Kobalt revenues rise 15% to reach $260m as operating losses narrow

Kobalt Music Group posted annual revenue of $260m in the 12 months to end of June last year – a year-on-year jump of 15%.

New documents filed at Companies House in the UK reveal that the business also saw its gross profit increase 8.4% to $30.7m, as administrative expenses were reduced by 23.8% to $38.3m.

The company’s operating loss decreased significantly, down 32.4% to $16.7m from $24.7m in FY2015.

Kobalt’s loss after tax followed suit, decreasing 27.7% to $19.5m in the 12 months, down from $26.9m in FY 2015.

However, the firm’s total comprehensive loss (net of tax) technically increased 28.6% to $30.04m from $23.36m (FY2015) – due to a disadvantageous currency exchange affecting its decision to translate global sales into US dollars.

Kobalt CEO Willard Ahdritz said the firm’s underlying revenue growth rate of 15% was “materially suppressed by the strengthening US dollar and weakening British Pound and Euro”.

(All 2015 figures have been restated to reflect Kobalt’s move to present its fiscal data in accordance with IFRS. It previously presented in accordance with UK GAAP.)

In a note to investors, Kobalt Music Group said these losses were “reflective of the strategic decision to invest in the future over short term profitability”.

Kobalt finished FY2016 with $1.6m in net liabilities, but retained a healthy cash position of $35.1m .

In addition, Kobalt has a loan facility of $20m in place which runs until May 2017.

“The directors are in advanced negotiations with new and existing investors in order to ensure that the Group has the resources to support its plans for rapid growth.”

“The directors are in advanced negotiations with new and existing investors in order to ensure that the Group has the resources to support its plans for rapid growth,” said the filing. “[We] envisage that any additional funding will comprise both debt and equity investment.”

It added: “The directors believe that the company can be run on a cash flow-positive basis immediately without additional equity or debt funding, but that this would reduce the Group’s growth plans.”

“[We] have concluded that the Group will continue in operational existence for the foreseeable future even if there were to be significant reductions in its planned revenues over this period.”

As it proved in FY2015, Kobalt’s music publishing division was its biggest revenue-generator last year. It turned in a profitable performance, although margins were tight.

Kobalt’s publishing operation (with star clients including Max Martin and Skrillex, both pictured) posted $228.9m in total revenue in FY2016 – 88% of Kobalt Music Group’s total sales – with an adjusted EBITDA profit of $6.4m.

In FY2015, Kobalt’s publishing company posted $194.2m in revenue with a $7.1m adjusted EBITDA.

Kobalt’s Neighbouring Rights division was also profitable, with a $2m annual  revenue haul and a $625,000 adjusted EBITDA.

The group’s worst-performing division was Music Recordings, which generated $18.58m of revenue but posted an adjusted EBITDA loss of $8.52m.

That EBITDA loss was bigger than that seen in FY2015 ($8.17m), despite annual Music Recordings revenue falling year-on-year by just over $10m to $29.1m.

However, FY2016 was a year of restructuring for Kobalt’s recordings operation, which recently launched its impressive new AWAL app – part of a renewed focus on new and emerging artists who wish to retain their copyrights.

Kobalt-owned collection society AMRA saw $21.65m in revenue in FY2016 with a $3.3m adjusted EBITDA loss.

Kobalt Music Group employed 315 people at the close of FY2016, up 19.3% from 264 at the same stage of 2015.

The company’s wage bill (not including social security etc) hit $27.95m, working out at an average per-employee annual salary of $88,743.

The majority of these employees (132) worked in ‘other administration’ – a category which will cover tech development.

In a note to investors, Kobalt founder and CEO Willard Ahdritz (pictured) said: “Today we serve over 600 publishing companies with more than 25,000 songwriters.

“Our Music Recordings division now serves over 20,000 artists and Neighbouring Rights has expanded to more than 1,500 artists with the acquisition of Fintage House in September 2016. This acquisition allowed us to increase our artist roster with superstars such as Bruce Springsteen, Ed Sheeran, Taylor Swift, Madonna, Coldplay, and Justin Timberlake.”

He added that the  independent Kobalt investment fund, Kobalt Music Capital, has now made investments totalling more than $200m.

You can read Ahdritz’s comments to investors regarding the firm’s FY2016 in full below.

AMRA, our unique digital collection society, is now a proven success, having considerably increased earnings from Spotify and YouTube in Europe and having recently signed the independent rights management company Ole. We have every reason to expect that this success will continue.

In May 2016, we launched the Kobalt iOS App. The App revolutionizes the way creators can access their earnings on-the-go. It gives creators real time access to all of their account data, allowing them to see quarterly snapshots of earnings, enabling them to sort income by territory, by right type, and shows: top earning works, synch status’ at all stages, an information feed that can be personalized, along with the number of YouTube plays.

“Today we serve over 600 publishing companies with more than 25,000 songwriters. Our Music Recordings division now serves over 20,000 artists and Neighbouring Rights has expanded to more than 1,500 artists.”

Our unique centralized organization and powerful technology platform are continuing to deliver significant uplifts in revenue for our clients. I believe that every creator should be able to benefit from what we’ve built, whether they are signed directly to Kobalt or not. We hope our new white label B2B platform will be able to deliver that same uplift with total transparency to other publishers and content owners around the world.

[Kobalt’s] overall revenue grew from $226m to $260m, with an underlying growth rate of 15% materially suppressed by the strengthening US dollar and weakening British Pound and Euro.

We continue to expand our global workforce in order to meet the demands of our growing business. At year ended 30 June 2016, we employed 344 people across five countries.

Publishing

We have had another great year of signing new clients, including both big established names like Brian Burton, a.k.a.Danger Mouse, Carlos Vives by our Latin American team, as well as new developing acts that we believe will become tomorrow’s hit makers.

Our retention rate remained strong at 98% and we continue to be a top five market share player in most key markets with hits like “The Hills” by The Weeknd, co—written by Thomas Raybould, “On My Mind”, by Ellie Goulding’, co-written by Max Martin and Savan Kotecha, “Sugar” by Maroon 5, co-written by Dr Luke, Henry Walter, Jacob Hindlin and Joshua Coleman, Ed Sheeran’s “Photograph”, co-written by Johnny McDaid, Jason Derulo’ s “Want to Want Me”, co-written by Lindy Robbins, and James Bay’s “Hold Back the River”, co-written by James Bay and Iain Archer.

“Our retention rate remained strong at 98% and we continue to be a top five market share player in most key markets.”

Kobalt once again enjoyed success at the Grammy Awards. Taylor Swift’s Album “1989”, co-written by Max Martin and Johan Schuster, won the prestigious Album of the Year and Best Pop Vocal Album awards. Sonny Moore, aka. Skrillex, also earned two awards: Best Dance recording for Justin Bieber’s hit song “Where Are U Now” and Best Dance/Electronic Album for his collaborative project, Jack We are excited to work with such a talented client roster.

We have also continued to place many high value synchs, for example, the use of Little Simz’s “Wings” in an Apple commercial, Demi Lovato’s “Confident” in the Bad Moms trailer, Skrillex’s “Bangarang” in an Audi commercial, Beck’s “Wow” in an Acura commercial, The Weeknd’s “High For This” in a Hugo Boss commercial and Steve Winwood in a high profile Toyota Olympics campaign, which was voted Best Olympic Campaign by USA Today.

In 2016, Kobalt placed thousands of songs in films including War Dogs, Absolutely Fabulous, Me Before You, The Edge of Seventeen, Suicide Squad, Office Christmas Party, Neighbors 2, television shows including Orange Is The New Black, Grey’s Anatomy, The Royals, ESPN Sports Programming and video games, including Watch Dogs 2, Madden NFL 2017, Mafia III and FIFA 2017, among many others.

Kobalt Music Recordings

In October 2015, we began stepping up the execution of the vision to deliver a “Kobalt” service for new and established artists. We saw that the market would transform to one where streaming would become increasingly important, and this is happening now.

To address these changes, we have structured the Recordings division to create a more integrated, global team, including new leadership on the US side of the business, and placing a clear focus on the fast- growing digital streaming sector of the market. I am excited to say that on 28 March 2017, we launched a unique, world-leading app for our AWAL clients. Our vision is coming to fruition.

The changes we have made have had a very positive impact. The number of client applications to our AWAL service have increased by more than 300% during 2016.

“The number of client applications to our AWAL service have increased by more than 300% during 2016.”

We are also increasingly benefitting from the development of new artists in our AWAL service being signed to longer term label services agreements with Kobalt – including Ray BLK (pictured), recent winner of the BBC Sound of 2017 award; and Vérité, whose track “Somebody Else” has now been streamed more than 50 million times.

Key album releases in the period included Pet Shop Boys’ “Super”, which was No 3 in the UK and Germany and a No 1 Dance record in the US; Courtney Barnett’s “Sometimes 1 Sit and Think, and Sometimes I Just Sit” (via our Marathon Artists client), one of the breakthrough records of 2015; and Jess Stone’s “Water For Your Soul” (the No 1 Reggae album in the US in 2015). We also closed catalogue distribution deals with iconic record labels Chrysalis and Independiente.

Our Recordings division has Continued to innovate with the release of the world’s first dynamic “Best Of” compilation for David Gray, and the launch of a “pre-save” tool for the Spotify platform. We will continue to roll out a series of new and innovative tools.

Neighbouring Rights

We continued the rapid growth of our roster in Neighbouring Rights by adding, among others, Kygo, Carly Rae Jepsen, Madcon, Shakira, Aloe Blacc, Paul McCartney, Felix Jaehn, Tove Lo, Zayn Malik, Lukas Graham, Walk the Moon and Sheppard as our clients.

They will all benefit from our innovative technology as well as our expert local knowledge and direct relationships with collection societies around the world, resulting in faster and more frequent payments.

Kobalt Music Capital

The independent Kobalt investment fund, for which the group provides administration services, also had another great year, delivering both improved returns on historic acquisitions and advances and new investments. The fund has now made investments totalling over $200m and has the capacity to make over $300m of investments that will also support our revenue growth as we administer those rights.

We are excited and looking forward to the upcoming financial year as the market keeps growing and streaming continues to transform the industry. We also see positive development with big new entrants into the market that help drive demand, like Amazon’s music service using voice command via its Echo.

The vision Kobalt had from the, beginning is continuing to come true as things move forward at full speed, and we have the release of ever more new technologies and services planned.Music Business Worldwide