access to the tools to create the next hit are more available than ever, and we see important artist stories and song stories accelerating really quickly these days, and it’s hard to predict where they’re going to come from. KOSIGN allows us to open the funnel.

HUBERT: It also reinforces our core value of empowerment. We created the business over 25 years ago to empower songwriters, and that’s what we’re doing here, in a way that is going down the deal curve but still aligned with our mission.

PAUL: We’re covering really the full life cycle of the songwriter in one ecosystem now. We don’t think other platforms in the space are able to do that the way that Kobalt and KOSIGN can.

Why do you think that none of the majors ever tried to build their own KOSIGN before you?

HUBERT: First, I don’t see that as being core to their strategy. At least there’s no real sign that this is something that they are focusing on. Number two, as we said earlier, you need to have built the proper infrastructure. If you look at many of the measures, they’re still relying on legacy tech stacks. So I think both strategically and operationally, this would present a challenge. It doesn’t mean that they could never get into that space. It would be naive to think that, but also, we have always built a business based on service, not on ownership. This only works when you really do it on a pure service level.

PEREZ: We are, in comparison to other players in the market, a fairly young company. We can still behave as a start-up, which enables us to move very quickly and be nimble. We don’t have 100 years of catalog to bring along.

It sounds like the app is quite transparent, but still, publishing is confusing and a lot of artists and writers don’t understand it. When you’re trying to run a lean, mostly automated service platform, I imagine this will be a point of friction. How do you plan to manage customer service and education for KOSIGN signees?

PAUL: There’s three layers to this. One is to build the platform, which we think we’ve done, and we’ll continue to invest in it. It is so beautiful and simple to use [that] in a way, it explains how publishing works by virtue of its design. Two is our messaging to the marketplace. So not only are we investing in the platform, we’re going to invest in educational materials, and we’re going to invest in content to reach up-and-coming artists and songwriters. Three is that we are really investing in the service aspect [of the] platform. So if you have a question, if you need help on the platform, you can go to a very specific place where you can really quickly get resources that we’re constantly going to be buildingto answer questions. And then if that doesn’t go all the way, you still have access to an admin team.

PEREZ: Again, we get to rely heavily on what we already paid to build out for Kobalt. That’s an advantage. There’s something called Kobalt Knowledge which is hundreds of articles about music publishing and navigating the publishing business. All of that will be immediately available to a KOSIGN client. We aren’t starting at zero.