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Exclusive Q&A: Kobalt’s Willard Ahdritz Is Demanding a Better Music Industry

Kobalt founder and CEO Willard Ahdritz is not known for his shy and retiring nature. Nor is the gregarious New York-based, Swedish-born exec afraid to make big, bold statements about where the music business is going wrong and what Kobalt, the music publishing company he founded in 2000, is doing to fix it.

“Someone needs to save the industry. Someone needs to be brave, don’t you agree?” says Ahdritz during a lengthy interview in central London, just around the corner from Kobalt’s head office.

Make no mistake about it, Ahdritz is steadfast in his belief that Kobalt is just that savior. His words are not just empty bluster either. The company’s three divisions — Music Publishing, Label Services and Neighbouring Rights — collectively represent 8,000 artists and songwriters, 600,000 songs and 500 publishing companies, which, the company claims, accounts for on average 40 percent of the top 100 songs albums in both the U.K. and U.S.

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“One look at Kobalt’s client base and you can see what kind of company we are: Herbie Hancock, Trent Reznor, Thom Yorke, Skrillex, Max Martin. These are independent thinkers who I could not be happier to have on my team,” says Ahdritz, who also counts Paul McCartney, Bon Iver, Beck, Gwen Stefani, Kid Rock, OneRepublic, Rod Stewart, 50 Cent, Dr. Luke and Bob Dylan among his clients.

Billboard: Since forming in 2000, Kobalt has grown to become the largest independent music publisher in the world. What do you consider the key drivers behind that growth?

Willard Ahdritz: People see me as a biased person because I’m selling Kobalt services. I’m not selling Kobalt. I’m selling principles and I created Kobalt to execute those principles. Trust and transparency are the core of my offering and value — there is nothing that can change that. So even if you don’t trust me, you can trust that being honest is Kobalt’s commercial proposition. I will not lie to you, not simply because it is wrong, but because that is the foundation on which Kobalt is built and valued. And I think that vision and our decade-long mission toward transparency is now really spreading: the tipping point is here.

What makes you think the tipping point has now arrived?

The results speak for themselves. Kobalt clients are now seeing between 10 percent and 12 percent of their publishing money come from streaming. Spotify dominates in Europe and YouTube/Vevo dominates in the U.S., but it’s the same percentage level across both — 10 percent to 12 percent from streaming. We collect two to three years faster and 30 percent more than the traditional publishers, a gap that is only growing wider now as streaming grows. We’ve grown 40 percent per annum on average for the past 10 years. We generate over $260 million in turnover, none of which has come from writing checks. Our growth comes from word of mouth. We don’t need to buy our growth because our clients can see the returns and the service and they spread the word. Despite our non-traditional “no lock-in” terms with our clients, we have a 98.5 percent retention rate. So when people say: ‘We have grown fast,’ I say, ‘I’m surprised we have not grown faster.’ Today we are 275 people in 35 countries and we have an aggressive growth strategy going forward. Somebody stop us! Someone needs to save the industry. Someone needs to be brave, don’t you agree?

In February, Kobalt secured $60 million in funding to develop its technology infrastructure and expand operations. How will that money be spent?

We are growing our organization and up-scaling our technology infrastructure across the globe. The industry can no longer afford to spend $5 to collect $1. Today, a hit song generates around 700,000 different revenue streams. Every month Kobalt monetizes 1.5 billion videos streams on YouTube alone in the U.S. We match over 1.8 million videos using our clients’ content every month. I’m a little surprised that the industry as a whole hasn’t done more in this area because if you don’t match your catalogue, you don’t get paid. These are the fundamental challenges that the industry faces. The pipes are broken and the infrastructure is not there to support that half a terabyte of data per month generated from just one DSP.

Are there any specific markets or territories that you will focus on? 

We are employing another 50 people here in London. We are expanding in South America. We are opening up an office in Miami and in Brazil as part of this scale-up. To head Latin America I have employed Nestor Casonu [former CEO of EMI Latin America], who is, as we say in Sweden, an old fox. So we will step up operations there and we have started to sign local clients there as well. Southeast Asia is another area we are excited about. There are currently a lot of things that are slipping through the cracks in that important region, but that is what this [investment and expansion] is about. People say: ‘How much additional revenue will be coming from those markets?’ And I say its zero today, so it will be more!

What are your targets for the year ahead?

My target over the next six months is to increase the number of people we are able to monetize from 400 million to 1.5 billion people. If we as an industry can get this right, we should be able to double the industry’s total revenue from $15 billion to $30 billion. That is what we are targeting. We have seen in other industries that clear rules, robust technology and real transparency drive liquidity, which in turn drives growth. It’s that simple in my mind and that is what we are now putting in place on a global scale. The potential for the music industry is enormous. And then once we get the money flowing again, we obviously have other topics to discuss: What is a fair rate? Why do master rights get 14 times more than the songwriter’s rights?

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What do you consider some of the biggest obstacles to achieving that goal?

This attitude that we should kill streaming is a huge mistake. In Scandinavia in 2009 we had an 80 percent illegal market. Today it has shrunk to 4 percent. The credit goes to Spotify, who single handedly took the region from a dark, illegal, non-monetized majority to a thriving, paying majority. What I’m concerned about now is that the big players will start an “exclusive content” war [the new CEO of Jay Z’s Tidal referenced this strategy in an interview published yesterday] and that will not be good for the fans. It will not be good for the long-term global business model. It will only benefit short-term cash gains. I have no personal interest or equity in Spotify. Daniel [Ek] is not my best friend. But in my opinion, if Spotify fails, we all lose. There is $1 billion in risk capital from outside investors that has come in to build Spotify and help extinguish piracy. The idea of ‘taking down Spotify,’ to trade with another big tech company, will guarantee that there will not be another $1 billion dollars in risk capital that will come in and try to build a music streaming service again. And what happens then? Will kids go back to buying CDs? No.

Back in February, Beggars Group founder Martin Mills hit out at major labels for demanding “disproportionate advances” from digital services that, he said, have “distorted our industry, reduced transparency [and] created suspicion.” What is Kobalt’s stance on the contentious issue of receiving advance payments and equity stakes from music start-ups?

We have always said no. I’ve been offered equity stakes many times. What I want, instead, are the best royalty rates and clean data and reporting. I tell them to use that advance money to build a great service and then we both will win. Get me paying consumers. Use it for marketing. There have been lots of deals where record companies think: ‘This is great. We took $100 million from them and they went bankrupt.’ What’s great [about that]? For your quarterly bonus? It’s extremely upsetting. It’s upsetting for the risk capital investors. It’s upsetting for artists. It’s upsetting for fans. It’s upsetting for everyone except for a couple of people at the top.

I am a little tired of going to award ceremonies and seeing people awarded as ‘visionary of the year’ for taking the industry from $40 billion to $15 billion.

Has chasing short-term cash advances, in your view, damaged the music industry and contributed to declining revenues?

One-hundred percent. And I don’t blame executive management in particular. I blame weak owners and boards who don’t understand the industry. I am a little tired of going to award ceremonies and seeing people awarded as ‘visionary of the year’ for taking the industry from $40 billion to $15 billion. What kind of vision is that? What’s the next vision? $10 billion? $5 billion? I hope we get to a situation where people can tell the difference between real long term value and just short term cash advances. I believe that transparency will actually benefit the people who criticize us the most because they are the biggest copyright holders in the world.

Much of the current debate around streaming concerns the merits and pitfalls of the freemium model. Where do you stand on the issue?

We have a critical moment now. We are at the crossroads because the future is about growing the user base and finding the best way to monetize them. I think streaming services need to be braver and be given more flexibility to experiment with tiered pricing points. If you are a student, pay $2. I’m a big jazz fan. Give me a John Coltrane special edition and I will pay $20 per month. And I’m confident that if we can crack viral one-to-one marketing it will help grow the base well beyond what we can even imagine today. That is the music industry I would like to see.

Do high-profile holdouts such as Taylor Swift harm the viability of building a mass streaming audience?

I don’t know if Taylor Swift was right or wrong. It’s not for me to judge. But she definitely made people stop and think about this important piece of the puzzle and not just within the music industry — in all businesses and tech. If artists really knew what was being paid out and really knew the facts, they wouldn’t then allow the record companies to make those decisions for them. But because they are kept in the dark they don’t understand the facts and so it’s easy to be afraid. [For an outline of this process, read Billboard’s tongue-in-cheek attempt at an explanation.]

It’s almost fifteen years since Kobalt was established. What impact do you feel the company has had on the wider publishing and music industry?

I’m sure you have heard lots of things about Kobalt: that we are bankrupt. That I’m fat and ugly. Don’t trust them. In the end transparency will come out, especially when there are billions and billions of dollars in revenue coming in that are disappearing in the system. We are here to increase the value of copyrights, create an infrastructure that works and maximize the cash return of our clients. So when competitors say: ‘You are destroying the publishing industry because your rates are too low,’ I think it’s sad because they are only thinking of themselves and the short term. At some point they will understand that my motives are in the best interest of the music industry. I’m here for the long term, not a hired CEO, and I’m here to maximize the cash for music rights in the most efficient and transparent way possible.

You trump Kobalt’s reporting portal as a revolutionary and unique tool, yet many other publishers now provide their clients with similar reporting platforms.

The Kobalt Portal is not just a window to look at your statement uploaded onto the web. Anyone can call what they have a portal, but ours is a sophisticated tool that communicates fully transparent global data in real time. Any shallow investigation will show that there really is no comparison in music publishing today. Several of my clients have told me that they’ve listened to other publishers’ ‘portal’ presentations and after three minutes they realize it is a joke. So it’s good that they are intelligent. But there are a lot of people who have taken not as good advice.

Many of Kobalt’s biggest artists and writers come from a major label background, where they benefitted from substantial investment to help build their careers. You have previously been very critical of major record labels, but without them Kobalt would have a far smaller roster.

Obviously there are great individuals working for the majors. I have employed quite a few of them myself. But it’s important to remember that the majors were structured to control distribution and marketing in the old world ruled by radio. Things have changed, and I expect the industry structure will change as well. It has to adapt in order to survive. Yes, artists may always need investment from risk capital and we still need marketing on a global scale. But if you talk to Eric [Wahlforss] at Soundcloud or Evan [Spiegel] at Snapchat or Jimmy Iovine at Beats, I don’t think they see the future of music the same way the majors see it.