Kobalt

The Kobalt Sale

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It only took Sony two decades to wake up.

Kobalt was built to be sold. Haven’t we seen this same paradigm over the last two decades in the internet sphere? Independents gain headway, needle the big ‘uns, and then sell out at a high price. And eventually, the big ‘uns get so big, they can’t be challenged…can you say FACEBOOK and GOOGLE?

The music business has changed dramatically in the past half decade, despite no acknowledgement of this whatsoever. For ten plus years the conversation centered around distribution, i.e. the journey from Napster to Spotify. And since Spotify and its streaming cohorts turned revenue around, in other words so it started going back up, all the conversation has been about payments. Ironically, almost all of this jawing is from oldsters who were disrupted by technological change, you don’t hear the youngsters bitching, unless they’re complete wannabes. Why is it those with the smallest purchase make the biggest noise? Why is it these wankers get paid attention?

Anyway, the story of the last five years in music has been its complete Balkanization. There may be three major labels, but they control less of the landscape than ever before. You see the barrier to entry is nonexistent, and so many are playing and…

Let me give you an analogy. TV. There were nearly five hundred shows made in the past year, a giant multiple of those produced in the pre-streaming era. However, shows are expensive to make, and distribution is key, there are a limited number of outlets. In music, creation has exploded, but distribution is easy, therefore there are oodles of new acts, some with traction, some with less.

Going back to the oldsters versus the young ‘uns… The young ‘uns harnessed the new internet tools. They uploaded to Soundcloud, gave it away for free. Promoted for free online via social media, never mind having made the music on the cheap, employing computers. The young ‘uns bought fully into the new world. You either do so or die. Remember that.

But now there are so many acts and so many labels that the landscape is incomprehensible. As is the chart. Sure, there are a number of very successful songs, but they mean less than ever before, they reach a smaller percentage of the population than ever before. And their share of the aggregate is going down, yes, that’s what the latest reports have said, income is being distributed to more acts.

So…

If you’re a modern label, your best way to survive is to hoover up all the small players, get that revenue for yourself, control that revenue.


Consolidation is the way of business. And this Sony/Kobalt deal is evidence of this. Sony just entered the present. Its competitors have shrinking release schedules looking for hits, that’s a different game.

Meanwhile, the customer is completely confused. What should they listen to?

So Kobalt came up with a better mousetrap. AWAL. Giving partners just what they needed at a rock bottom price. Genius. As was Kobalt itself. Kobalt revolutionized publishing, from the ground up it was based on the internet, and transparency. You could see where your music was being played and what you should get paid, whenever you wanted. This was anathema to the old players, whose business model is based on obfuscation and theft. And sure, the old players eventually modernized, adding client computer dashboards, but the truth is they’re part of major labels operating under old rules, they’ve got no vision. So, Round Hill, Primary Wave and Hipgnosis swooped in and bought key assets, revolutionizing the business as well as driving catalog prices up.

Now the dirty little secret is the majors and their associated publishing companies like the way things are, they want no change. You see it’s one big tent, and therefore the labels don’t really care about the publishing share of streaming. Yes, the split is inequitable, songwriters get screwed. But this is going to change. BECAUSE MERCK OWNS TOO MANY HITS! Yes, Hipgnosis and its independent compatriots are going to lobby for changes, to right the wrong, to raise songwriter royalties, and they’ve got an excellent case, and now they’ve also got leverage.

The major labels could have had this leverage, but they were asleep. These new publishers had vision. Why do we not have new labels with this vision?

Catalog. The music business runs on catalog. New hits are sexy, they get all the ink, but the catalog drives profits. It costs nothing to make and market and the revenue keeps pouring in, especially in these days of streaming, where there’s no manufacturing and distribution.

Will someone ever build a new label powerhouse?

It turns out no one is willing to play the long game. Which is necessary here. Although unlike in the past, the opportunity has never been larger. You’ve got to build a catalog. But with so much content available, so much to bet on, the opportunities are rife. But music is seen as a secondary business that got trounced by the internet, never to recover. WRONG! The internet has been the best thing that has ever happened to the music business. There are umpteen new revenue streams, marketing is cheap and if you don’t understand this you’re an oldster who believes direct consumption of recordings is the only thing that matters in music. It is not. Widen your horizons or get out of the way, the future continues to be built.

But now Sony has done what I told Roger Ames and the rest of the CEOs to do almost twenty years ago, they’ve cast a wide net, knowing that the aggregate is key, nothing is as big as before so you’ve got to be the pipeline for more.


This is a bad sign for artists. The more power major labels get, the worse it is for them.

But the race is not over, it is still being run.

But now the people who left major label distribution to go to AWAL…are back where they started, and there’s no viable alternative.

Never ever forget that distribution is king. And Sony has just amped up its distribution power. Think about that.

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