Sony Music Buys AWAL, Kobalt Neighbouring Rights in $430M Deal
Sony Music Entertainment has agreed to acquire the recorded music operations of Kobalt Music Group in a deal that beefs up the major label’s independent-minded portfolio.
Sony Music has signed a definitive agreement to acquire Kobalt Music Group’s independent distribution and label division AWAL, as well as its neighbouring rights business, the companies announced on Monday (Feb. 1).
The deal, which still needs regulatory approval, will see Sony pay $430 million, subject to customary working capital and other adjustments.
According to the announcement, AWAL and the neighbouring rights operation will be a separate new division that will be connected to the Orchard, Sony’s indie distribution arm that has some $800 million in revenue. In the year ended March 30, 2019, AWAL had revenue of $106.2 million while its neighbouring rights divisions had collections of about $65 million. That means Sony’s indie operations could now have about $1 billion in revenue, but since Sony counts those monies under agency accounting, it only recognizes the Orchard’s distribution fees it collects as revenue in its own reporting; and it will likely do the same for the Kobalt entities.
“Our investment in AWAL’s continued growth gives us another level of service to offer the independent music community,” Sony Music Group chairman Rob Stringer said in a statement. “With their flexible solutions to building artist careers, together we will offer creators more exciting choices to connect with their audience worldwide.”
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Added Brad Navin, the Orchard’s CEO: “The Orchard’s comprehensive offerings, global footprint and technology will contribute to AWAL’s continued success. We will give more artists a transparent, global solution and access to multiple touch points to release their music however they choose.”
AWAL CEO Lonny Olinick and Kobalt neighbouring Rights CEO Ann Tausis will stay in place, leading their respective operations if the deal gets regulatory approval and is closed. The acquisition of the latter division, which collects master recordings performance revenue for artists, represents a new business for Sony Music Group, which up to now likely only collected those revenues for the label side of its business.
Except for digital programmed music, the U.S. doesn’t pay master recording performance revenue; while in Europe and the rest of the world, those revenues are paid to collection management organizations that typically pay out separately the label share and artist share.
AWAL is a distributor and provider of label services mostly to individual artists while the Orchard provides those services mainly to labels.
“The AWAL team has futuristically enabled artists to deliver their creative vision since its inception,” Olinick said in a statement. “Now, as part of the global Sony ecosystem, we can dramatically expand on this vision for them. We are also excited to build on our innovative neighbouring rights as well as DIY platforms with extended support from The Orchard.”
When this acquisition closes that means that Kobalt still owns its music publishing platform and its AMRA performing rights organization while a separate entity, Kobalt Capital, serves as an investment adviser to Kobalt Music Copyrights Fund II, which owns a pool of music publishing catalogs including the SONGS Music Publishing Copyrights. This past November, Kobalt sold its Music Copyrights Fund 1 to Hipgnosis for $323 million.
Last year, the entire Kobalt company, built by founder and chairman Willard Ahdritz, was put up for sale, according to sources, with the company and its backers said to be seeking a $1 billion valuation. But that route apparently didn’t turn up any buyers for the entire company. It’s unclear if this latest deal will now leave Kobalt as a continuing operation, now scaled back to its original mandate of handling music publishing administration for artists and the catalogs, or whether backers and management will continue to dismantle the company by selling it off in pieces.
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