Big Deal: Google mines Kobalt

UK-based music publishing and rights management services provider Kobalt raised $60m on Friday in a series C round featuring Google Ventures, the corporate venturing arm of diversified internet company Google, showing that the boom in music streaming services is also expanding to auxiliary services.

Google Ventures invested in the round alongside MSD Capital, the wealth management vehicle for entrepreneur Michael Dell and his family, and MSDC Management, a hedge fund management affiliate of MSD.

Founded in 2000, Kobalt provides a range of technology-based services to help artists secure royalties by tracking when their music is played by various sites online. Its lead product is a global licensing, collection and payment platform, but it also offers a YouTube song matching tool called Proklaim, digital music distribution platform Awal and real-time data and insight platform Portal.

Kobalt also offers a range of additional artist management services including creative services, brand partnerships, licensing and rights management and distribution, royalty collection and processing, digital marketing and monetisation. It has built a user base that includes more than 500 publishing companies and artists such as Foo Fighters, Kelly Clarkson, Maroon 5, Paul McCartney, Pitbull, Sam Smith and Skrillex, and claims to have experienced 40% year-on-year growth throughout the last 10 years.

The series C capital increased Kobalt’s total funding to $126m. It raised $10m in a seed round featuring Spark Capital, which subsequently participated in a $16m series A round with Balderton Capital in 2008.

MSDC paid $25m for a 9.9% stake in Kobalt in March 2014, according to the Wall Street Journal, and according to TechCrunch, Kobalt has also sourced a further $153m to finance the label services side of its business, where Kobalt pays to acquire some or all of an artists’ rights so they can collect and distribute royalties for them.

Much of the funding noise in the music technology sector over the past decade has been made by the music streaming segment. Spotify is said to be raising $500m at a $6bn valuation, Soundcloud and Deezer have raised, or are raising funding at billion-dollar valuations, and startups such as Zvook are continuing to spring up, challenging incumbents that also include the likes of Grooveshark, Rhapsody and Last.fm.

The success of Kobalt, which plans to spend the latest funding on beefing up its technology offerings, can be seen as an inevitable effect of the ongoing growth of online music, which has necessitated the disruption of existing royalty collection models, particularly for artists who get more money from streams outside of the traditional record company route, and this in turn is inviting for an investor like Google.

Bill Maris, managing partner at Google Ventures, said in a statement announcing the round: “The music industry is going through dynamic changes all around the world, and Kobalt will be instrumental in shaping its future positively for all constituents, starting with artists.

“The company’s solid execution over the past decade coupled with (CEO) Willard (Adhritz)’s unwavering passion and commitment made this an attractive investment for us. Kobalt’s commitment to trust, transparency and technology has positioned it as one of the most innovative brands in media today.”

Although Google has never been as active in the music industry as hardware manufacturer Apple, which runs the massive successful iTunes store and which acquired headphone maker and music streaming service provider Beats for $3bn last year, it already has its fingers in several online music pies.

Despite its purchase of music streaming and recommendation service Songza in July 2014, the most prominent of these is of course its video streaming site YouTube, which has grown into one of the biggest music streaming platforms as well as a valuable resource for publishers whose songs are used as background music for other videos.

Although some onlookers may question any conflicts of interest inherent in a company that would benefit from royalties being kept down investing in an artists’ representative such as Kobalt, Google’s interest in Kobalt may well have more to do with it accessing the company’s music analytics technology.

When that technology is combined with Songza’s music recommendation tool, it could theoretically give Google a leg up if it planned to spin part of YouTube off as a music streaming service, helping to focus its services towards customers’ tastes and head off rivals such as Spotify, which has been conducting its own research into the subject. In any case, Google does seem to be taking a greater interest in music, and it will be intriguing to see where the internet giant invests next.