The “artist-centric” royalty payment model between music companies and streaming services is becoming a reality, and Warner Music Group (WMG) CEO Robert Kyncl predicts that more streaming services will jump on the bandwagon.
“We were delighted to work with Deezer to help shape their new approach to… premium music. Look out for similar developments with other partners in the coming months,” Kyncl said on the company’s fiscal Q4 earnings call on Thursday (November 16).
Kyncl was referring to WMG’s announcement earlier this week that it had signed on to streaming service Deezer’s new artist-centric payment model for streams in France – which was officially unveiled by Deezer in partnership with Universal Music Group in September.
The new payment system tweaks streaming’s traditional pro-rata payment model, under which artists are paid according to their share of total streams on a platform.
Under Deezer’s artist-centric model, “professional artists” – which Deezer defines as those who have a minimum of 1,000 streams per month and a minimum of 500 unique listeners – receive a so-called “double boost” to royalty payments, in essence doubling the weight of those tracks in the payout calculation.
The Deezer model also applies a “double boost” for played tracks by artists that fans have actively searched for.
MBW understands that both Warner and Universal have been paid under the artist-centric model by Deezer in France since October 1.
Paris-headquartered Deezer’s rollout of an artist-centric model in its home country has boosted the momentum within the streaming industry towards a shift in how royalty payments are paid out.
As MBW reported, Spotify is set to alter its payment model so that, starting next year, only tracks that have received 1,000 plays annually will qualify for royalty payments – a move that appears to shift Spotify somewhat towards the artist-centric model.
Prominent music execs like Kyncl and UMG Chairman and CEO Sir Lucian Grainge had previously criticized elements of the incumbent pro-rata model, arguing that, among other things, it allows bad actors to game the payment system by uploading low-quality audio files that are then served to listeners by DSPs’ algorithms and playlists.
“To state the obvious, premium music should be better compensated than low quality filler or functional music,” Kyncl said on today’s earnings call.
Kyncl didn’t offer details on which streaming services he expects to change their payment models next, but referred to the Deezer arrangement as “a good start… We will continue to work collaboratively with our partners to align behind the long term growth of the industry.”
Kyncl’s comments came as WMG reported its earnings for fiscal Q4 and its fiscal 2024, showing that the world’s third-largest music rights company saw revenues surpass USD $6 billion for the full year for the first time in its history, coming in at $6.037 billion. That represented a 3.9% YoY increase, on a constant currency basis.
Revenues for Q4, which ended on September 30, came in at $1. 586 billion, up 4.5% YoY at constant currency.
Here are two other things MBW learned from Kyncl and co. on Warner Music’s earnings call today…
1: YouTube’s new tool for cloning music superstars’ voices is the ‘right way’ to develop AI-generated music
To an extent, the music industry today still lives in the shadow of the revenue collapse it suffered in the late 1990s and 2000s as file-sharing services made piracy of digital music easy and accessible to the masses.
For many in the industry, the AI boom that’s taken the world by storm over the past year threatens to be an echo of that.
Generative AI is making it possible for amateur music creators to mimic the vocals and musical styles of famous artists (see the now-infamous “fake Drake” track that went viral this past spring) while flooding social media and streaming services with an enormous volume of new music that threatens to drown out major artists.
However, unlike with file-sharing a generation ago, this time around, some of the tech companies involved in developing AI tools are working with music companies to develop technology in a way that benefits rights holders.
“Imagine in the early 2000s if the file sharing companies came to the music industry, and said, ‘Would you like to experiment with this new tool that we built and see how it impacts the industry and how we can work together?’ It would have been incredible.”
Robert Kyncl, Warner Music Group
In Kyncl’s view, Google-owned YouTube’s announcement on Thursday that it is rolling out an AI tool to make vocal clones of artists for YouTube Shorts – complete with the consent and cooperation of participating artists – is a sign that, this time around, the music industry won’t be left out in the cold.
“Imagine in the early 2000s if the file sharing companies came to the music industry, and said, ‘Would you like to experiment with this new tool that we built and see how it impacts the industry and how we can work together?’ It would have been incredible. Obviously, that didn’t happen,” Kyncl said on the earnings call.
“So this is the first time that a large platform on a massive scale that has new tools at its disposal is proactively reaching out to its partners to test and learn. And I… want to underscore the significance of this kind of engagement and the the orderly fashion in which this is happening.”
Kyncl said he “applauds” the team at Deep Mind – the Google division behind the new AI tool – and all of Google “for participating in this, because this is the right way to engage… Whenever I say ‘responsible engagement with our partners,’ this is precisely what I mean.”
2: WMG is ‘working hard’ to shape government policy on AI
Of course, not all AI developers are working hand in hand with the music industry on their technologies. Some have even found themselves at the receiving end of copyright infringement lawsuits, over their alleged use of copyrighted materials without authorization to train their AI algorithms.
At the same time as courts work on interpreting copyright law in the age of AI, governments around the world – from the US to the EU to China – are working on new laws to regulate the development of artificial intelligence technology.
For many in the music industry, ensuring that copyrighted IP is protected against unauthorized use by AI is a key priority in those efforts. And though it may not come as a surprise to those following the situation closely, on WMG’s earnings call, Kyncl said Warner Music Group is working proactively to ensure the music industry’s concerns are reflected in legislation.
Kyncl also indicated that WMG is working towards an expansion of the “right of publicity” – the notion that a person owns their own likeness and image. In the age of “fake Drake,” the right of publicity – which, unlike copyright, is not universally recognized under the laws of countries around the world – has become a pressing issue.
“We are – both through our trade organizations, as well as ourselves – working hard to make sure that regulation around AI respects the creative industries and music industry specifically.”
Robert Kyncl, Warner Music Group
“We are – both through our trade organizations, as well as ourselves – working hard to make sure that regulation around AI respects the creative industries and music industry specifically,” Kyncl said on the earnings call.
“From our standpoint, licensing for training is required, and also that name, image, likeness and voice is afforded the same protection as copyright.”
Kyncl added that he has personally “spent time over the last month with leading politicians on these issues and regulators in London, Brussels, Tokyo, DC and a few other cities around the world.”
If WMG’s chief executive officer is meeting with politicians over AI and the right of publicity, then it’s a safe bet other music industry executives are doing the same.
Are major changes to global copyright laws and the right of publicity in the cards? Stay tuned.Music Business Worldwide