MBW Reacts is a collection of remark items from the Music Enterprise Worldwide crew. They’re our analytical (and generally opinionated) reactions to main latest leisure information tales.
Final Wednesday (April 5), the wind modified.
William Packer, an influential media and tech analyst for BNP Paribas Exane, issued a analysis be aware with a shocking conclusion: Packer had determined to double-downgrade Common Music Group‘s inventory, from outperform to underperform.
This in itself was uncommon: In accordance with TipRanks, of the 15 Wall Road analysts who’ve given views on the worth of UMG’s inventory prior to now yr, simply two are outright unfavourable: Packer, and Joseph Thomas at HSBC.
All however one of many relaxation – a ‘Maintain’ ranking from CitiGroup – proceed to price UMG’s inventory as a ‘Purchase’, albeit with completely different ranges of optimism.
The ranks of this ‘Purchase’ group embody the likes of Andrew Uerkwitz (Jefferies), Daniel Kerven (JP Morgan), Julien Roch (Barclays), Lisa Yang (Goldman Sachs), Matthew Walker (Credit score Suisse), Michael Morris (Guggenheim), Omar Sheikh (Morgan Stanley), and Richard Eary (UBS).
Packer’s downgrade was further shocking for the truth that, over the previous few years, he’s been an unwavering champion of the potential of UMG’s inventory worth.
So what was it that spooked Packer into demoting his view of Common’s industrial future?
A couple of issues contributed to his choice, together with doubts over the dimensions of TikTok’s funds to the music enterprise, and his assumption that essentially the most significant income increase to UMG from streaming value rises might already be behind it.
There was, although, one issue that stood out above some other in Packer’s evaluation: The potential affect of synthetic intelligence (AI) on the music trade within the years forward. And, specifically, on the foremost document corporations.
Packer wrote that “AI is a brand new disruptive risk” the place “a glass half full trade narrative is holding… for now”.
He added: “Whereas UMG is more likely to stay a long-term winner from digital[z]ation, we expect AI music is to emerge as a difficult thematic and drag on elevated multiples.”
Packer particularly argued that huge volumes of AI-created music may “speed up [market] share loss” for UMG and the opposite main document corporations.
As such, he touched on a recurrent conversational theme in in the present day’s enterprise: What occurs to main document firm streaming market share when the dam breaks, and we begin to see tens of millions of songs, all made by AI, distributed to Spotify et al every day?
Tens of millions of tracks, however is anybody listening?
Plenty of AI-created, or no less than AI-assisted, music is already washing up on the shores of in the present day’s digital music platforms.
The essential query, although, particularly when considering AI’s potential erosion of main document firm market share, is how many individuals are literally listening.
The stat that’s usually bandied round at this level – and I shall do the identical – is that which exhibits streaming quantity market share decline for the foremost document corporations (in addition to Merlin members, aka most giant impartial labels) on Spotify over the previous 5 years.
In 2022, in response to Spotify’s annual report, music distributed by the foremost document corporations and their subsidiaries, plus Merlin members and their subsidiaries, misplaced 2% annual market share of whole quantity of music performs on Spotify (see beneath).
And throughout the 5 years from 2017-2022, these entities misplaced a complete of 12% market share on the service, down from 87% to 75%.
But right here’s one thing that’s hardly ever remarked upon: The above represents astonishingly sturdy market share upkeep from the majors (and Merlin) within the face of an awesome glut of music being launched.
As MBW reported final month, there are – in response to market monitor Luminate – round 98,500 separate ISRCs (aka separate tracks or movies) launched to music streaming providers each day in the present day, a combination, little doubt, of human-created and AI-created music.
The quantity of music created prior to now few years is unfathomably giant: almost 50% (!!!) of the ≈100 million tracks obtainable on Spotify et al in the present day had been created and uploaded prior to now three years alone.
Conclusion: The key document corporations (and their ‘indie’ distribution subsidiaries) are releasing a weeny fraction of the ≈35 million new tracks/movies now hitting music streaming providers each 12 months.
How is it, then, that these main document corporations (together with Merlin-affiliated indies) solely misplaced 2% of general quantity market share on Spotify in 2022?
In a phrase, curation.
Why the foremost document corporations could also be well-positioned for the approaching AI onslaught
The statistics show that the overwhelming majority of music being launched in the present day – whether or not by robots or people – isn’t solely barely being listened to; in numerous circumstances, it’s not being listened to in any respect.
MBW pointed to this reality final month, after we cited Luminate information displaying that some 38 million tracks on music streaming providers didn’t entice a single play in the entire of 2022.
This story is even higher illustrated by Spotify’s Loud & Clear, the information website revealed by Daniel Ek‘s firm yearly.
In accordance with the newest replace of Loud & Clear, Spotify estimates that there are round 200,000 “skilled or professionally aspiring artists” working on its service in the present day.
Spotify characterizes a “skilled or professionally aspiring artist” as somebody who has (a) launched greater than 10 tracks on its platform so far (5.6 million artists haven’t, says Spotify), and (b) who averages greater than 10,000 month-to-month listeners.
These two qualifiers mixed, says Spotify, apply to only 213,000 artists in whole.
Spotify brings down that 213,000 determine in its “skilled or professionally aspiring” calculation to 200,000 by mixing in information relating to the variety of artists who hosted a gig or digital dwell occasion in 2022, a determine it says shakes out at 189,000.
These are the precise form of artists, after all, that main (and indie) document corporations are desirous about signing/investing in – one thing we’ll come again to.
Anyway, the necessary bit: The 200,000 “skilled or professionally aspiring artists” on Spotify in the present day characterize simply 2.2% of the 9 million music artists whose music the agency says it hosts on its platform.
And but, in response to Spotify, the identical 200,000 “skilled or professionally aspiring artists”, in 2022, generated a whopping 95% of all royalties on Spotify.
It’s a surprising stat, but in addition one which speaks to one of many flaws of over-analyzing the Spotify market share chart on the high of this story.
That chart, bear in mind, is for whole performs on Spotify; it doesn’t differentiate between the high-royalty performs going down on Premium Spotify accounts, and the low-royalty performs going down on ‘free’ Spotify accounts.
The truth that 95% of all royalties on Spotify are being generated by simply 200,000 “skilled or professionally aspiring artists” proffers an necessary reality: ‘Skilled’ artists, with correct fanbases, are being listened to by extra priceless (i.e. paying) listeners on streaming providers.
As such, the foremost document corporations will probably be way more involved about sustaining market share amongst these 200,000 acts (and others who’ll be a part of their league in years to return), than they’ll the opposite 8.88 million artists / ‘artists’ on Spotify in the present day who, I remind you, solely generate 5% of all royalties.
(As exemplified within the chart above, the final official annual royalty payout determine we’ve from Spotify, throughout data and publishing, is for 2021, when the service distributed ‘over EUR €7 billion’ to music rightsholders. Rounded down, these 200,000 ‘skilled or professionally aspiring’ artists would have generated €6.65 billion of a €7 billion royalty payout in 2022.)
What does all that should do with AI?
These stats counsel that the actual risk to main document corporations from AI music isn’t, as is usually proposed, one among sheer quantity.
The trendy music trade, as evidenced by the above, already has a huge imbalance between provide and demand. An explosion in AI music will surely super-size the provision. However in music listening, as was ever the case, it’s the demand that actually issues.
That’s to not say AI-created music can’t or received’t have a severe industrial affect on the music enterprise within the subsequent couple of years. However its largest affect, particularly market share-wise, will most likely be felt the place there’s a pure listener demand for it – and, in my opinion, that’s not in pop music. It’s in music for software (or as Sir Lucian Grainge would have it, “practical” music.)
One solely want look to Berlin-headquartered Endel for proof. The corporate, with backing from the likes of Amazon Alexa and Avex Group, positions itself as a “sound wellness firm”, whose proprietary AI “create[s] personalised, practical soundscapes to assist individuals focus, calm down, and sleep”.
Outdoors of Endel’s intelligent tech (with soundscapes that change primarily based on a consumer’s motion, coronary heart price, location and different elements), Endel’s doing one thing else uncommon for an AI music startup: It’s truly measuring its success on the variety of listeners it’s reaching.
Endel says its “ecosystem” of soundscapes already has over 1,000,000 month-to-month customers, who pay attention, cumulatively, to 1,000,000 and a half hours a month of Endel’s sounds.
Stats like this should not, to my thoughts, an endemic risk to Common Music Group, whose strategic bedrock continues to be music made by artists with identities which have significant real-world recognition. (Aka: Stars.)
I’d be way more involved by Endel, and certainly the ability of AI-generated “music for X” / “practical music” soundscapes, if I used to be, for instance, Epidemic Sound – the $1.4 billion-valued Swedish firm that’s amassed a really profitable trade place by creating instrumental music for YouTubers and podcasts, and in addition by creating instrumental music that’s stuffed Spotify’s first-party ‘music for rest’ playlists.
(Sidenote: There will probably be some irony ought to music created by “faux artists” – to echo MBW’s now-infamous flip of phrase – in the end be outmoded on mentioned Spotify playlists by full-blown robots.)
The actual risk?
So, in conclusion, the foremost document corporations are possible doing higher by way of Spotify worth market share – reasonably than Spotify quantity market share – than most usually perceive.
That is occurring as a result of the majors (and their strongest indie friends) are persevering with to concentrate on a few hundred thousand “skilled or professionally aspiring” artists. These artists, in contrast to robots, (i) construct fanbases by enjoying dwell, and (ii) are in the end eager to be acknowledged and appreciated over and above the music they add to faceless streaming providers.
(An ideal analogy I heard the opposite week: File corporations attempt to signal artists who go the ‘pencil and paper’ take a look at, i.e. if I gave you a pencil and paper, may you draw an honest approximation of the artist merely out of your thoughts’s eye?)
The huge bulk of demand – monetized demand, no less than – on the earth of music listening continues to reside with these “skilled or professionally aspiring” artists.
So the concept that a deluge of AI-generated songs (except mentioned songs are carried out by “skilled” artists!) will inevitably wash away main document firm market energy on streaming sounds to me a little bit hyperbolic.
“Lucy is [our] first super-realistic digital idol.”
Tencent Music, talking in December 2022
The larger existential problem for the majors from AI music isn’t one among impersonal quantity; in my opinion, it’s one among human empathy.
We’re already seeing makes an attempt from giant tech corporations, and certainly music corporations, to market AI-created characters that resonate, emotionally, with human patrons. Avatars with sufficient mythology, sufficient Homo Sapien-esque traits – or a plausible facsimile of them – to elicit true fandom from a large-scale viewers.
I’m speaking “skilled or professionally aspiring” artists… who by no means perspire a single bead of sweat.
That is the place issues may ultimately, theoretically get scary for the majors.
Witness ‘Lucy’, a precedence mission for China’a Tencent Music Leisure (TME), which/who was first premiered in December.
TME’s AI capabilities in music are already beneath little doubt: The corporate boasted final yr that it had common 1,000 tracks with computer-made vocals that replicated human voices, together with the voices of lifeless Chinese language superstars. Certainly one of these tracks had drawn over 100 million performs, mentioned TME.
Now, with Lucy, the agency has put an AI-generated face on this type of machine-generated product – an avatar that it calls “[our] first super-realistic digital idol”, constructed by TME’s in-house Lyra Lab’s LyraSinger Engine.
On an earnings name in March, TME Govt Chairman, Cussion Pang, mentioned that Lucy’s crew had already “created three chart-dominating authentic songs throughout completely different kinds inside only one month of [her] debut” and enticed industrial partnership curiosity from “a broad array of world manufacturers” together with Coca-Cola, and KFC.
We’ve seen this type of factor earlier than, after all.
Mentioned WMG’s now-co-President of Asia, Jon Serbin, on the time: “‘Digital idols’ are already an enormous phenomenon in China, in addition to different elements of Asia.
“They’re attracting large following on social media, significantly Gen-Z followers. Individuals change into actually engaged with the idols’ each day lives, very like they’re with actual movie stars or fashions.”
“I imply, certain, there’ll be a robotic popstar sooner or later. In fact there’ll – all the pieces that may occur will occur. However that’s not going to be the way in which the [majority of the] trade goes. It’ll be a one-off.”
Ed Newton-Rex, creator, Jukedeck
Might these “digital idols”, replete with AI-composed music and human-mimicking vocals, actually in the future problem the specialty of the foremost document corporations: Globally marketed, human superstars with tens of millions of ticket-and-merch-buying followers worldwide?
It’s right here I flip to the phrases of a person in a greater place than me to reply this query: Ed Newton-Rex, the creator of one of many first AI music-making platforms, Jukedeck, which he bought to Tiktok/ByteDance in 2019.
Newton-Rex lately advised me on an MBW podcast: “What individuals actually care about is a connection to the artist.
“I imply, certain, there’ll be a robotic popstar sooner or later. In fact there’ll – all the pieces that may occur will occur. However that’s not going to be the way in which the [majority of the] trade goes. It’ll be a one-off.
“That reference to human artists has bought to be no less than half of the explanation that we love music. It’s not nearly what we hear.”
That, in itself, will little doubt be music to the ears of Sir Lucian Grainge – recent from his signing of a new 5-year deal to steer Common via what might change into essentially the most disruptive technological interval in main document firm historical past.
Grainge clearly isn’t taking the risk from AI-powered ‘practical’ music calmly: No less than a portion of his name for brand spanking new “artist-centric” royalty fashions at music streaming providers looks as if agitating for an trade bulwark towards the prospect of tens of millions of high-quality instrumentals being spat out by machines at a price of knots.
In that case, Grainge is just not alone in pondering learn how to trammel unhealthy components of the development of AI in leisure: Witness the expansion of the AI-skeptical public coverage physique, the Human Artistry Marketing campaign (HAC), whose members span music, sports activities, movie, journalism and different disciplines of IP, and which simply elevated its membership base by 50%.
(Apparently, Common Music Group is a serious impetus behind HAC; the US trademark for the org was filed by UMG itself.)
In the end, although, as set out on this article – and within the face of doom-laden narratives round AI’s affect on music’s largest corporations – there does appear to be just a few strong causes for that “glass half full trade narrative” to carry a little bit longer, no less than.Music Enterprise Worldwide