Warner Music Group CEO, Robert Kyncl, has previously stated his belief that music is “undervalued” compared to other forms of entertainment – and suggested that a shake-up is due for the way royalties are calculated and paid out by streaming services.
Today (May 9), on WMG’s latest quarterly earnings call, Kyncl doubled down on these views, elaborating on his proposal that music from certain types of artists – especially those who attract subscribers to streaming services in the first place – should be paid more than other types of music.
“Every stream [in music today] is valued exactly the same way,” said Kyncl, referring to the dominant ‘pro rata’ royalty model on modern streaming services.
“That doesn’t seem like something that’s aligned with the way the world works. For instance, in sports, LeBron James earns more money than some of his teammates – [and] not because he plays more hours per day. He plays exactly the same number of hours [as other players] yet he earns more.”
“Music cannot continue to be the only industry that doesn’t assign [additional] value to high-value artists and songwriters, and doesn’t drive ARPU growth the way every other industry does.”
Robert Kyncl
Offering another example of differentiated value in the world of sports, this time from a streaming media perspective, Kyncl said: “ESPN commands more money, per subscriber, per month, than any other TV channel. Not because it is consumed more, but [because] there’s a propensity, a user willingness, to remain with [ESPN plus other services].”
With that in mind, said Kyncl, “It can’t be that an Ed Sheeran stream is worth exactly the same as a stream of rain falling on the roof.”
Calling the current dominant music streaming royalty model “misaligned”, Kyncl said: “Now that the industry is healthy and has grown incredibly well, it’s time to reevaluate how we’re licensing to DSPs, and to [change the model] together with them… Music cannot [continue to] be the only industry that doesn’t assign [additional] value to high-value artists and songwriters, and doesn’t drive ARPU growth the way every other industry does.”
Another way to try and raise streaming royalties paid to popular artists, of course, would be to increase the price of leading subscription music services.
Spotify, for one, continues to charge the same monthly price (USD $9.99) for its flagship Premium subscription product as it did when it launched in the US in 2011.
Today Kyncl pointed out that, prior to joining Warner Music Group, during his 12-year stint at YouTube, the price of YouTube TV subscription grew “by 100%”. (YouTube TV’s monthly price was upped to $72.99 in March 2023; the service debuted in 2017 at $35 per month.)
Conversely, the price of a standard individual YouTube Music subscription, said Kyncl, had not increased “by any percent” since that service launched.
Kyncl suggested that the root cause of certain streaming platforms declining to increase their prices was because these DSPs are “not actually incentivized in current agreements” with music rightsholders to do so – noting “it’s actually the opposite”.
He said: “Recent price increases [at certain music streamers] have been successful and are a move in the right direction, but this should be just the first step. Those subscription services which have raised prices have done the fiscally prudent thing – for themselves, their shareholders, and the creative community and there is no sign that they are seeing elevated churn.”
Added Kyncl: “Every single subscription service, whether it’s fitness services or video services, has increased prices over the last five years significantly, other than music.
“[Music’s] probably the only industry that hasn’t, other than the 10% increases last year [with Apple Music and Amazon Music, amongst others, raising prices from $9.99 per month to $10.99 per month in the US].”
“It’s time to reevaluate how we’re licensing to DSPs… What I’m trying to stress is that the status quo of the way things work right now is not the way things are going to work going forward.”
Robert Kyncl on music streaming’s pricing structure
The Warner boss cited recent research from Guggenheim Partners which proposed that if Spotify raised its US subscription prices, it could bring Daniel Ek‘s loss-making company an additional $1 billion in annual revenues.
Kyncl further stated: “The [current music streaming pricing] structure was really, really good for the industry; it took it from a low point to an incredible recurring revenue stream all around the world with massive amounts of people[‘s] payment [information] on file, a premium experience, personalization, all of that.
“But it does not mean that it is the right thing for the next 10 or 20 years; it has to change, and it will change.”
Kyncl said that a “reevaluation” of the licensing structure of WMG’s agreements with digital services – and, presumably, altering those agreements to incentivize said services to raise prices – is now one of his “top priorities”.
Suggesting that Warner was keen to explore multiple pricing tiers and more sophisticated audience segmentation with DSPs, he said: “What I’m trying to stress is that the status quo of the way things work right now is not the way things are going to work going forward.”
Kyncl was speaking on the earnings call with analysts following the publication of Warner Music Group’s calendar Q1 (fiscal Q2) financial results, which showed the company’s overall revenues rose by 4.6% YoY in the quarter.
Elsewhere on the call, he discussed the topic on everyone’s lips – AI – and its potential positive (and less-than-positive) effects on the music business.
Said Kyncl: “When it comes to generative AI, it needs to be put into proper context. Framing it only as a threat is inaccurate. Our first priority is to vigorously enforce our copyrights and our rights in name, image, likeness, and voice, to defend the originality of our artists and songwriters.
“It is crucial that any AI generative platform discloses what their AI is trained on and this must happen all around the world.”
Robert Kyncl on AI using derivative copyrights to make new music
“It is crucial that any AI generative platform discloses what their AI is trained on and this must happen all around the world. Europe is leading by example, with the EU Artificial Intelligence Act. The European Parliament is considering amendments which would codify the position that copyrighted content may not be used to train AI without prior authorization from the rightsholders, and would require AI developers to disclose a summary of the materials they use to train AI.”
Continued Kyncl: “As in Europe, all around the world lawmakers are debating AI, but the primary focus has been on issues such as transparency, safety, algorithmic bias, privacy protection, notice to consumers and an ability to opt-out.
“Last month, Senator Chuck Schumer announced his intention to draft a US AI bill coming later this year. I can promise you that whenever and wherever there is a legislative initiative on AI, [Warner] will be there in force, to ensure that protection of intellectual property is high on the agenda.
“However, we must also see and seize the massive opportunity that generative AI will [offer]. “
Kyncl then made an interesting comparison between the positive effects that AI could have on the future earnings potential of music rightsholders, and the impact that user-generated content on YouTube has had on the business in the past.
UGC uploads soundtracked by music can be licensed for use by rightsholders – and royalties activated for usage – via YouTube’s Content ID platform.
On this topic, two things weren’t lost on Kyncl: (i) UGC via YouTube’s Content ID now generates a ten-figure sum in royalties for music rightsholders annually, and (ii) Kyncl recently hired Ariel Bardin – the exec who built Content ID at YouTube – as Warner Music Group’s new President of Technology.
“We’ve recruited an initial team of A-list technologists which are unprecedented in the music industry.”
Robert Kyncl
“Consider this: user-generated content containing copyrighted material was originally viewed as a big threat by media companies,” said Kyncl. “From my personal experience at YouTube…when I arrived in 2010, we were fighting many lawsuits around the world and were generating low tens of millions of dollars from UGC.
“We turned that liability into a billion-dollar opportunity in a handful of years and a multi-billion-dollar revenue stream over time. In 2022, YouTube announced that it paid out over $2 billion from UGC to music rightsholders alone and far more across all content industries.”
Kyncl later suggested that Bardin and his technology team are currently working on new tech-driven products for Warner and its artists across four key areas: (i) Internal systems to promote efficiency; (ii) Improving WMG’s effectiveness as a marketer of brands for artists and songwriters; (iii) Widening the base of artists and songwriters Warner can work with; and (iv) Better monetizing the relationship between “superfans” and Warner’s artists.
Kyncl said of the arrival of Bardin and other senior tech-minded execs at Warner: “We’ve recruited an initial team of A-list technologists which are unprecedented in the music [rights] industry. We have incredible momentum with hiring more and more people of that type who want to come here and be part of what we’re doing.”Music Business Worldwide