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Warner Music Group, home to the likes of Ed Sheeran, Cardi B and Bruno Mars, posted higher second-quarter revenues, even as net income fell amid “macroeconomic, currency and release slate headwinds,” the music label reported on Tuesday.
Overall revenue rose 2 percent to $1.39 billion, while net income fell 60 percent to $37 million, against $92 million in the prior-year quarter, due in part to the unfavorable impact of exchange rates on debt repayments.
Warner Music Group CEO Robert Kyncl, in remarks to analysts during a morning call, said music publishing had shown continued momentum, but recorded music revenue fell short of expectations. “We underperformed in recorded music. There’s plenty of room for improvement. And we’re addressing both company-specific and industry-wide issues,” Kyncl said.
Music revenue was undercut during the latest quarter by a lighter release schedule, exchange rate adjustments and lower ad revenue impacting the industry.
Kyncl touted tech initiatives at Warner Music, including investments in artificial intelligence software and apps, to reduce costs and drive market reach for creators. “We’re 100 percent focused on efficiency. There’s a lot of technology on that front. … We’re 100 percent focused on effectiveness of all of our activities, scale and then a focus on monetization of superfans,” he told analysts.
The former YouTube exec replaced Stephen Cooper as head of the music label on Jan. 1, 2023. Kyncl was key in bolstering YouTube’s business relationships with online creators and ensuring the video and music platform was a top platform for creator monetization.
Kyncl said AI tools could be properly harnessed to transform the music industry, even as it faces a challenge from AI-generated music content and increasing competition from indie music labels. That called for Warner Music to go both on defense and offense when it came to AI.
“When it comes to generating AI, it needs to be put in proper context. Framing it only as a threat is inaccurate,” he told analysts, as Warner Music will look to enforce the copyrights for its artists and songwriters.
At the same time, Kyncl, recalling his 12-year executive stint at YouTube, pointed to user-generated content containing copyrighted materials, including music videos by top pop artists, for which intellectual property owners were compensated.
“AI is just like any emerging technology. There will be challenges and opportunities. And with a proper expertise, it will be a powerful tool for the music industry,” Kyncl said as Warner Music develops AI tools to expand the music output and careers of the label’s artists and songwriters.
Another possible fix for Warner Music and other major labels would come from Spotify and other streaming platforms raising their music subscription prices. “I’m excited that they’re sounding constructive about the price increases on their earnings call,” Kyncl said of Spotify mulling a possible U.S. price increase in 2023 as Warner Music and other label partners expect to share in new digital service provider revenues.
Higher pricing from digital service providers could also help accelerate streaming revenue growth at Warner Music, as forecast by the company in the second half of the year.
“I am convinced that music is significantly undervalued, relative to streaming video,” the executive added, while calling for the wholesale relationship between music labels and digital service providers to be renegotiated to provide incentives for top artists and no longer pay artist royalties according to the same per-play or per-stream rate.
“It can’t be that Ed Sheeran stream is worth exactly the same thing as that stream of rain falling on the roof,” Kyncl said.
“The status quo of the way things work right now is not something that’s going to work going forward,” he added, pointing out that video streaming platforms have raised their subscription prices and pro sport teams routinely raise their ticket prices, while music streamers have been reluctant to impose their own price increases.
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