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UMG's Latest Response To AI-Generated Contents

According to Music Business Worldwide, the creator named ‘ghostwriter’, who kickstarted the infamous trend of making AI-generated songs with real artists’ voices, has returned on TikTok recently under a different account and released another mash-up track called ‘Por Que’, featuring the voice of Hip Hop stars Bad Bunny and Rihanna. Right now the song is still trending on TikTok with 1.5 million plays, as it also went viral on platforms like YouTube and SoundCloud. Following an immediate request by the record label UMG last week to promptly remove ghostwriter’s previous work (a track that used the voice of Drake and The Weekend) from all DSPs, the new track simply did not get uploaded to Spotify and Apple, suggesting implementations of preemptive protocols by these two streaming services to stall suspicious uploads.

Shortly after the release of ‘Por Que’, UMG’s global head Sir Lucian Grainge has spoken in the group’s 2023 Q1 earnings call about the impact of generative AI, claiming that it has become a “major contributor” to the phenomenon of content oversupply (streaming services currently receive around 100,000 distinct track uploads per day). According to Grainge, the main reason why the latest generative AI technology works so well is because that it is being trained on copyright material, which is an obvious violation of artists’ and labels’ rights.

However, although the initial ‘fake Drake’ track was successfully taken down, it had more to do with the ‘ghostwriter’ using an uncleared Metro Boomin tag at the start of the instrumental, which constitutes a conspicuous rights infringement. Given the muddiness surrounding the undeveloped topic of AI copyrights, it remains unclear whether it would be more difficult to accuse an AI-generated track (fully written by the uploader) of breaking rules, since the issue is subject to different standards practiced by different firms within the industry. 

Nevertheless, Universal’s CDO Michael Nash has confirmed in an interview that the label has “put all of our [streaming] partners on notice regarding their responsibility to ensure that no third party has unauthorized access to their services for the purpose of training generative AI”. This could ideally limit AI’s ability in generating perfectly seamless mash ups of artists’ real voice and hinder unauthorized creators’ attempts in monetizing off of fabricated contents. 

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Spotify Accusing Apple of "Anti-steering"

According to Music Business Worldwide, Spotify’s dispute with Apple has accentuated lately, with the former accusing Apple’s App store for conducting “anti-steering practices” through charging expensive commissions and placing restrictions on ‘in-app’ purchases for Spotify. Apple is currently charging third party app developers as much as 30% in fees on sales made through its App Store, and limiting apps like Spotify’s ability to inform Apple device users about services that ought to be purchased on external sites, further reducing competition for its own streaming service. 

With Spotify’s CEO Daniel Ek hitting DC to lobby for legal sanctions on Apple’s anti-steering, it revealed that a similar law proposal called The Open App Markets Act has been floating around since last year but got opposed by Apple and Google, who each owns an app downloading platform that could prevent undesired apps from discussing new products and deals with their own users. In a statement given on April 19, Ek complains that “Apple promotes deals for Apple Music to Spotify customers, but denies us the same privilege…This leaves customers without the ability to make informed choices about the services and pricing options available to them.” 

As early as 2019, Spotify has filed an anti-trust complaint with the European Commission regarding Apple’s irrational ‘taxing’ on its app distributions, but Apple shot back by claiming that Spotify was underpaying its commissions and only paid half of the required 30% for less than 1% of their 100 million premium subscribers worldwide. However, regardless of the integrity of Apple’s taxing logic, organizations like the EU and The US Justice Department have already been investigating App Store’s potential anti-trust violations for years, and it is almost certain that Apple’s anti-steering practices are worth serious concerns. 

Tying everything back to the Lauren Vu lecture we had earlier this semester, Spotify’s new audiobook branch is still heavily reliant on in-site purchases for user selected contents. Therefore, without a proper introduction or in-app link that directs them to the designated payment page, it is going be difficult for Spotify to construct an optimal user experience, which hinders its ability to pull revenue and gain traction. The legal disputes could also exacerbate the situation and hurt Spotify’s revenue, with Apple starting to demand full commitment of Spotify’s ‘app tax’ and adopting other competitive strategies to impair their user interactions. 

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Spotify Shutting Down Spotify Live

According to a recent post by Digital Music News, Spotify is shutting down its Spotify Live service (also formerly known as Spotify Greenroom), while declaring to continuously explore live features on its main platform. The app was originally designed for creators to interact with fans through a range of live interactions, where they can listen to and participate in conversations and live events in Clubhouse-like chatrooms. The standalone Spotify Live was rebranded from a social platform called Locker Room, which was acquired by Spotify in March 2021 and immediately named Greenroom. The app was regarded as the live audio platform Clubhouse’s main competitor at the time. 

However, underwhelming stats in June 2021 had suggested a slow start for Greenroom, who struggled to attract and retain users following the return of in-person events post Covid19 (Clubhouse has also experienced usage declines during the same period). In contrast to Clubhouse’s 900,000 iOS downloads over both months of June and July, Greenroom was only able to score 141,000 downloads during the same period. Moreover, the app was constantly involved in controversies regarding its technical competence, as it was forced to cancel a Ghost event in September 2022 due to “technical difficulties” stemming from “overwhelming” fan demand, raising serious suspicions among users. 

As Spotify continues to retrench and trim down its side missions, staying away from Greenroom for a while might seem like a wise step in terms of reducing costs, given that the company had already ended production of several of its live audio shows. Since Spotify is still heavily committed to various audio-related fields such as podcasts and audiobooks, it might not be able to have enough focus to incorporate live audio into its main platform as it had promised, at least not in the near future. Without a game-changing incentive like the pandemic, which urges the need of online chatrooms that enable artists to seamlessly communicate with their fans, Spotify has already got enough offerings on its plate to keep their users engaged and active, thus reducing the necessity of having to tackle a still-emerging industry like live audio.

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Global Streaming Revenue Growth Declines While China Continues to Prosper

According to Digital Music News, the latest IFPI analysis has revealed that the global recorded music industry revenue has approached $26.2 billion by the end of 2022, and about 67% of it is generated from digital streaming, which shows marginal increase from the 65.5% in 2021. However, the overall growth rate of music streaming has actually declined, only adding a mere 11.5% compared to 2021’s 23.9%. Nevertheless, subscription-based audio streaming revenue had increased by 10.3% to reach $12.7 billion in 2022, confirming that paid subscription is still the most dominant and consistent contributor of streaming revenue, with a total of 589 million paid subscription users worldwide. 

Commenting on the release of the Global Music Report, IFPI Chief Executive Frances Moore, said: “This year’s report tells the continued story of record companies’ commitment to their core mission – working with artists to help them achieve their greatest creative and commercial potential over the course of a career.” With more partnership deals like the Tidal X Universal collab, it seems like the industry is exploring new ways to maximize revenue by creating more opportunities for artists and creatives through leveraging the abundant data and connections of streaming platforms.

Besides the global stats, China had posted a 28.4% growth in 2022 and notably became the fifth-largest global market, with its domestic streaming platforms overseeing large volumes of paid content consumption. Despite that the biggest Chinese music group Tencent Music has witnessed revenue declines for the fifth consecutive quarter, it still managed to put up 7.43 billion yuan ($1.08 billion) in the quarter ended in Dec. 31, beating analysts’ forecasted estimated of 7.34 billion yuan. After taking a 8% drop in monthly active users, Tencent saw an increase in its revenue per paying user and scored a 114.7% growth in its net profit by cutting costs and optimizing its services. With China slowly recovering from Covid lockdowns in 2023, consumer spendings of the Chinese streaming sector will only continue to rise, as Tencent has already become the third largest streamer (in market share) in the world, just behind Spotify and Apple Music. 

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UMG's Reduced Spending in Catalogs

According to a Music Business Worldwide post, the Universal Music Group (UMG) had reduced its spendings on catalog acquisitions over the past two years, while still managed to increase its subscription streaming revenue by 10%, as listed in its Q4 2022 report. In general, Universal’s expenditure in content had severely declined, shrinking by 61% from 2020’s €1,517 million to only €507 million in 2022, as its catalog acquisition expense only made up a mere €359 million. 

After making the biggest acquisition in history by spending $300+ million on Bob Dylan’s publishing catalog in 2020, Universal chose a different direction in 2021, only spending €388 million in total on catalogs in 2021, while the whole industry was making extravagant purchases in rights and catalogs. In some sense, UMG had initiated the trend of acquisition but only decided to hold back once its competitors had caught on to it, and part of it has to do with the fact that Universal had gone public in September 2021 and promised to pay its shareholders over 50% of their net income in dividends, creating an incentive for them to retrench in order to preserve cash flow. Consequently, UMG had paid out €926 million worth of dividends to its investors in 2022, which was triple the amount they invested in catalogs. 

Besides the financial considerations, Universal’s head Sir Lucian Grainge had also implied that UMG’s recent reticence on catalog acquisition can be viewed as a more strategic move, as the group is “extremely selective” in determining satisfactory catalogs and could only make “active” purchases since it is situated in a top position that oversees the entire music industry.  

As one of the biggest music majors, UMG has access and first hand insights to a large variety of catalogs, as they work closely with labels to produce some of the most trending sounds in the market. While possessing a strong track record in rights with influential figures like Drake and Dr Dre, UMG and Grainge understand exactly what the market needs, as they also have enough resources to maximize the value of these profitable assets.

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Jaxsta's Acquisition of Vampr

Jaxsta, an Australian metadata platform that provides a centralized and standardized platform for collecting and sharing music-related data, has recently acquired Vampr, a leading music industry social network, also known as the “LinkedIn for creatives”. Already charting itself as the “largest dedicated database of music credits worldwide” with more than 310 million official, deep-linked music credits sourced from over 349 industry partners, the acquisition is expected to expand Jaxsta’s database by incorporating 1.3 million new creator profiles from Vampr’s robust collaboration network, which is particularly popular among independent and rising artists. 

In fact, this isn’t Jaxsta’s first attempt of scaling through cross-sharing user bases with another platform, as it had already added 2 million creators in July 2022 by forging a partnership with US music distribution platform Distrokid. According to a post from Digital Music News, Jaxsta believes that this new acquisition will accelerate its growth strategy, knowing that Vampr is currently able to convert 4% of its weekly active users into paying subscribers. A potential bundling of Vampr Pro and Jaxsta’s current Creator subscription plan could produce even more conversions in the future, since a combination of the two could provide independent artists with more resources and connections, which are vital to early-stage career developments. 

Further, with the strong connections that Jaxsta holds with record labels and music publishers, it now possesses the capability to bridge independent artists with professional scouts and A&Rs, which could be a power move for the music industry, considering that streaming incomes have declined for music labels in Q4 2022, and that even streaming platforms like SoundCloud are incentivized to secure new talents and contents for fresher growth points. Lastly, Vampr’s Academy service of video lessons for creatives is also an invaluable asset which, merged with Jaxsta’s diverse database of music catalogues and artist information, could be leveraged as an education tool to attract more independent creators and learners from across the globe, thus opening up more profitable opportunities for Jaxsta. 

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ValueAct's Recent Investment in Spotify

According to a recent Digital Music News post, the CEO of ValueAct Capital, Mason Morfit, had announced that the firm had invested an undisclosed amount in Spotify. This has immediately increased Spotify’s stock price by 4.14% on February 10th, reflecting a confidence boost in the market. Given ValueAct’s track record (from its LinkedIn) of typically holding “positions for 3-5 years and occasionally for 10 years or more,” and actively pushing their big-name investments to adopt change, it is almost positive that Spotify will be advised to achieve profitability by decreasing operating expenses and adjusting its aggressive acquisition strategies.

In fact, Spotify has already canceled a number of its original programs in late 2022 and laid off 6% of its workforce in January 2023, showing its resolve to retrench and refocus. It is also possible that Spotify will soon raise its subscription price to increase revenue, with its main competitors (Amazon and Apple Music) both deciding to raise their respective charges to $10.99 (which is Spotify’s current price) not too long ago. However, this might cause problems with consumers, since Spotify’s low-price strategy is its main advantage when competing against its rival streamers, who are usually backed by big tech companies that can afford larger spendings. 

Nevertheless, it seems that Spotify’s previous extravagant spendings in Podcast acquisitions are finally producing promising rewards. The company’s Q4 2022 earnings had hit an all-time high of €449 million (up 16.62% from the previous quarter), with its MAUs also experiencing the largest growth to date. Spotify associates this incredible scaling with its improved podcasting income, for which had grown more than 30% over the 2021-2022 business year. 

Knowing that Warner’s recorded music streaming income had fallen during 2022’s final three months due to reduction in ad-supported revenue, and that Universal is also exploring new ways to fix the current economic model for music streaming, it might have been a wise move for Spotify to navigate early in the Podcast industry and had secured valuable assets that can sustain its future growth and development in the sector, granting itself a bigger shot at profitability.

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TikTok Employs New Consumer Insights In Upcoming Rounds of Licensing Negotiation with Major Labels

According to a recent Bloomberg post, TikTok had disabled some major label-licensed songs in its existing sound library for certain Australian accounts as an experiment to gauge users’ stickiness to music-attached contents, where any previously made videos that contained these tracks would also have their audios removed temporarily. Although TikTok publicly claims that this is simply a step towards improving its service and enhancing catalogues, industry sources suggest that TikTok is planning on using the newly acquired data as a bargaining tool in their next round of licensing negotiations with record companies, following approaching deal expirations with Sony, Warner, and Universal. 

Clearly, if the experiment generates desirable outcomes for TikTok, it will confirm that its user engagement isn’t tightly correlated to music offerings, which could lead the firm to invest less in music licensing in 2023, given that it had paid out 4.5% of its revenue to record labels in 2021, accounting for 13% of the music industry’s total revenue earned from ‘emerging platforms’ that year, per Goldman Sachs’. 

On the other hand, the three major labels, representative of the industry, have long been complaining about TikTok’s ‘improper paying method’ of arranging upfront buy-outs of music rights for a set period instead of paying a revenue share directly based off stream amounts, which would produce a more reasonable compensation. In fact, the labels had already called for an increase in royalties three months ago by proposing to take shares from TikTok’s advertising incomes, knowing that its revenue was projected to reach $12 billion in 2022. It is unlikely that TikTok would easily surrender, especially if it could prove that its services are not overly reliant on music contents coming from these record companies. 

It is still uncertain how the new deals are going to settle, but it would be a sure loss for the music industry if they cannot appropriately monetize from TikTok, nor can they afford to lose connection to the platform either since it still possesses an expanding user base and plays a crucial role in creating traction for artists and music consumption altogether.

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Entry

The sector I choose is Audio Streaming, and I will follow Billboard, Music Business Worldwide, and Digital Music News as my main sources.