MBW Explains is a sequence of analytical options during which we discover the context behind main music business speaking factors – and recommend what would possibly occur subsequent. Solely MBW+ subscribers have limitless entry to those articles. MBW Explains is supported by Reservoir.
Common Music Group’s newest (and powerful) earnings outcomes, printed final week, got here flanked by two groundbreaking bulletins that look sure to reshape the music enterprise within the age of AI.
One was that the world’s largest music rights firm had settled its copyright infringement lawsuit in opposition to Udio, one in every of two generative AI music-making platforms (together with Suno) that UMG and the opposite two main recording corporations (Sony Music and Warner Music Group) sued final yr.
However the deal between UMG and Udio goes lots additional than only a decision of their authorized battle. Beginning subsequent yr, Udio can be fully remodeled into a brand new AI music platform, one which “can be ethically educated on licensed and licensed music and can present additional income alternatives for artists and songwriters and UMG,” UMG Chairman and CEO Sir Lucian Grainge stated on the corporate’s earnings name on Thursday (October 30).
The brand new Udio platform will reportedly embody an opt-in choice for artists, and musical creations will exist inside a “walled backyard”: Udio-created music will exist inside the Udio platform and can now not be downloadable. That’s, it would now not contribute to the cluttering-up of streaming providers with tidal waves of AI slop.
(As MBW readers might recall, Deezer not too long ago reported that almost a 3rd of music uploaded to its streaming service nowadays is AI-generated.)
“The brand new subscription service will remodel the consumer engagement expertise, making a licensed and guarded surroundings to customise stream, share and share music responsibly on the Udio platform,” Grainge stated.
UMG’s second AI-related deal is a partnership with Stability AI to develop “next-generation skilled music creation instruments.” Beneath the deal, Stability AI will work with UMG and its artists to analysis artists’ wants and develop AI-powered instruments “to help the artistic strategy of artists, producers and songwriters globally.”
On the earnings name, Grainge and different members of the corporate’s C-suite elaborated on UMG’s technique round AI, amongst different subjects. Listed here are three belongings you may need missed:
1. Music followers aren’t inquisitive about faux AI artists
Throughout the name, one of many extra fascinating tidbits got here from Govt VP and Chief Digital Officer Michael Nash, who revealed some outcomes from market analysis UMG carried out on US music followers and their attitudes in direction of AI.
“In that analysis, the readout was 50% of music shoppers are very inquisitive about AI in relationship to the music,” Nash informed analysts on the decision.
“However that’s in relationship to their music expertise. The factor that ranks the bottom is artist simulation, what we’d name faux artists. And also you’re seeing there’s a scarcity of traction round that aside from the occasional novelty phenomenon which will seize some headlines. That’s not what followers are inquisitive about.”
In different phrases, followers wish to know the music they’re listening to was created by an precise human being, expressing genuine ideas and emotions. That should definitely come as a reduction to the musical artists (and creators in different fields) who fear their life’s work can be drowned out by cheaply-made AI mimicry.
“What followers say that they’re inquisitive about is AI utility that makes their music service higher, that improves discovery, that allows them to higher manage playlist[s], to have a greater advice system in opposition to their specific desire,” Nash continued.
And certainly we’re seeing music streaming platforms responding to that shopper demand, most notably Spotify, which introduced in October that it’s growing “accountable” AI music merchandise, in partnership with UMG and the opposite two main recording corporations, together with indie licensing group Merlin and France-headquartered music firm Imagine.
Spotify stated it has already began work on a “state-of-the-art” generative AI analysis lab and product staff. The corporate vowed that each one the merchandise it creates will “will put artists and songwriters first,” will give artists a option to take part or keep out, will compensate artists pretty, and “won’t substitute human artistry.”
“They may give artists new methods to be artistic and join with followers,” Spotify stated.
“The factor that ranks the bottom is artist simulation, what we’d name faux artists… That’s not what followers are inquisitive about.”
Michael Nash, Common Music Group
“Think about interacting along with your favourite music via a classy, extremely customized chatbot,” Grainge mused. “We envisage that thrilling chance on the horizon.”
But there are certainly some “novelty phenomena,” as Nash put it, the place AI-generated tracks behind the guise of pretend artists are racking up hundreds of thousands of streams on Spotify, as MBWreported earlier this yr.
But UMG’s analysis – or at the very least that a part of it the corporate shared on the earnings name – means that the marketplace for this form of factor is restricted. (There’s additionally the query of simply what number of of these Spotify listeners even notice they’re listening to AI-generated tracks masked by a fictional “artist” persona.)
So the music business has purpose to hope that genuine, human-made music is an precise promoting level that can guarantee human artistry will nonetheless be alive and properly on the opposite facet of the AI revolution.
Or, as Grainge put it in what could possibly be referred to as UMG’s thesis assertion on AI: “Our foundational perception is that artists, songwriters, music corporations and know-how corporations, all working collectively, will create a wholesome and thriving industrial AI ecosystem during which all of us, together with followers, can flourish.”
2. TWO-THIRDS TO 75% OF VINYL SALES COME THROUGH UMG’S OWN D2C STORES
One of many extra spectacular (and stunning) numbers in UMG’s Q3 earnings was a 23.1% YoY leap in income from bodily music gross sales, rising to €341 million (USD $398.31 million) within the quarter.
UMG attributed this significantly to preliminary shipments of Taylor Swift’s The Lifetime of a Showgirl and “power in new releases, significantly in Japan.”
That makes it sound like a one-off; in spite of everything, Japan is understood for music followers which have steadfastly held on to bodily music via the digital revolution, and Taylor Swift is, properly, Taylor Swift.
However on the earnings name, UMG CFO Matthew Ellis instructed that that is greater than a one-off – bodily gross sales would possibly truly be a supply of progress going ahead.
“Whereas bodily income efficiency could also be much less predictable and have extra seasonality than subscription income, it’s vital to notice that over an extended time horizon, this can be a rising enterprise that displays rising demand by followers to personal bodily merchandise, connecting them with the artists they love,” he stated.
Pressed on the difficulty by an apparently stunned analyst, Chief Working Officer Boyd Muir made it clear that UMG doesn’t see music followers ditching their streaming subscriptions to construct a CD assortment.
Slightly, bodily music is turning into one thing new: It’s becoming a member of the merch facet of the enterprise, the place shopping for a vinyl report is one thing akin to purchasing a T-shirt at a live performance or hanging a poster of your favourite artist in your bed room wall – a means for followers to realize one thing tangible that symbolizes their appreciation for and loyalty to artists.
“Whereas bodily income efficiency could also be much less predictable and have extra seasonality than subscription income, it’s vital to notice that over an extended time horizon, this can be a rising enterprise…”
Matthew Ellis, Common Music Group
“The fact is the CD in many of the markets on the planet could be very a lot a declining format, however we’re speaking about one thing actually fairly completely different right here,” Muir stated.
“This enterprise is morphing into how we join the fan along with the artists via a bodily product, the 2 most vital examples of that to this point is the expansion in vinyl and the collectible side of that.”
Muir famous that fifty% of vinyl is bought to individuals who don’t even personal report gamers – and he stated {that a} rising share of bodily music is coming via UMG’s direct-to-consumer channels, relatively than via standard report shops.
“We’re seeing someplace within the area of two-thirds to 75% of the full quantity truly coming via our personal managed shops in relation to this product. So we’re having a direct relationship with the fan,” Muir stated.
Picture credit score: Piotr Swat / Shutterstock.com
3. UMG remains to be OPTIMISTIC in regards to the alternative round tremendous premium tiers and is engaged in discussions about it
In fact, UMG isn’t betting the farm on bodily being the breakthrough connection to superfans that the music business has been chasing after lately.
The main target stays on higher monetization of music streaming, and on that entrance, the corporate is seeking to China’s high streamer Tencent Music for inspiration – or, perhaps extra precisely, it’s hoping that streamers like Spotify and Apple Music discover it an inspiration.
That’s as a result of Tencent’s ‘Tremendous-VIP’ subscription tier prices 5 instances as a lot as an everyday paid subscription, and has develop into a significant driver of income progress.
In Q2, TME noticed its music providers income develop 26.4% YoY to RMB 6.85 billion ($957 million), pushed by progress in Tremendous-VIP subscribers, which hit 15 million within the quarter, up by 50% in simply three quarters.
“Analysis clearly demonstrates that at the very least 20% of the subscriber base is the goal marketplace for a super-premium supply…”
Michael Nash, Common Music Group
That helped drive common income per paying consumer (ARPPU) up 9.3% YoY to RMB 11.7 (round $1.63). In all, 12% of paying customers had been on the Tremendous-VIP tier, in comparison with 8% a yr earlier.
UMG’s management staff was requested in regards to the alternative round super-premium tiers throughout final week’s name.
TME has “empirically demonstrated” the feasibility of a super-premium tier, Nash stated on the earnings name – and in “a market considered difficult… to monetize music consumption.”
Nash continued: “There’s [a] clear demonstration of the chance. We consider industrial logic prevails right here, the place analysis clearly demonstrates that at the very least 20% of the subscriber base is the goal marketplace for a superpremium supply and [where] you see a deal with innovation.”
Nash additionally talked about that “AI can be a major factor of the deal with innovation by way of new digital merchandise sooner or later,” connecting the super-premium alternative to AI-enhanced experiences.
“There’s a element of it that’s merely in regards to the alternative to monetize extra precious followers,” stated Nash. “And as we’ve acknowledged earlier than, in the event you take a look at the digital obtain period, the highest quartile of shoppers had been spending thrice the common. So the propensity to spend is there. And we take into consideration this by way of direct-to-consumer, and Matt and Boyd talked about vinyl and what which means by way of monetizing tremendous fandom.
He added: “There are completely different elements to the equation, however we’ve got a robust conviction about what we’ve got invested straight in. With respect to superpremium tiers, we’re engaged with all of our companions, speaking in regards to the alternative. There’s a know-how change that’s going to advertise alternatives round innovation to introduce extra refined, larger worth affords to shoppers over time, and we’re engaged in these discussions.”
MBW Explains is a sequence of analytical options during which we discover the context behind main music business speaking factors – and recommend what would possibly occur subsequent. Solely MBW+ subscribers have limitless entry to those articles. MBW Explains is supported by Reservoir.Music Enterprise Worldwide
