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An Ed Sheeran stream should earn more than the sound of rainfall, says Warner boss

By | Published on Wednesday 10 May 2023

Ed Sheeran

Warner Music CEO Robert Kyncl has echoed comments by his Universal counterpart Lucian Grainge on the need to restructure the way streaming royalties are paid out. Speaking on the major label’s Q2 earning’s call yesterday, he said that “it can’t be that [an] Ed Sheeran stream is worth exactly the same thing than a stream of rain falling on the roof”.

The former YouTube exec’s comments came as he announced disappointing results for the record label, with revenues showing almost no growth year-on-year. Following this, the company’s share price fell almost 10%.

Kyncl discussed the current streaming model in response to a question from Deutsche Bank analyst Benjamin Black, who specifically raised Universal’s recent statements on the need to restructure how pay outs are made. In response, the Warner boss, like much of the music industry, called for price rises in subscription streaming, before dwelling on the sound of rain.

“I am convinced and various numbers back up that music is significantly undervalued”, said Kyncl. He noted that while YouTube’s TV subscription price has increased by 100% over five years, the same has not happened with YouTube Music.

“Both businesses grew very successfully and the cause of that is the structure of the agreements with [the streaming services]”, he went on. “That structure was really, really good for the [music] industry. It has taken it from a low point to an incredible recurring revenue stream all around the world with massive amounts of people and payment instruments on file, premium experience, personalisation, all of that”.

However, he continued, while the current subscription streaming business model “has rebuilt the business, [that] does not mean that it is the right thing for the next ten or 20 years. It has to change and it will change. One of the reasons for that is that there is not a real incentive for price increases that you see in every other industry, but the other is that every stream is valued exactly the same way. And that doesn’t seem like something that’s aligned with the way the world works”.

Using the sports industry as an example, he said: “[Basketball player] LeBron James earns more money than some of his teammates, not because he plays more hours per day, [he] plays exactly the same number of hours, but yet he earns more. [US sports channel] ESPN commands more money per subscriber per month than any other TV channel not because it’s consumed more. There is a propensity to pay, there’s users, users willingness to remain with the overall services”.

“So it can’t be that [an] Ed Sheeran stream is worth exactly the same thing than a stream of rain falling on the roof”, he went on. “I think we have a misaligned model at this point now that the industry is healthy and has grown incredibly well. I think it’s time to re-evaluate how we’re licensing to [streaming services], do it together with them, because there are ways to make all of this win-win, but music cannot be the only industry that that doesn’t assign value to high value artists and songwriters and that it doesn’t drive ARPU growth the way every other industry does”.

He insisted that his aim was not to “limit the volume of content” on the streaming services, saying: “I understand that’s important for personalisation and choice. I’m looking to change the value equation [from] the way it works today and put in new incentives. It’s too early to talk about any other specifics, but I can imagine it is one of the top priorities for me personally to change”.

Universal boss Lucian Grainge is also making this one of his top personal priorities, having said in a staff memo at the beginning of the year that “consumers are increasingly being guided by algorithms to lower-quality functional content that in some cases can barely pass for ‘music’” on the streaming services.

He said that there is a need to shift to “an innovative, ‘artist-centric’ model [which] values all subscribers and rewards the music they love. A model that will be a win for artists, fans, and labels alike, and, at the same time, also enhances the value proposition of the platforms themselves, accelerating subscriber growth, and better monetising fandom”.

Subsequently, Universal formed alliances with both Tidal and Deezer to investigate how alternative models for paying out streaming income might work. Details on what would constitute a major label led ‘artist-centric’ model are pretty unclear at the moment.

While complaints about the sound of rainfall being paid the same as an Ed Sheeran song have become the 2023 version of the old ‘people will pay for a bottle of water but not a download’ complaint, there are concerns in some areas that the majors could seek to limit pay outs for any forms of music they deem as being lower value – such as that released by independent labels or DIY artists.