In raising $75 million in growth capital, Kobalt pulled two rabbits out of a single hat.
It can continue its strategy of pursuing growth at the expense of profits; and it achieved a $700 million valuation for the company. Hearst Entertainment and existing investors Balderton Capital and MSD Capital have invested $75 million equity in the company.
The funding will be used to further scale its royalty collection platform to invest in the company's creative teams and scale its services to its artists, songwriters, publishers and label clients; invest in R&D for future tech products to support music creators; and to handle the surge in streaming.
According to data from Kobalt, a typical hit song currently has 4 billion micro-transactions, with that expected to grow to 10 billion micro transaction per hit song within 18 months. And that's just one song, so the company wants to insure its systems can handle the exponential growth in volume, which is what some of the new funding will be spent on.
"With the high growth of streaming and the billions of microtransactions that take place per song, the music industry is more complex than ever," Kobalt founder and CEO Willard Ahdrtiz said in a statement. "Guided by core principles of transparency, technology, and putting creators first, I have never been more sure that our platform, combined with our global creative team, is the right one to serve creators and rights owners in the rapidly evolving digital music environment."
In the year ended June 30, 2016, Kobalt reported a net loss of $30.04 million on $260 million in revenues. The company says it will have total revenue of about $375 million in its current fiscal year, which will end on June 30.
But the company has always pursued growth at the expense of profits and the investment from Hearst Entertainment appears to validate that approach.
"The music industry is growing revenue again and it's due to the meteoric rise of music streaming on services like Spotify, Apple, Google, Amazon and Pandora," said Hearst Entertainment president Neeraj Khemlani said in a statement. "Willard has brilliantly positioned Kobalt to be an important company at the center of this booming industry by building an invaluable platform for artists, songwriters and third party labels and publishers looking to have complete, real time transparency into how their music is being consumed and thereby collect royalty revenue more efficiently and faster than ever before."
While Kobalt has never been profitable, the company expects the music industry's growth and its own corresponding growth to eventually produce black ink. The company projects that within five years, there will be 400 million paid subscriptions to music streaming services, which would produce almost $50 billion in global revenue.
Meanwhile, the $75 million investment into Kobalt valued the company at $700 million, and with that investment, the company now carries a $775 million valuation, a company spokesman said.