The following MBW op/ed was written by Rory Kenny, the Co-Founder and CEO of Loudly, an AI music tech company based in Berlin. The company claims to own the largest AI Music catalog in the world with over 150,000 audio sounds and has developed an AI Music engine capable of generating new music compositions “in seconds”.
Music catalogs have always been considered a niche asset and prone to the unpredictable winds of an evolving music industry. However the recent upsurge in deals occurring not only within the music industry but also now heavily influenced and leveraged by the entry of private equity has changed the game forever.
You just have to look at the recent prices that back-catalogs have achieved to see that this is a booming area. Bob Dylan’s official figure for his catalog hasn’t been disclosed but industry insiders have suggested a price tag between $300-$600 million, whilst Stevie Nicks sold a share of her catalog for $100 million.
BMG’s tie-up with KKR to raise $1 billion to spend on music catalogs alone is a blatant display of confidence in the future earning power which music royalties will deliver.
The growth in acquiring music catalogs is a paradigm shift to the traditional model in which the music industry generates revenue.
While the deal sizes are huge, it’s actually a more conservative approach as it hedges against the more risky artist portfolio investment thesis.
With an existing music catalog, you simply apply a growth multiple against current revenues and a hockey stick chart is your answer.
So what underlying factors drive this incredible growth multiple?
The first factor is the steady increase in streaming services like Apple and Spotify which are consistently unlocking new audiences and re-igniting interest into golden hits as well as long tail unknowns. Investing into the financial return longevity of various kinds of music catalog is not dissimilar to how institutions invest into stable asset classes like Gold.
“Investing into the financial return longevity of various kinds of music catalog is not dissimilar to how institutions invest into stable asset classes like Gold.”
The second factor is the increasing dominance of media-driven engagement (images, stories, videos) across all social media platforms – the more hi-fi it looks and sounds, the better! From Instagram to TikTok to Twitch, audiences are being exposed to music in new ways, and the trend is set to continue. The royalties keep coming…
But some of this is already old news. The next big thing in our digital lives is the coming Metaverse and it will require a lot more music content than which currently exists.
If you think people enjoy Facebook and Instagram today in its current flat-2D-feed-format, imagine how they will feel in a more immersive-3D-tactile experience – that’s the Metaverse. Beyond social interactions, the Metaverse is set to disrupt everything from gaming to e-commerce to the virtual workplace.
If the nature of the Metaverse is that anyone can use its protocols to build and customise their own worlds, then these virtual environments will demand similar protocols for music: enabling anyone to customise the soundtrack to their digital lives. Big brands like Gucci to underground NFT artists to kids on their smartphones are already developing virtual environments on Roblox, Minecraft and Fortnite – all aiming to deliver ‘Ready Player One’ type simulacra – paving the way for what these worlds will eventually look like.
So what does the Metaverse need when it comes to music fulfilment?
Firstly, there is the issue of customization. The only way to accomplish this is to integrate a powerful music engine which can handle a huge catalog of music which can be instantly customised.
Secondly, there is the issue of volume. In today’s market, approx 1.2 million music tracks are added to music streaming services per month to fulfill audience demand. However in the Metaverse, we have to accept the concept that the laws of the known universe will no longer apply. Every square inch of the Metaverse will have infinite musical parameters. If we assume a tectonic shift of users from 2D social media towards the more immersive Metaverse worlds, we’re looking at 2 billion user sessions per day (based on Facebook’s current DAUs) expecting fresh new music every time they ‘walk’ into a new environment or encounter a digital good etc,…with these kinds of numbers, I would assume a minimum of several million new soundtracks per day will be prerequisite.
All of this creates a lot of pressure on the music industry and Metaverse tech companies to deliver. But AI music technology is the solution. It is customisable as it is based on ‘protocols’ which, similar to Metaverse architecture, allows anyone to create and modify music easily without requiring deep musical knowledge.
“The pace at which the music industry is evolving is accelerating and AI will certainly play a pivotal role in how the future emerges.”
One of the most revolutionary advances of AI music tech is that it democratises music creation for everyone, enabling non-musicians to generate studio-quality music, and in doing so – unlocks the potential for any creator, app developer or tech company to programmatically generate original music for their specific use-case, media or Metaverse environment.
If today’s booming price-tags are an indication of how buyers value a ‘fixed’ music catalog (i.e a limited number of static music tracks), how will the market price emerging AI music catalogs that have no limits and are uniquely positioned to serve future technology trends?
AI music catalogs differ dramatically as they do not have a fixed number of songs but rather the possibility to produce an infinite number of track combinations and compositions which can be 1) produced by the owner of the AI technology b) produced by the users who access its tech 3) as a service that even music labels can harness in order to extend their existing catalog.
So with this tangible future in mind, the battleground emerges: who will control and harness these AI music catalogs and what competitive position will they attain? If the monopolization tendencies in the tech sector are a given, my prediction is that there will be relatively few dominant technology driven AI music catalogs available, however there will be many assertive acquirers – from tech to media to music industry players who will seek to take advantage of the long-term royalties derived from the catalog and the competitive advantage that accompanies the technology.
The pace at which the music industry is evolving is accelerating and AI will certainly play a pivotal role in how the future emerges. Combined with the parallel breakthrough trends observed in blockchain, crypto-currencies, NFT marketplaces, VR/AR and our increasingly digital lives, AI Music is well positioned as a ‘new world’ solution to serve the dynamics and requirements inherent to the coming Metaverse and Web 3. Music Business Worldwide
