Spotify is earning some artists more than iTunes in Europe

Music publisher Kobalt says "the pipes are broken" in the record industry, but has seen a huge surge in money from streaming sites.

Richard Trenholm Former Movie and TV Senior Editor
Richard Trenholm was CNET's film and TV editor, covering the big screen, small screen and streaming. A member of the Film Critic's Circle, he's covered technology and culture from London's tech scene to Europe's refugee camps to the Sundance film festival.
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Richard Trenholm
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Taylor Swift, who has shaken her music off streaming services like Spotify, onstage at the 2014 MTV Video Music Awards. Jason LaVeris/FilmMagic

DUBLIN -- The record industry's "pipes are broken", according to the man behind a music company that's found its artists earning more from Spotify than from iTunes for the first time. "Slow death is not a great vision for the music industry," says Willard Ahdritz, who claims his company Kobalt is here to "save the music industry from itself."

In the week that Taylor Swift pulled all her music from Spotify, music publisher Kobalt announced that in the first three months of 2014, income from Spotify to the songwriters it represents exceeded income received from iTunes. It's the first time that's happened.

Speaking at technology conference Web Summit here today, Kobalt founder and CEO Willard Ahdritz describes the company as a "technology company with a strong music DNA." Kobalt represents more than 6,000 artists and songwriters, and 450 publishing companies, providing them with real-time reporting on where their songs are being played and assisting in collecting royalties. Clients include Björk, Lenny Kravitz and Paul McCartney -- not to mention streaming refusenik Thom Yorke, who memorably described Spotify as "the last desperate fart of a dying corpse".

"People fear because they have not seen any money," says Ahdritz, "but Spotify is paying out a lot of money. YouTube is paying out a lot of money. We know there are billions of dollars coming out. The problem is the pipes are broken.

"A big hit today for one of my clients sees 700,000 different royalty streams for one song. Vevo is just one [of those sources of royalties], and it has 300 million streams -- so you start to understand the enormous task of database management. We're tracking half a terabyte of data... the system was not designed to run this global database.

"We are creating the pipes between those moments," says Ahdritz, arguing that transparency is paramount in the process of paying artists and labels. "Historically music has been opaque and not so concerned about the back-end system or even paying people at all, and I see that as a mistake," he says.

"Transparency creates liquidity and liquidity creates volume," is his message for the traditional industry.

Ahdritz believes that transparency and communication will conquer the fear artists have of the new technologies that have turned the industry upside down. Asked how he bridges the cultural gap between musicians and technology companies, Ahdritz recommends one highly developed cross-cultural synergistic collaboration tool: beer. "We need a lot of communication and discussion to change and fix the future of music," he says.

Ahdritz believes transparency is a "win-win-win for the industry -- it's a win for the publishers, win for the rights holders, win for the artists who should be paid."

Leaving aside Thom Yorke's flatulent metaphors and Taylor Swift's shaking off, streaming is a big deal: Ahdritz revealed that the money made by songwriters from streaming now makes up 10 per cent of Kobalt's collections.

Though limited to a single company, this milestone represents more evidence that music industry revenue is increasingly diverting from digital sales to streaming. In the US, for example, the total value of digital music sales held basically steady in the first half of the year, according to the Recording Industry Association of America, but revenue from digital downloads dropped by 12 percent while streaming music shot up by 28 percent.

These signs point to a fundamental shift in the music business. Decades of selling music as a product consumers own -- be it a digital track, a CD or a vinyl record -- are giving way to an era in which music is rented. Today, you don't buy a record; you pay a subscription fee or sit through ads and in return get access to a seemingly infinite library of music.

It's not just the way we listen to music that's transforming, but the way we interact with artists as people. "Artists have to rethink the model," says Derek Fung of Tunezy, also speaking at Web Summit. Tunezy is a company that brings fans together with artists by providing access backstage, organising online chats or creating other experiences. For example, Fung describes how rap fans paid $100 each to have dinner with Naughty by Nature to celebrate the 20th anniversary of hit single "Hip-hop Hooray".

"It's not just about selling the product," Fung advises artists, "but selling yourself -- selling the brand."