Robert Kyncl may have requested for a rosier set of fiscal outcomes to accompany his first quarterly earnings name as Warner Music Group CEO.

WMG’s buyers could be hard-pressed, nevertheless, to ask for an deal with that was extra candid and unequivocal.

Instance: Inside 50 seconds of his opening speech, Kyncl informed analysts: “I’m dedicated to sustaining easy and constant communication throughout the investor group. So in that spirit, I need to instantly and clearly acknowledge that this was a troublesome quarter.”

Clearly, Kyncl had due trigger for this acknowledgment: WMG’s recorded music streaming revenues fell 2.6% YoY at fixed foreign money within the three months to finish of December 2022 (calendar This autumn, however fiscal Q1 at WMG).

For a serious music firm so used to reporting streaming progress to its buyers over the previous decade, that one stung. But there was some vital mitigation: the equal quarter within the prior yr (calendar This autumn 2021) included an additional week of consumption.

When adjusted for this additional week, WMG’s recorded streaming income truly grew 5% YoY in calendar This autumn 2022, in response to Warner’s CFO, Eric Levin – with subscription streaming income up YoY within the “excessive single digits”, offset by a “mid-teens” YoY drop in ad-supported streaming income.

Certainly, Warner mentioned that it battled a “market-related slowdown in ad-supported income” within the quarter, along with a relatively weak launch schedule vs. the prior-year quarter.

Whereas refusing to draw back from these bruising details, Robert Kyncl’s first earnings name at WMG – significantly amid a full of life back-and-forth with analysts – was total, forward-looking and optimistic in tone.

Regardless of repeatedly clarifying that he’s solely been within the job as Warner CEO for 5 weeks, Kyncl’s deal with made two issues very clear:

• (i) This isn’t a mealy-mouthed or evasive chief who’s prone to buckle beneath analyst scrutiny; and
• (ii) He believes strongly that music can seize way more business worth within the years forward.

Right here we sum up 5 significantly noteworthy factors that the ex-YouTube exec made throughout the name…

1) He desires TikTok to assume very rigorously about its relationship with the music enterprise

Spot the lacking digital platform on this sentence from Kyncl’s opening deal with: “This business has achieved one thing uncommon: It’s constructed mutually useful, long-term partnerships with lots of the world’s largest firms – Amazon, Apple, Google, Meta, Spotify and Tencent amongst them.”

Yup – there’s no ByteDance or TikTok in there.

That omission would later be introduced into sharper focus when LightShed Companions’ Wealthy Greenfield requested Kyncl how vital he thought music was to TikTok’s core product – a well timed query given current occasions.

To reply the question, Kyncl known as on his 12-year stint at YouTube, the place he was the architect of a lot of the Alphabet platform’s dealings with the music business.

These dealings finally ended harmoniously, with YouTube paying out over USD $6 billion to music rightsholders within the yr to June 2022.

However they weren’t at all times frictionless (anybody keep in mind again earlier than the YouTube Music subscription service launched in 2018, when main music rightsholders have been endlessly hammering YouTube for its so-called music ‘worth hole’?).

“At Youtube, we determined that [Music] was vital to us… TikTok wants to try this.”

“It’s humorous, having lived by that [tension with the music industry] we made the choice to launch subscription at YouTube, as a result of we have been wanting on the business holistically,” mentioned Kyncl at the moment.

He defined that YouTube employed a “nice viewers segmentation technique” alongside a mindset that “music is vital to us perpetually” to drive its subscription providing, in addition to a mess of codecs from which music rightsholders earn cash – together with premium movies, user-generated content material, short-form video (through Shorts), and stay streaming.

“We checked out this query [of committing to music] very carefully [at YouTube] and determined that it was vital to us and that’s why we did it,” added Kyncl. “TikTok wants to try this; it’s the appropriate choice for them to guage.”

He added: “You’ll be able to see from YouTube’s execution what the outcomes of those findings have been for us, however I can’t converse to what TikTok finds. My reply is: we’re on the lookout for a holistic relationship.”

2) He’s very tuned in to the probabilities – and threats – of AI

It’s the subject de jour in wider tech and leisure circles proper now – and Robert Kyncl’s taking it very critically.

He was requested by Sebastiano Petti at JP Morgan at the moment whether or not he’s involved in regards to the potential impression of music-making AI know-how – particularly if that know-how churns out big volumes of music every day, and threatens to additional dilute WMG’s market share on streaming providers.

Kyncl started his reply by saying: “AI might be one of the transformative issues that humanity has ever seen, it has so many various implications.”

Inside music, Kyncl famous that these implications may embody using AI to “assist and help creativity”, however is also extra threatening to rightsholders. Such threats, he mentioned, embody copyright considerations when AI music samples/ingests current tracks, plus widespread worries over “the craft of artists and songwriters being diluted or changed by AI-generated content material”.

“There are others who have to work on [this kind of copyright-identifying tech] as a result of, within the AI future, this could be a critical deficiency.”

Kyncl advised that at the moment’s music business wanted to begin working carefully with main AI platforms to make sure that copyright could be protected on their providers within the years forward.

He additionally appeared on the brilliant aspect, too, noting that AI may assist the music enterprise with the “figuring out and monitoring of content material on consumption platforms” that would then “appropriately determine copyright and remunerate copyright holders”.

He cited YouTube’s ContentID for instance of the sort of AI-driven framework that would assist unlock monetization for using music content material on sure different platforms. (MBW’s gonna exit on a limb and counsel that these ‘sure different platforms’ who’re but to put in a ContentID equal in Kyncl’s thoughts embody Fb, Instagram, and TikTok.)

Continued Kyncl: “There are [platforms] who lack on this division and have to work on [this kind of copyright-identifying tech] as a result of, within the AI future, this could be a critical deficiency.”

3) He’s maintaining a tally of Spotify’s pricing – and the overall state of music as ‘undervalued’

Kyncl didn’t deal with the subject of Spotify’s failure to lift costs within the US immediately, however he skirted very near doing so.

In his opening deal with to analysts, he famous: “YouTube drives the intersection of creators and know-how, which implies that I had many choices to select from in planning my subsequent chapter. I selected music, at the beginning, as a result of everybody loves music – together with me.”

He famous that the music enterprise, in his view, nonetheless has “significant upside” forward of it, for 3 causes:

• “One, as know-how opens up rising economies, the business’s addressable market will proceed to broaden even additional”;
• “Two, innovation is continually creating new use circumstances for music, giving us the chance to diversify our income sources”;
• “Three, music remains to be undervalued, particularly when in comparison with different types of leisure like video.”

It was whereas increasing on level No.3 that he appeared to momentarily naked his enamel in Spotify’s path.

“Since 2011, the subscription worth of Netflix‘s commonplace service has roughly doubled,” mentioned Kyncl (echoing a degree MBW made simply the opposite week).

He continued: “Information reveals that nearly 80% of U.S. households subscribed to at the least three streaming video providers. Which means that the typical family is spending greater than 4 instances per thirty days [than it used to] on a mixture of digital video providers that isn’t even a complete providing.”

He added: “In distinction, the worth of the music subscription has stayed the identical since streaming was launched over a decade in the past. Most customers subscribe to a single [music] service that carries just about all of the music ever launched.

“Towards this backdrop, it’s encouraging that we’re seeing first steps in the appropriate path by Apple, Deezer and Amazon.”

As soon as once more, Kyncl’s goal in that little bit of speech was absolutely the corporate he didn’t identify, fairly than these he did.

4) He’s planning Tech-driven ‘Efficiencies’ at WMG

Robert Kyncl has raided his black e book of YouTube and ex-YouTube execs for his first two senior hires at Warner: Tim Matusch (pictured inset), now EVP of Technique and Operations at WMG, and Ariel Bardin – who headed up the creation of ContentID at YouTube – as President of Expertise.

On at the moment’s name, Kyncl stopped quick at outlining his overarching technique at WMG, one thing he mentioned was nonetheless “in growth” after his first month on the firm.

Nevertheless, he did say that, beneath his management, WMG would “thoughtfully relocate sources to speed up our know-how investments to empower not solely artists and songwriters, but in addition to drive efficiencies within the firm”.

He famous that the appointments of Matusch and Bardin have been each “in that path”, including that his objective is to “accomplish all of [this] with continued concentrate on monetary self-discipline and cost-containment”.

“I might be reallocating our inner sources with a purpose to spend money on know-how and drive not solely extra instruments for monetization for creators, but in addition higher efficiencies.”

Kyncl later reiterated that he’ll be “reallocating our inner sources with a purpose to spend money on know-how and drive not solely extra instruments for monetization for creators, but in addition higher efficiencies for us”.

In complete, there have been three mentions of “efficiencies” from Kyncl in the identical 40-minute name. So… are sweeping layoffs wanting inevitable at WMG?

Maybe not. Kyncl was requested by analyst Benjamin Black of Deutsche Financial institution if the current cost-cutting (and associated 500+ job losses) seen at Spotify may mirror the sort of “cost-containment” that Kyncl was excited about.

In response, Kyncl famous that WMG had been “extra measured in its headcount progress in the previous few years than others within the business, who at the moment are present process important layoffs”.

To know what he meant, take a look at the beneath graph, which juxtaposes WMG’s world headcount (together with part-time employees) on the finish of every September, with Spotify’s common world headcount (completely full-time employees, not together with part-time) in every calendar yr.

The tipping level: Spotify’s annual headcount determine overtook WMG’s in 2020.

Kyncl additionally famous at the moment that there had been some “momentum” at WMG by way of “price transformation initiatives” that have been underway over the past two or three years, earlier than more moderen “macroeconomic points emerged”.

Attributable to this ongoing “price transformation”, mentioned Kyncl, WMG could be in a “barely completely different place than others” when it got here to cost-saving manouvers.

5) He appears surprisingly relaxed about indie tracks consuming into main label market share

One of many extra understated feedback that pricked up MBW’s ears in Kyncl’s name at the moment was this.

“Dilution [is] one thing that you simply’ve been seeing all alongside; it’s clearly one thing I keep watch over, that [I] form of think about honest sport.”

This was in direct reply to a query from Michael Morris of Guggenheim Companions that cited the beneath information from Spotify.

Mentioned information reveals that music distributed by the three main document firms plus Merlin members has cumulatively been shedding market share on Spotify for the previous half-decade (at the least).

The important thing trigger behind that market share loss: the huge quantity of tracks being uploaded to streaming providers every day from the self-upload / indie artist group.

Kyncl’s verbal shrug right here – that this pattern is “honest sport” – could nod to his background at a tech platform (YouTube) that was supportive of, and commercially dependent upon, an enormous military of DIY “creators”.

There could, although, be another excuse behind his phlegmatic angle on this matter.

Specifically: Does Robert Kyncl have a plan for a vastly expanded distribution and providers providing for impartial acts at WMG? One pushed by Software program as a Service (Saas) know-how?

MBW has noticed up to now that Warner Music Group’s Stage Music platform – a DIY music distribution and providers providing in direct competitors with TuneCore and DistroKid – seems to not have been a top-level company precedence at WMG up to now few years.

May that each one be set to vary? If that’s the case, how will Kyncl differentiate Warner’s indie artist providing from the well-developed opponents within the market?

We didn’t discover solutions to these questions on WMG earnings name at the moment, however Kyncl did say: “These are [streaming] platforms the place content material suppliers are importing content material, and [as a major] we’ve to do an ideal job in having a strong catalog and [working with] extra nice artists which can be gaining significant share. Now we have to do an ideal job with them, so the onus is on us.”

He earlier commented: “There is no such thing as a query that know-how will underpin all the pieces we do, whether or not it’s progress or whether or not it’s efficiencies. It’s vital that we make investments into it – and that’s what we’re doing.”Music Enterprise Worldwide