Warner Music Group CEO Robert Kyncl has called for streaming subscription price increases to reflect the value of music - and he’s spoken about TikTok’s relationship with the industry.
Kyncl, who joined the major from YouTube this year, spoke at Morgan Stanley’s Media and Telecom Conference. Inevitably, perhaps, the first question was about why he wanted to move from tech to music.
“Music has 100% of the global population as the addressable audience,” he explained. “Everybody in the world listens to music, everybody likes music - it’s different for everybody, but they all do - which is very important because it gives us multiple bites at the apple to figure out our role in the industry, how we contribute and what share we take. We’ll always have conversations about music, because it’s ever-present - that’s very unique from an industry standpoint.”
In terms of joining Warner Music, in particular, Kyncl highlighted the “unique ownership structure and the fact that we have a very patient, long-term majority shareholder”, suggesting that is allowing the major to challenge the status quo in the industry.
“It’s pretty clear that technology will impact the music industry more and more,” he added, explaining that WMG needed new thinking for the next decade.
“I also bring different perspectives because I grew up in a communist country,” he said. “For 20 years, I lived under communism, so I have quite different perspectives on life, my range of experiences is pretty wide. And I grew up in a small country, the Czech Republic.
“Today on the internet when you think about it, the internet has levelled the playing field for everyone. The rise of local repertoire around the world is very important. So having people with global perspectives coming from the outside is also important. So I think some of these factors mixed together are probably why I was the choice [of CEO for the board].”
Kyncl has already made key appointments from Google - including Ariel Bardin as head of technology - and says he wants to develop strategies for the whole company that can then be accurately measured.
“In the future, I view Warner as a technology-enabled music company,” he said.
Music is undervalued, and this is not my opinion - there are actually numbers to back it up
The central question in the interview was really about how Warner Music can maintain growth as the industry continues into a second decade of streaming.
One factor holding back growth in terms of revenue is static streaming subscription prices. Deezer led the way in putting up prices in 2021, followed by Apple Music and Amazon Music recently, but market leader Spotify shows no signs of increasing its monthly price - although it now has 500 million monthly active users (including ad-funded). Kyncl did not name Spotify although the message was clear.
“Music is undervalued, and this is not my opinion - there are actually numbers to back it up,” said Kyncl. “If you take the US, the price that the user pays per hour of consumption of music is half of what they pay for movies and TV shows on streaming services. I’m not even counting cable TV, where the ARPU is insanely higher than that - but just versus streaming, it's half of that. So right there, it’s 50% undervalued today.
“How did that happen? The subscription price on streaming got established in 2011 in the United States, $10 per month per user. Today, some are raising [prices], but inflation adjusted, it should be $13.25 today. But on top of it, in 2014, family plans got introduced, which effectively are lowering ARPU. After the introduction of [family plans] you can average out ARPU to $7. So now you’re at $7, roughly, instead of $13.25. Without any increases, we have reduced ARPU.”
Kyncl’s comments echo those of Deezer CEO Jeronimo Folgueira in his recent Music Week interview.
Kyncl acknowledged "significant value destruction" from piracy, which explained the need to bring consumers into the DSP model.
"But that is a long time without changing the prices, and we are the lowest form of entertainment in terms of monetisation," he said.
Of course, the key question: Why didn’t he increase subscription prices at YouTube Music?
“I think it’s structural in the way the agreements work with the industry, which encourage the lowest common denominator and the lowest common price,” he explained. “Because if you’re somebody who does the fiscally responsible thing and increases the price, they can be hanging out there with a higher price for the same or similar product as someone who hasn’t. That doesn’t seem fair and it doesn’t seem smart for the industry to perpetuate as a model… I think it’s bound to change.”
“It is up to us, the industry overall, the DSPs and the labels, to figure out a new model that drives the value of music up while growing the business," he added.
Kyncl hinted at one approach whereby it could increase wholesale prices (royalty rates) by hitting a certain market share, which would then lead to higher consumer prices and ripple through the streaming landscape.
“If we get a couple of them on the wholesale price, then it rolls out to the rest,” he suggested.
“These are the type of fiscally responsible decisions that a company like ours should undertake in order to drive long-term value for artists, songwriters and all of our shareholders,” added Kyncl.
At some point TikTok needs to decide how important music is for their future
The WMG CEO also had an interesting perspective on TikTok because of his experience at YouTube, which was unpopular with the industry for some years over the ‘value gap’ issue. That relationship, though, is now much improved.
As well as the issue around TikTok’s data protection (government agencies around the world are telling staff not to use the Chinese tech firm’s app), the platform has been testing the withdrawal of music in Australia. It has led to some concerns that TikTok could be set to use its increasing global power to gain leverage over rights-holders and royalties.
In the Morgan Stanley interview, Kyncl described TikTok as "embattled... more so than YouTube ever was".
“I can tell you that that is not fun,” he said. “I would say as a company that's going through that, and as someone who's gone through that myself, it is much better to have friends and not fight a war on every flank. It's much better to have supporters and holistic relationships. That is what we're open to. It has to all work holistically for all sides.”
Ironically, Kyncl said he was once doing the same kind of tests at YouTube in regard to music’s value for the user experience.
“I can predict all their next moves,” he said. “It's part of correct stewardship of a company, but at some point TikTok needs to decide how important music is for their future. In YouTube's case, it was helping people because people like having music to make their videos viral.”
With the interview reaching its conclusion, Kyncl hinted at a new model for streaming. UMG is also looking at the structure of DSP payouts.
Kyncl highlighted the difference between user actions versus algorithmic activity, suggesting that the former should bring a premium for artists and labels.
“For instance, if a subscriber to a DSP comes and is starting the session with Lizzo, Lizzo should get multipliers on her [streams], because she basically brought them to the platform - that is valuable to the platform, it's good for them. If she is consistently starting long sessions, even though it’s not all with her content... and she’s a consistently long session generator, there should be multipliers for that."