When it comes to the dispute between Universal Music Group and TikTok over royalty payments – the talk of the music industry over the past few weeks – Warner Music Group CEO Robert Kyncl is offering some cautionary advice: “Whatever you read in the press, don’t believe it.”
Kyncl made the comment on WMG’s earnings call on Thursday (February 8), in which analysts sometimes seemed as interested in talking about the UMG-TikTok situation as they were in WMG’s (rather impressive) fiscal Q1 numbers.
Kyncl noted that, in his prior role as Chief Business Officer at YouTube, he had himself experienced these types of rightsholder-vs.-platform conflicts, “so I know exactly what Lucian and Shou are feeling,” he said, referring to UMG Chairman and CEO Sir Lucian Grainge and TikTok CEO Shou Zi Chew.
Universal’s recorded music catalog (about 3 million tracks) and its publishing catalog (nearly 4 million songs) have started to disappear from TikTok, after TikTok’s licensing agreement with UMG expired on January 31, with no new agreement in place.
As that deadline passed, the rhetoric between the short-video social media platform and the world’s largest music rights holder grew increasingly heated.
Kyncl was CBO at YouTube during a period, around a decade ago, when the major music companies would regularly bemoan the size of royalty checks coming their way from Google‘s video platform. (Industry relations with YouTube subsequently became far more harmonious.)
With that experience in mind, Kyncl said he remains “confident” that UMG and TikTok will sort out their issues.
“I’m confident that they will – at some point – find an agreement because, going from [Kyncl’s own] YouTube experience, music is incredibly helpful to virality and content,” he said. “People when they’re creating content, they love trends, they love music… obviously, that’s valuable to a platform.”
He added: “Conversely, TikTok, YouTube, Reels – all of those platforms are obviously helpful to making music popular. We all love that on the music side. And [TikTok’s] user engagement is great.”
Kyncl continued: “Obviously, I have an interest in [UMG and TikTok] working it out. I want them to work it out. And I think they’re both reasonable people that will find a compromise.”
Kyncl added that he felt WMG’s own current deal with TikTok – announced in July 2023 – was “fair”.
He stressed that WMG’s latest TikTok licensing agreement reflected a strategy whereby “we don’t follow other companies. We don’t do carbon copies of other deals. We do our own, which is why we did the [TikTok] one last year… It wasn’t easy with TikTok. I think it was very difficult [negotiation]. But we got there.”
Warner CFO, Bryan Castellani, said that the rewards from Warner’s 2023 TikTok deal had “contributed” to a 10% YoY uplift in ad-supported recorded music streaming revenue at WMG in the three months to end of December.
Kyncl and Castellani’s comments arrived as Warner Music Group reported its biggest-ever quarter in its fiscal Q1 (calendar Q4), which ended on December 31, 2023.
The company reported USD $1.748 billion in global revenues in calendar Q4, up 10.6% YoY on a normalized, constant currency basis. (That’s ‘normalized’ as it omits a one-time $13 million negative QoQ impact from WMG’s distribution split with BMG, and also omits two one-time benefits from unnamed recorded music license renewals/extensions.)
WMG’s quarterly recorded music streaming revenues jumped 11.4% YoY (on a normalized, constant currency basis) to $887 million, while music publishing streaming revenues were up by 30.4% YoY (on a constant currency basis) to $193 million.
Today’s earnings call also arrived after Warner’s announcement Wednesday that it is laying off around 600 staff, or about 10% of its workforce – a move that Kyncl said on the earnings call is part of an efficiency drive that will save the company $200 million by September 2025.
The majority of these layoffs will take place within WMG’s ‘owned and operated’ media properties, some of which the company plans to sell.
“We’re in an exclusive process for the potential sale of the news entertainment websites Uproxx and HipHopDX, with more to say on that soon,” Kyncl told analysts on the call.
Here are three other things we learned on Warner Music Group’s earnings call…
1) The savings from job reductions will be invested into music and ‘automation’ of internal processes
Warner will cut around 600 employees by the end of September, the company confirmed this week.
Kyncl told analysts today that the $200 million saved from this headcount reduction will be put primarily towards music investments, where there are “quite a lot of opportunities that we can’t fully materialize because [of] how we manage our balance sheet, our dividend… operating responsibly.” With the new savings, he said, “we have a lot more opportunities that we can effectively afford.”
However, Kyncl also said that some of the savings would go into tech innovations, including AI-powered technologies.
“It’s really important that tech is supporting efficient growth of the company, and introducing as much automation as possible into our systems and processes, both on the recorded side as well as on the publishing side. It also helps us monetize our entire catalog,” he said.
“It’s really important that tech is supporting efficient growth of the company, and introducing as much automation as possible into our systems and processes, both on the recorded side as well as on the publishing side.”
Robert Kyncl, Warner Music Group
As one example, Kyncl pointed to thumbnails that go with tracks uploaded to music streaming services.
“Freshness of thumbnails, or motion art, things of that nature, help streams which helps revenue, but it’s really difficult to do that manually across such a large volume of content. So we developed an AI tool that helps us update and create new ones,” he said.
“So there are lots of tricks of this trade, [and] we can deploy the technology to help track revenue as well.”
2) Spotify’s new royalty payment model is ‘just the beginning’
Over the past several months, we’ve seen some significant changes to the way certain streaming music services pay royalties, namely Deezer’s shift to an “artist-centric” model, under which “professional artists” – 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, as do artists whose tracks have been actively searched for by users.
Not long after that move, Spotify unveiled a new payment model under which a track will have to be played a minimum of 1,000 times in a 12-month period in order to qualify for payments from Spotify’s pool of royalty money.
On WMG’s earnings call, Kyncl called Spotify’s move “a step in the right direction” that “better aligns economics with the quality content that drives engagement. We view this as just the beginning and we’re continually engaged with our partners to drive faster [revenue] growth.”
“We should be not only hunting, but we should also be harvesting.”
Robert Kyncl, Warner Music Group
Kyncl, who has argued repeatedly over the past year that streamed music is undervalued, is also pushing for further price hikes at the DSPs, calling it “one of our very large opportunities.” He suggested that the time has come to focus not only subscriber growth, but on revenue growth as well.
“The way I talk about it is, we should be not only hunting, but we should also be harvesting. The industry obviously has focused on growth over the last 15 years [and now] we just need to do both of those things… and be much more intentional about that.”
Driving faster revenue growth is part of Kyncl’s three-pronged strategy for WMG over the next decade, which is composed of growing engagement with music, increasing the value of music, and evolving how WMG’s employees work together.
Driving changes to the royalty payment models at streaming services is part of the strategy to increase the value of music, as is “strengthening our artists’ direct relationships with their superfans… We’ll accelerate the building of our new products and experiences, as it’s an area that’s relatively untapped and under-monetized,” Kyncl said.
3) The digital music era is making large music companies like WMG ‘exponentially more relevant’
With the arrival of digital platforms (particularly ones open to everyone, like YouTube and SoundCloud), digital audio workstations, and indie distribution services like DistroKid and SoundOn, it’s becoming increasingly easy and practical for artists to “go DIY,” instead of hoping for a break at a major record label.
Which, of course, begs the question: Will large music companies even be relevant in the future?
In Kyncl’s view, not only will they be relevant – they will be more relevant than ever.
“As the music business has grown larger, faster, noisier, and more complex, with democratized distribution creating a flood of content on platforms, the role of large music companies is growing exponentially more relevant,” he said on the earnings call.
“It’s harder than ever for any one artist to break through the clutter. And that’s where we come in. We collect and process large volumes of data and make it usable and actionable, driving repeatable results – a task that is very difficult for any individual artist or small business, because of the resources and skill sets it requires.
“Our global marketing footprint and expertise, combined with deep technical capabilities to build systems and data insights, enable us to differentiate ourselves in this regard. In fact, looking at the last quarter, songs from the major music label groups represented 94% of the songs on Billboard Hot 100.”
“As the music business has grown larger, faster, noisier, and more complex, with democratized distribution creating a flood of content on platforms, the role of large music companies is growing exponentially more relevant.”
Robert Kyncl, Warner Music Group
That’s a pretty convincing argument not to bet against the major record companies, and it’s a point that Kyncl has made, in different ways, before.
At the Code Conference in California last September, Kyncl laid out an argument for why artists still need record labels. He drew a parallel between the music business today and the advertising business a decade or two ago, when it seemed like ad agencies might go extinct in the age of Google AdWords, which allowed anyone to customize their own ad campaign from the comfort of their laptop.
Yet ad agencies didn’t disappear, and today,, “they’re the largest customers of companies like Google,” Kyncl said.
“What happened was lots of different platforms emerged. Lots of ad tech emerged, complexity increased exponentially, and [businesses] needed help with that, and the agencies provided that value.”
It’s the same today with record labels, he argued.
“Music is incredibly broadly distributed… And the complexity is high. And the more people can upload content, and the more people can be heard, the greater the noise, which means it’s harder to cut through the noise and sustain a career.”
If you’re a music artist, “you need a team. You need an army behind you…. if you want a sustainable career, with repeatability and success.”
