Warner Expects ‘Extra Common’ Streaming Value Hikes Forward, and three Different Issues We Discovered On WMG’s Newest Earnings Name

Though music rightsholders are definitely pleased with the worth hikes seen at streaming companies of late, it’s no secret that recording corporations and publishers need to see extra – and Warner Music Group (WMG) is relying on it.

Through the firm’s newest earnings name, held on Tuesday (August 8), CEO Robert Kyncl mentioned he was “happy” to see that each one the foremost music streaming companies – together with, most just lately, Spotify – have raised costs on their particular person subscription plans, calling it “the fiscally accountable factor to do.”

But Kyncl made it clear that he expects to see streaming worth hikes develop into an everyday a part of the music panorama going ahead.

“We see these preliminary worth will increase as an encouraging begin,” he mentioned on WMG’s fiscal Q3 (calendar Q2) earnings name. ”There’s no proof that the companies are experiencing elevated ranges of buyer churn. We consider the market will bear additional worth will increase sooner or later, and we’re anticipating that they’ll arrive on a extra common cadence than prior to now.”

Kyncl has been arguing for streaming worth hikes nearly for the reason that second he assumed the place of CEO of Warner, having come to the corporate from YouTube (the place, as Chief Enterprise Officer, he was on the opposite aspect of cost negotiations with music rights holders).

Reiterating an argument he made earlier this 12 months, Kyncl famous that, had Spotify’s $9.99 month-to-month subscription worth grown with inflation for the reason that service launched within the US in 2011, it will now price $13.25.

The Warner chief additionally famous that in 2011, the usual worth for Netflix within the US was $7.99, and right this moment it’s $15.49. If the streaming companies that – till just lately – charged $9.99 per thirty days had raised their costs proportionally to Netflix, they might price $19.37 right this moment.

“Now, let me be clear, I’m not suggesting that we go to $19 right this moment,” Kyncl clarified later within the earnings name.

“What I’m mentioning is the innovation that’s taking place within the leisure house round [pricing], the worth that all of us present to customers, and the elasticity that’s there. And… we clearly need to ensure that we’re working collaboratively along with our DSP companions to innovate over the subsequent decade round this level.”

Kyncl might but get what he’s hoping for.

In one of many first strong hints that streaming companies themselves are taking a look at recurring worth hikes, Deezer CEO Jeronimo Folgueira advised listeners on the DSP’s earnings name final week (August 3) that the corporate had skilled little unfavourable affect from its worth hike in early 2022, “which has clearly demonstrated that music is very undervalued and that platforms like us have extra pricing energy than initially anticipated.”

Folgueira added that, given that each one the opposite main streaming companies have hiked their costs since Deezer’s personal hike, the streaming platform has “the chance to evaluate pricing once more within the close to future.”

Kyncl’s feedback got here following WMG’s announcement of its earnings for fiscal Q3 (calendar Q2) 2023, which ended June 30.

WMG’s general revenues in calendar Q2 – encompassing recorded music, music publishing and different earnings streams – had been up by 9.9% YoY to USD $1.564 billion.

Recorded music revenues had been up 8.6% YoY on a relentless foreign money foundation, to $1.282 billion within the quarter, with streaming income alone up 7.3% YoY, to $822 million.

WMG’s music publishing division, Warner Chappell Music, continued its latest robust run, with its calendar Q2 revenues up 16.0% YoY to $283 million.

These earnings numbers, after all, don’t but embrace the affect of latest worth hikes on the likes of Spotify or YouTube Music, each of which had been introduced simply final month.

Chief Monetary Officer Eric Levin advised analysts on the earnings name that WMG isn’t anticipating to really feel the complete impact of elevated income from music’s suite of latest streaming worth hikes till fiscal 2024, which for Warner begins on October 1 of this calendar 12 months.

Listed here are three different issues that MBW discovered from WMG’s newest earnings name.

1) WMG’s cope with TikTok doubtless moved previous the straightforward ‘lump-sum’ cost mannequin… however the firm can’t discuss it

Warner Music Group introduced final month that it had signed a “first-of-its-kind” licensing cope with social media large TikTok, with whom the recording music corporations have been negotiating for a bigger slice of the music income pie since a minimum of final 12 months.

What’s recognized about this deal is that it licenses all of WMG’s music repertoire not simply to the TikTok platform, however to ByteDance’s recently-launched TikTok Music streaming service as nicely, and to its modifying platform CapCut and the Tikok Business Library, which allows near-instant licensing for advert syncs on TikTok.

What isn’t recognized is how the deal is structured. TikTok’s unique offers to license music concerned lump-sum funds to rights holders, permitting customers of the social media platform to incorporate copyrighted music to look of their short-form movies.

However because the platform grew to some 1 billion month-to-month lively customers (MAUs) lately, these offers started to look more and more inadequate, and the music recording corporations started to look in the direction of a cost mannequin that higher displays how a lot music, and whose music, is being utilized in these movies – that’s, one thing extra akin to the pro-rata cost mannequin utilized by music streaming platforms.

“What I can say is: This deal options improved monetization per MAU that’s similar to different ad-supported DSPs, totally recognizing the worth of our music and the way essential it’s to engagement on the platform.”

Robert Kyncl, Warner Music Group

That is reportedly a significant side of ongoing negotiations between TikTok and music rights holders, however up to now, of the massive three music recording corporations, solely Warner has introduced a complete cope with TikTok.

Warner’s execs have burdened that they’ll’t reveal the character of the deal as a result of a confidentiality settlement, however within the earnings name Tuesday, Kyncl appeared to trace strongly that the brand new deal strikes WMG and TikTok previous the lump-sum cost mannequin.

“Our deal provides our artists and songwriters entry to new ranges of monetization, advertising, and fan growth options,” Kyncl advised analysts on the decision.

Although he mentioned he was certain by a confidentiality settlement, he added: “What I can say is: This deal options improved monetization per MAU that’s similar to different ad-supported DSPs, totally recognizing the worth of our music and the way essential it’s to engagement on the platform.”

If the deal is “comparable” to these signed with “different ad-supported DSPs” is it truthful to say it’s not a lump-sum deal? We’ll depart that for music enterprise analysts to resolve for themselves.

2) WMG is taking an ‘offensive and defensive’ place on AI. For Robert Kyncl, the necessary factor is artists ‘have a selection’

Not not like many different corporations of late (in music and in any other case), Kyncl gave the subject of AI a distinguished place on the corporate’s earnings name.

“I’d like to emphasise one different key theme right this moment: our efforts to develop the worth of music, which incorporates our method to AI,” he mentioned early on within the name.

“We’re centered on making a virtuous cycle the place innovation, fan engagement, and better monetization thrive collectively… offering even greater alternatives for artists and songwriters, and music followers all over the world.”

Noting that “there are apparent similarities” between the latest explosion in AI applied sciences and the rise of user-generated content material (UGC) over the previous few a long time, Kyncl mentioned WMG is “leaning in” and “transferring quick” in adapting AI applied sciences, each in music creation and distribution.

“The factor that’s necessary is that artists have a selection, as a result of there are some that won’t prefer it, and that’s completely superb. After which there are some that may embrace it, and that’s additionally superb. We now have to ensure that… they’ve a selection and that one thing just isn’t accomplished to them, that [it] is finished with them.”

Robert Kyncl, Warner Music Group

“Many Warner artists are already exploring impactful methods to make use of generative AI to create, increase, and remix their music. We now have some nice examples from huge names on the way in which later this quarter,” Kyncl mentioned.

“Different artists are utilizing generative AI for visuals… with artists like metallic band Disturbed, dance producer Riton, and famous person rock band Linkin Park all creating extremely impactful music movies.

“As well as, AI-enabled stem separation know-how is giving new life to recordings by artists who’re now not with us. For instance, AI has been used to isolate the vocal efficiency from sound recordings of legendary entertainer Sammy Davis Jr. and famend opera singer Maria Callas… as a part of groundbreaking sync offers.”

Nonetheless, Kyncl additionally made it clear that WMG is able to arise for artists who view AI-generated music as a menace to human creators.

“I all the time view this as each defensive and offensive,” he mentioned.

“The factor that’s necessary is that artists have a selection, as a result of there are some that won’t prefer it, and that’s completely superb. After which there are some that may embrace it, and that’s additionally superb. We now have to ensure that… they’ve a selection and that one thing just isn’t accomplished to them, that [it] is finished with them. And so that’s my utmost precedence right here, as a result of there’s nothing extra treasured to an artist than their voice, and defending their voice is defending their livelihood.”

He added: “I need to ensure that we ship on that and on the identical time we ship on alternatives that the instruments can present them.”

3) As streaming matures, income progress would require extra innovation

One of many extra attention-grabbing feedback Kyncl made on the decision was about the way forward for income progress from streaming. Because the streaming enterprise matures, it gained’t be potential to depend on speedy subscriber progress to the identical extent as has been potential up to now, Kyncl argued.

“What has served the trade extremely nicely for the previous 15 years was this collaboration [around] getting a whole lot of hundreds of thousands of individuals, a number of a whole lot of hundreds of thousands of individuals, into the premium expertise, creating playlists and having stickiness, and having an important worth prop[osition],” he mentioned.

“I don’t assume that that’s what will serve the trade nicely within the subsequent 15 years. And we are going to all collectively should deal with way more innovation round viewers segmentation and worth optimization, and with out negatively impacting… the customers, I ought to add.

“And that isn’t a factor that occurs in a single day or [from] quarter to quarter. It’s fastidiously developed – an orchestrated change that we’ll endure.”

Kyncl isn’t alone in his line of reasoning; others within the music enterprise have additionally been contemplating the way to develop income as soon as streaming subscription progress begins to degree off.

One of many key concepts being promoted nowadays – doubtless what Kyncl meant by “viewers segmentation” – is monetization of “superfans,” music listeners who’re significantly connected to a minimum of one artist, and can be prepared to pay extra for a music subscription if it provided them extra content material or extra entry, in some kind, to their favourite artist.

The concept of monetizing superfans has been a part of Common Music Group’s push for an “artist-centric” mannequin of music cost.

Talking on UMG’s Q1 earnings name, Michael Nash, UMG’s EVP and Chief Digital Officer, indicated that an “artist-centric” mannequin would look to extend income move from “superfans.”

“We’ll all collectively should deal with way more innovation round viewers segmentation and worth optimization, and with out negatively impacting… the customers. And that isn’t a factor that occurs in a single day or [from] quarter to quarter. It’s fastidiously developed – an orchestrated change that we’ll endure.”

Robert Kyncl, Warner Music Group

In accordance with a latest report from US music market monitor Luminate, round 15% of the US inhabitants are “superfans,” which the report outlined as “a music listener aged 13+ who engages with an artist and their content material in a number of methods, from streaming to social media to buying bodily music or merch objects to attending dwell exhibits.”

Superfans based on Luminate’s report, spend 80% extra on music every month versus the common US-based music listener.

This might show to be a profitable new path for the music enterprise to develop income.

A latest report from Goldman Sachs estimated that monetization of superfans may generate a further $4 billion in income for the music enterprise by 2030. Goldman’s modeling assumed that 20% of streaming subscribers are music followers, and that they might be prepared to pay double the worth of a regular subscription for extra content material and/or better entry to their favourite musical acts.

Nonetheless, Kyncl advised analysts on the earnings name that they shouldn’t be holding their breath for imminent bulletins on new revenue-generating improvements.

“Don’t count on information on that anytime quickly,” he mentioned. “It takes time to unfold, and it takes a number of events… However I’m very a lot centered on it as a result of I do assume it’s the proper factor for all events concerned.”

He added that the trouble is “value present process and doing it in probably the most collaborative vogue potential.”Music Enterprise Worldwide