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

WMG’s traders can be hard-pressed, nonetheless, to ask for an tackle that was extra candid and unequivocal.

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

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

For a serious music firm so used to reporting streaming development to its traders over the previous decade, that one stung. But there was some vital mitigation: the equal quarter within the prior 12 months (calendar This fall 2021) included an additional week of consumption.

When adjusted for this additional week, WMG’s recorded streaming income really grew 5% YoY in calendar This fall 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 stated 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 shrink back from these bruising details, Robert Kyncl’s first earnings name at WMG – notably amid a full of life back-and-forth with analysts – was general, 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 tackle 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 far more business worth within the years forward.

Right here we sum up 5 notably noteworthy factors that the ex-YouTube exec made in the course of the name…

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

Spot the lacking digital platform on this sentence from Kyncl’s opening tackle: “This trade has achieved one thing uncommon: It’s constructed mutually helpful, long-term partnerships with lots of the world’s largest corporations – 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 latest occasions.

To reply the question, Kyncl referred to 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 trade.

These dealings in the end ended harmoniously, with YouTube paying out over USD $6 billion to music rightsholders within the 12 months to June 2022.

However they weren’t all the time frictionless (anybody bear in mind again earlier than the YouTube Music subscription service launched in 2018, when main music rightsholders had 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 means of that [tension with the music industry] we made the choice to launch subscription at YouTube, as a result of we had been trying on the trade holistically,” stated Kyncl at present.

He defined that YouTube employed a “nice viewers segmentation technique” alongside a mindset that “music is vital to us endlessly” 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 reside 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 fitting determination for them to judge.”

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

2) He’s very tuned in to the chances – 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 severely.

He was requested by Sebastiano Petti at JP Morgan at present whether or not he’s involved concerning the potential impression of music-making AI expertise – particularly if that expertise churns out large volumes of music every day, and threatens to additional dilute WMG’s market share on streaming companies.

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

Inside music, Kyncl famous that these implications might embrace the usage of AI to “assist and help creativity”, however may be extra threatening to rightsholders. Such threats, he stated, embrace copyright issues 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 may be a critical deficiency.”

Kyncl recommended that at present’s music trade wanted to start out working carefully with main AI platforms to make sure that copyright can be protected on their companies within the years forward.

He additionally regarded on the intense facet, too, noting that AI might assist the music enterprise with the “figuring out and monitoring of content material on consumption platforms” that might then “appropriately determine copyright and remunerate copyright holders”.

He cited YouTube’s ContentID for instance of the type of AI-driven framework that might assist unlock monetization for the usage of music content material on sure different platforms. (MBW’s gonna exit on a limb and recommend that these ‘sure different platforms’ who’re but to put in a ContentID equal in Kyncl’s thoughts embrace 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 may 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 tackle the subject of Spotify’s failure to lift costs within the US straight, however he skirted very near doing so.

In his opening tackle to analysts, he famous: “YouTube drives the intersection of creators and expertise, which implies that I had many choices to select from in planning my subsequent chapter. I selected music, at first, 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 expertise opens up rising economies, the trade’s addressable market will proceed to increase even additional”;
• “Two, innovation is continually creating new use instances 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 tooth in Spotify’s route.

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

He continued: “Knowledge reveals that nearly 80% of U.S. households subscribed to not less than three streaming video companies. Which means that the common family is spending greater than 4 instances monthly [than it used to] on a mix of digital video companies that isn’t even a complete providing.”

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

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

As soon as once more, Kyncl’s goal in that little bit of speech was certainly the corporate he didn’t identify, somewhat 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 Know-how.

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

Nonetheless, he did say that, beneath his management, WMG would “thoughtfully relocate assets to speed up our expertise investments to empower not solely artists and songwriters, but additionally to drive efficiencies within the firm”.

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

“I will likely be reallocating our inside assets with the intention to spend money on expertise and drive not solely extra instruments for monetization for creators, but additionally better efficiencies.”

Kyncl later reiterated that he’ll be “reallocating our inside assets with the intention to spend money on expertise and drive not solely extra instruments for monetization for creators, but additionally better efficiencies for us”.

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

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

In response, Kyncl famous that WMG had been “extra measured in its headcount development in the previous few years than others within the trade, who are actually present process vital layoffs”.

To know what he meant, try the under graph, which juxtaposes WMG’s world headcount (together with part-time workers) on the finish of every September, with Spotify’s common world headcount (solely full-time workers, not together with part-time) in every calendar 12 months.

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

Kyncl additionally famous at present that there had been some “momentum” at WMG when it comes to “price transformation initiatives” that had been underway over the past two or three years, earlier than newer “macroeconomic points emerged”.

Because of this ongoing “price transformation”, stated Kyncl, WMG can 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 present was this.

“Dilution [is] one thing that you just’ve been seeing all alongside; it’s clearly one thing I regulate, that [I] form of take into account honest sport.”

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

Stated knowledge reveals that music distributed by the three main document corporations plus Merlin members has cumulatively been dropping market share on Spotify for the previous half-decade (not less than).

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

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

There might, although, be another excuse behind his phlegmatic perspective on this matter.

Specifically: Does Robert Kyncl have a plan for a enormously expanded distribution and companies providing for unbiased acts at WMG? One pushed by Software program as a Service (Saas) expertise?

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

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

We didn’t discover solutions to these questions on WMG earnings name at present, however Kyncl did say: “These are [streaming] platforms the place content material suppliers are importing content material, and [as a major] we now have to do an ideal job in having a strong catalog and [working with] extra nice artists which can be gaining significant share. We have now 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 expertise will underpin the whole lot we do, whether or not it’s development 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