So where does that leave Kobalt, which in September said it was "evaluating the best capital structure for the business to make sure we have the right partners to continue to build and grow the world's best independent company for artists and songs"?
Sources confirm press reports that the Kobalt Music Group, which houses its platform and the vast majority of its staff, is being shopped; and some are wondering why the two pieces — the fund owning the copyrights and the larger platform — weren't shopped together because the latter would have been easier to sell if it came with the former. But the investors that own the platform are different from the investors that owned the Fund I copyrights, so such a package would be difficult to put together.
"As an FCA regulated investment advisor of two music royalty funds owned by family offices institutional investors, Kobalt Capital, [which oversees Kobalt Music Copyrights Fund I and Fund II], operates separately from Kobalt Music Group," Kobalt Capital Limited CEO Johan Ahistrom said in a statement. "Kobalt Capital has generated good returns for our investors over the years and we will continue to be active for them to acquire catalogues."
While the sale of Fund I was a significant deal, the loss of these songs will merely dent Kobalt's overall revenue. Kobalt says these assets generated $18 million a year in net publisher's share, which implies that they brought in about $36 million annually. That's out of $405 million in publishing revenue for the year ended June 30, 2019 — and out of $543 million in total company revenue.
Kobalt may still be a buyer of publishing assets, as well as a potential seller of its overall operation — perhaps to a private equity investor that could buy out the company's current backers, and then combine the buying and owning copyrights strategy within the same structure as the firm’s platform, industry observers suggest.
As for the Fund 1 transaction, that deal shakes out to be the biggest acquisition yet for Hipgnosis, which has already spent $1 billion on music assets (mostly publishing copyrights). Some observers expressed surprise that the deal valued the Kobalt assets at a multiple of 18.3 times net publisher's share, rather than more. That's because, according to sources, Hipgnosis, a publicly traded company with access to substantial public money, made a preemptive bid before Kobalt shopped them — perhaps saving some money by moving first and fast.
A version of this article originally appeared in the Nov. 7, 2020 issue of Billboard.