Although music rightsholders are certainly happy with the price hikes seen at streaming services of late, it’s no secret that recording companies and publishers want to see more – and Warner Music Group (WMG) is counting on it.
During the company’s latest earnings call, held on Tuesday (August 8), CEO Robert Kyncl said he was “pleased” to see that all the major music streaming services – including, most recently, Spotify – have raised prices on their individual subscription plans, calling it “the fiscally responsible thing to do.”
Yet Kyncl made it clear that he expects to see streaming price hikes become a regular part of the music landscape going forward.
“We see these initial price increases as an encouraging start,” he said on WMG’s fiscal Q3 (calendar Q2) earnings call. ”There’s no evidence that the services are experiencing elevated levels of customer churn. We believe the market will bear further price increases in the future, and we’re expecting that they’ll arrive on a more regular cadence than in the past.”
Kyncl has been arguing for streaming price hikes almost since the moment he assumed the position of CEO of Warner, having come to the company from YouTube (where, as Chief Business Officer, he was on the other side of payment negotiations with music rights holders).
Reiterating an argument he made earlier this year, Kyncl noted that, had Spotify’s $9.99 monthly subscription price grown with inflation since the service launched in the US in 2011, it would now cost $13.25.
The Warner chief also noted that in 2011, the standard price for Netflix in the US was $7.99, and today it’s $15.49. If the streaming services that – until recently – charged $9.99 per month had raised their prices proportionally to Netflix, they would cost $19.37 today.
“Now, let me be clear, I am not suggesting that we go to $19 today,” Kyncl clarified later in the earnings call.
“What I’m pointing out is the innovation that is happening in the entertainment space around [pricing], the value that we all provide to users, and the elasticity that is there. And… we obviously want to make sure that we’re working collaboratively together with our DSP partners to innovate over the next decade around this point.”
Kyncl may yet get what he’s hoping for.
In one of the first solid hints that streaming services themselves are looking at recurring price hikes, Deezer CEO Jeronimo Folgueira told listeners on the DSP’s earnings call last week (August 3) that the company had experienced little negative impact from its price hike in early 2022, “which has clearly demonstrated that music is highly undervalued and that platforms like us have more pricing power than initially anticipated.”
Folgueira added that, given that all the other major streaming services have hiked their prices since Deezer’s own hike, the streaming platform has “the opportunity to review pricing again in the near future.”
Kyncl’s comments came following WMG’s announcement of its earnings for fiscal Q3 (calendar Q2) 2023, which ended June 30.
WMG’s overall revenues in calendar Q2 – encompassing recorded music, music publishing and other income streams – were up by 9.9% YoY to USD $1.564 billion.
Recorded music revenues were up 8.6% YoY on a constant currency basis, to $1.282 billion in the quarter, with streaming revenue alone up 7.3% YoY, to $822 million.
WMG’s music publishing division, Warner Chappell Music, continued its recent strong run, with its calendar Q2 revenues up 16.0% YoY to $283 million.
Those earnings numbers, of course, don’t yet include the impact of recent price hikes at the likes of Spotify or YouTube Music, both of which were announced just last month.
Chief Financial Officer Eric Levin told analysts on the earnings call that WMG isn’t expecting to feel the full effect of increased revenue from music’s suite of recent streaming price hikes until fiscal 2024, which for Warner begins on October 1 of this calendar year.
Here are three other things that MBW learned from WMG’s latest earnings call.
1) WMG’s deal with TikTok likely moved past the simple ‘lump-sum’ payment model… but the company can’t talk about it
Warner Music Group announced last month that it had signed a “first-of-its-kind” licensing deal with social media giant TikTok, with whom the recording music companies have been negotiating for a larger slice of the music revenue pie since at least last year.
What’s known about this deal is that it licenses all of WMG’s music repertoire not just to the TikTok platform, but to ByteDance’s recently-launched TikTok Music streaming service as well, and to its editing platform CapCut and the Tikok Commercial Library, which enables near-instant licensing for ad syncs on TikTok.
What isn’t known is how the deal is structured. TikTok’s original deals to license music involved lump-sum payments to rights holders, allowing users of the social media platform to include copyrighted music to appear in their short-form videos.
But as the platform grew to some 1 billion monthly active users (MAUs) in recent years, those deals began to look increasingly insufficient, and the music recording companies began to look towards a payment model that better reflects how much music, and whose music, is being used in those videos – that is, something more akin to the pro-rata payment model used by music streaming platforms.
“What I can say is: This deal features improved monetization per MAU that is comparable to other ad-supported DSPs, fully recognizing the value of our music and how critical it is to engagement on the platform.”
Robert Kyncl, Warner Music Group
This is reportedly a major aspect of ongoing negotiations between TikTok and music rights holders, but so far, of the big three music recording companies, only Warner has announced a comprehensive deal with TikTok.
Warner’s execs have stressed that they can’t reveal the nature of the deal due to a confidentiality agreement, but in the earnings call Tuesday, Kyncl seemed to hint strongly that the new deal moves WMG and TikTok past the lump-sum payment model.
“Our deal gives our artists and songwriters access to new levels of monetization, marketing, and fan development features,” Kyncl told analysts on the call.
Though he said he was bound by a confidentiality agreement, he added: “What I can say is: This deal features improved monetization per MAU that is comparable to other ad-supported DSPs, fully recognizing the value of our music and how critical it is to engagement on the platform.”
If the deal is “comparable” to those signed with “other ad-supported DSPs” is it fair to say it’s not a lump-sum deal? We’ll leave that for music business analysts to decide for themselves.
2) WMG is taking an ‘offensive and defensive’ position on AI. For Robert Kyncl, the important thing is artists ‘have a choice’
Not unlike many other companies of late (in music and otherwise), Kyncl gave the topic of AI a prominent place on the company’s earnings call.
“I’d like to emphasize one other key theme today: our efforts to grow the value of music, which includes our approach to AI,” he said early on in the call.
“We’re focused on creating a virtuous cycle where innovation, fan engagement, and greater monetization thrive together… providing even bigger opportunities for artists and songwriters, and music fans around the world.”
Noting that “there are obvious similarities” between the recent explosion in AI technologies and the rise of user-generated content (UGC) over the past few decades, Kyncl said WMG is “leaning in” and “moving fast” in adapting AI technologies, both in music creation and distribution.
“The thing that is important is that artists have a choice, because there are some that may not like it, and that’s totally fine. And then there are some that will embrace it, and that’s also fine. We have to make sure that… they have a choice and that something is not done to them, that [it] is done with them.”
Robert Kyncl, Warner Music Group
“Many Warner artists are already exploring impactful ways to use generative AI to create, augment, and remix their music. We have some great examples from big names on the way later this quarter,” Kyncl said.
“Other artists are using generative AI for visuals… with artists like metal band Disturbed, dance producer Riton, and superstar rock band Linkin Park all creating highly impactful music videos.
“In addition, AI-enabled stem separation technology is giving new life to recordings by artists who are no longer with us. For example, AI has been used to isolate the vocal performance from sound recordings of legendary entertainer Sammy Davis Jr. and renowned opera singer Maria Callas… as part of groundbreaking sync deals.”
However, Kyncl also made it clear that WMG is ready to stand up for artists who view AI-generated music as a threat to human creators.
“I always view this as both defensive and offensive,” he said.
“The thing that is important is that artists have a choice, because there are some that may not like it, and that’s totally fine. And then there are some that will embrace it, and that’s also fine. We have to make sure that… they have a choice and that something is not done to them, that [it] is done with them. And so that is my utmost priority here, because there’s nothing more precious to an artist than their voice, and protecting their voice is protecting their livelihood.”
He added: “I want to make sure that we deliver on that and at the same time we deliver on opportunities that the tools can provide them.”
3) As streaming matures, revenue growth will require more innovation
One of the more interesting comments Kyncl made on the call was about the future of revenue growth from streaming. As the streaming business matures, it won’t be possible to rely on rapid subscriber growth to the same extent as has been possible so far, Kyncl argued.
“What has served the industry incredibly well for the past 15 years was this collaboration [around] getting hundreds of millions of people, multiple hundreds of millions of people, into the premium experience, creating playlists and having stickiness, and having a great value prop[osition],” he said.
“I don’t think that that is what will serve the industry well in the next 15 years. And we will all collectively have to focus on much more innovation around audience segmentation and price optimization, and without negatively impacting… the users, I should add.
“And that is not a thing that happens overnight or [from] quarter to quarter. It’s carefully developed – an orchestrated change that we will undergo.”
Kyncl isn’t alone in his line of reasoning; others in the music business have also been considering how to grow revenue once streaming subscription growth begins to level off.
One of the key ideas being promoted these days – likely what Kyncl meant by “audience segmentation” – is monetization of “superfans,” music listeners who are particularly attached to at least one artist, and would be willing to pay more for a music subscription if it offered them additional content or more access, in some form, to their favorite artist.
The idea of monetizing superfans has been part of Universal Music Group’s push for an “artist-centric” model of music payment.
“We will all collectively have to focus on much more innovation around audience segmentation and price optimization, and without negatively impacting… the users. And that is not a thing that happens overnight or [from] quarter to quarter. It’s carefully developed – an orchestrated change that we will undergo.”
Robert Kyncl, Warner Music Group
According to a recent report from US music market monitor Luminate, around 15% of the US population are “superfans,” which the report defined as “a music listener aged 13+ who engages with an artist and their content in multiple ways, from streaming to social media to purchasing physical music or merch items to attending live shows.”
Superfans according to Luminate’s report, spend 80% more on music each month versus the average US-based music listener.
This could prove to be a lucrative new path for the music business to grow revenue.
A recent report from Goldman Sachs estimated that monetization of superfans could generate an additional $4 billion in revenue for the music business by 2030. Goldman’s modeling assumed that 20% of streaming subscribers are music fans, and that they would be willing to pay double the price of a standard subscription for additional content and/or greater access to their favorite musical acts.
However, Kyncl told analysts on the earnings call that they shouldn’t be holding their breath for imminent announcements on new revenue-generating innovations.
“Don’t expect news on that anytime soon,” he said. “It takes time to unfold, and it takes multiple parties… But I’m very much focused on it because I do think it is the right thing for all parties involved.”
He added that the effort is “worth undergoing and doing it in the most collaborative fashion possible.”Music Business Worldwide