MBW Reacts is a sequence of remark items from the Music Business Worldwide workforce. They’re our analytical (and typically 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 stunning conclusion: Packer had determined to double-downgrade Universal Music Group‘s inventory, from outperform to underperform.
This in itself was uncommon: In keeping with TipRanks, of the 15 Wall Road analysts who’ve given views on the worth of UMG’s inventory prior to now 12 months, simply two are outright unfavorable: Packer, and Joseph Thomas at HSBC.
All however one of many relaxation – a ‘Maintain’ ranking from CitiGroup – proceed to charge UMG’s inventory as a ‘Purchase’, albeit with completely different ranges of optimism.
The ranks of this ‘Purchase’ group embrace 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 stunning 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?
Just a few issues contributed to his determination, together with doubts over the scale 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 every other in Packer’s evaluation: The potential affect of synthetic intelligence (AI) on the music trade within the years forward. And, particularly, on the foremost file firms.
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 prone to stay a long-term winner from digital[z]ation, we predict AI music is to emerge as a difficult thematic and drag on elevated multiples.”
Packer particularly argued that huge volumes of AI-created music might “speed up [market] share loss” for UMG and the opposite main file firms.
As such, he touched on a recurrent conversational theme in in the present day’s enterprise: What occurs to main file 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?
Hundreds of thousands of tracks, however is anybody listening?
Lots 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 file 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 file firms (in addition to Merlin members, aka most giant unbiased labels) on Spotify over the previous 5 years.
In 2022, in response to Spotify’s annual report, music distributed by the foremost file firms and their subsidiaries, plus Merlin members and their subsidiaries, misplaced 2% annual market share of complete quantity of music performs on Spotify (see under).
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 robust market share upkeep from the majors (and Merlin) within the face of an amazing 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) released to music streaming services daily in the present day, a mixture, 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 have been created and uploaded in the past three years alone.
Conclusion: The foremost file firms (and their ‘indie’ distribution subsidiaries) are releasing a weeny fraction of the ≈35 million new tracks/movies now hitting music streaming companies each 12 months.
How is it, then, that these main file firms (together with Merlin-affiliated indies) solely misplaced 2% of total quantity market share on Spotify in 2022?
In a phrase, curation.
Why the foremost file firms 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 a number of instances, it’s not being listened to in any respect.
MBW pointed to this reality final month, once we cited Luminate knowledge displaying that some 38 million tracks on music streaming companies didn’t attract a single play in the whole of 2022.
This story is even higher illustrated by Spotify’s Loud & Clear, the info web site printed by Daniel Ek‘s firm yearly.
In keeping with the most recent 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 complete.
Spotify brings down that 213,000 determine in its “skilled or professionally aspiring” calculation to 200,000 by mixing in knowledge concerning the variety of artists who hosted a gig or digital reside occasion in 2022, a determine it says shakes out at 189,000.
These are the precise type of artists, after all, that main (and indie) file firms are thinking 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 symbolize 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 shocking stat, but in addition one which speaks to one of many flaws of over-analyzing the Spotify market share chart on the prime of this story.
That chart, bear in mind, is for complete performs on Spotify; it doesn’t differentiate between the high-royalty performs happening on Premium Spotify accounts, and the low-royalty performs happening 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 worthwhile (i.e. paying) listeners on streaming companies.
As such, the foremost file firms shall be much more involved about sustaining market share amongst these 200,000 acts (and others who’ll be 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 have now 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 recommend that the actual risk to main file firms from AI music isn’t, as is usually proposed, considered one of sheer quantity.
The fashionable 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 availability. 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 critical industrial affect on the music enterprise within the subsequent couple of years. However its greatest affect, particularly market share-wise, will in all probability be felt the place there’s a pure listener demand for it – and, for my part, that’s not in pop music. It’s in music for software (or as Sir Lucian Grainge would have it, “functional” 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] customized, 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 charge, location and different components), Endel’s doing one thing else uncommon for an AI music startup: It’s really measuring its success on the variety of listeners it’s reaching.
Endel says its “ecosystem” of soundscapes already has over a million monthly users, who pay attention, cumulatively, to one million and a half hours a month of Endel’s sounds.
Stats like this aren’t, 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 much 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 company that’s amassed a really profitable trade place by creating instrumental music for YouTubers and podcasts, and likewise by creating instrumental music that’s stuffed Spotify’s first-party ‘music for rest’ playlists.
(Sidenote: There shall be some irony ought to music created by “fake artists” – to echo MBW’s now-infamous flip of phrase – finally be outmoded on stated Spotify playlists by full-blown robots.)
The actual risk?
So, in conclusion, the foremost file firms are seemingly doing higher when it comes to Spotify worth market share – moderately 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 deal with a few hundred thousand “skilled or professionally aspiring” artists. These artists, in contrast to robots, (i) construct fanbases by enjoying reside, and (ii) are finally eager to be acknowledged and appreciated over and above the music they add to faceless streaming companies.
(A fantastic analogy I heard the opposite week: Document firms attempt to signal artists who move the ‘pencil and paper’ check, i.e. if I gave you a pencil and paper, might 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 this planet of music listening continues to reside with these “skilled or professionally aspiring” artists.
So the concept that a deluge of AI-generated songs (except stated songs are carried out by “skilled” artists!) will inevitably wash away main file 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 considered one of impersonal quantity; for my part, it’s considered one of human empathy.
We’re already seeing makes an attempt from giant tech firms, and certainly music firms, 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 might finally, 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 12 months that it had customary 1,000 tracks with computer-made vocals that replicated human voices, together with the voices of lifeless Chinese language superstars. One in every of these tracks had drawn over 100 million performs, stated TME.
Now, with Lucy, the agency has put an AI-generated face on this sort 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 Government Chairman, Cussion Pang, stated that Lucy’s workforce had already “created three chart-dominating unique songs throughout completely different types 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 sort 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. Folks turn into actually engaged with the idols’ day by day lives, very like they’re with actual movie stars or fashions.”
“I imply, positive, there’ll be a robotic popstar in some unspecified time in the future. After all there’ll – every thing that may occur will occur. However that’s not going to be the best way 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 someday problem the specialty of the foremost file firms: 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 offered to Tiktok/ByteDance in 2019.
Newton-Rex just lately instructed me on an MBW podcast: “What individuals actually care about is a connection to the artist.
“I imply, positive, there’ll be a robotic popstar in some unspecified time in the future. After all there’ll – every thing that may occur will occur. However that’s not going to be the best way the [majority of the] trade goes. It’ll be a one-off.
“That reference to human artists has received to be no less than half of the rationale 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 – contemporary from his signing of a new 5-year deal to steer Common by way of what might turn into essentially the most disruptive technological interval in main file firm historical past.
Grainge clearly isn’t taking the risk from AI-powered ‘practical’ music flippantly: No less than a portion of his name for brand new “artist-centric” royalty models at music streaming companies looks as if agitating for an trade bulwark in opposition to the prospect of tens of millions of high-quality instrumentals being spat out by machines at a charge of knots.
If that’s the case, Grainge just isn’t alone in pondering trammel unhealthy parts 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 increased its membership base by 50%.
(Curiously, Common Music Group is a significant impetus behind HAC; the US trademark for the org was filed by UMG itself.)
Finally, although, as set out on this article – and within the face of doom-laden narratives round AI’s affect on music’s greatest firms – 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