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- March 17, 2024
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During a recent appearance in Doha, Qatar, Warner Music Group (WMG) CEO Robert Kyncl announced that the company is building a “superfan app.”
“I’ve assembled a team of incredible technology talent from Google and Stripe and Instacart and lots of other great technology companies who are working on a superfan app, where artists can connect directly with their superfans,” Kyncl said at the Web Summit in late February.
That makes WMG just the latest company to jump on the superfan bandwagon. As streaming subscriptions approach their saturation point, at least in developed markets, the music industry is turning towards new avenues of growing revenues.
Key among those is better monetization of superfans – that segment of the music audience that’s enthusiastic about an artist or artists, and willing to pay more for additional content, experiences or increased access to their musical idols.
There could be quite a bit of money in it: According to a report from market monitor Luminate in 2023, superfans in the US typically spend 80% more on music than other fans.
In its Music in the Air report last year, Goldman Sachs estimated that there is a $4.2 billion revenue opportunity for the music industry by 2030, if superfans were to pay double current amounts for digital music.
Details on WMG’s superfan app aren’t yet available, but the announcement raised some eyebrows, not least because – as Warner’s Kyncl himself says – Warner Music Group is a “wholesaler” of music. Streaming apps like Spotify are the “retailers” in this business; they’re the ones who have a direct relationship with consumers.
But at an appearance at Morgan Stanley’s Media & Telecom Conference in San Francisco last week, Kyncl laid out an argument for why WMG, and recording companies in general, are better suited to develop superfan products than the streaming platforms.
“If every distribution platform creates products for superfans, it’s very hard for artists to adopt it, because then they have to optimize for that one platform,” Kyncl told Morgan Stanley analyst Benjamin Swinburne during a Q&A session on Wednesday (March 6).
“That’s not what they want to do. They want to be across everything. And so I think, organically and structurally, we’re in a better position to do something like this than any… large distribution platform today.”
“If every distribution platform creates products for superfans, it’s very hard for artists to adopt it, because then they have to optimize for that one platform.”
Robert Kyncl, Warner Music Group
Kyncl argued, in effect, that the subscriber bases of major streaming platforms are simply too large for them to build successful direct fan relationships between the enormous number of artists and the even larger number of subscribers.
“One of the most important things is to figure out a direct relationship with the most valuable fans, because it’s not only important to monetization and new revenue streams, but it’s also important to launching new music, which is the core of what we do.
“And when you do that, you don’t want to compete with large platforms of 2 billion users. I want to focus on a much more condensed set of users, the ones that matter the most. And so for large platforms, that’s a subscale activity, subscale behavior. For us, we can do that.”
Only time will tell whether that thesis statement will translate into a successful superfan app for Warner Music Group.
In the meantime, Kyncl has other ideas too – including some innovative thoughts on how to evolve the payment model for streaming platforms.
Here are three other things we learned from the Warner Music Group CEO’s appearance at the Morgan Stanley conference…
1) There are some ‘radical’ potential changes to how music companies are paid by streaming services
Many in the music industry have argued for some time now that music is underpriced and undervalued as a product and an asset.
Over the past year or so, under growing pressure from record companies, streaming services like Spotify, Apple Music, YouTube Music and others have implemented what for many of them was the first-ever price hike for streaming subscribers.
The industry has also seen the arrival of the “artist-centric” payment model, first rolled out by Deezer and Universal Music Group last year, under which payments to artists with larger fan bases, and to those who are actively searched for, are weighted more heavily than payments to other artists.
Kyncl himself had suggested something akin to an artist-centric model, with his proposal for “multipliers” to payments for more popular artists and those with more enthusiastic fan bases.
But that’s not the end of Kyncl’s ideas for how to change the payment model away from the pro-rata payment system in place today, a system that the music industry finds increasingly unsatisfactory.
Here are a few ideas Kyncl floated at the Morgan Stanley conference, some of which he conceded would be “radical” and require coordination across the industry:
- A “cable TV model,” where rights holders are paid per subscriber, rather than paid per stream
“Today, we all work on a revenue-sharing basis,” Kyncl said of the relationship between music rights holders and streaming services. “We could switch to cable fee model. We could get paid per subscriber.”
Kyncl was referring to the conventional model used by broadcasters and cable TV service providers, where the cable TV companies hand over a certain amount per month for every subscriber to a given TV channel or bundle of channels.
The amount of money paid is fixed, regardless of how much a subscriber watches a certain channel.
“It worked very well for 60 years in television,” Kyncl said. “There’s no reason why it couldn’t work here.”
- Create a higher subscription tier for catalog, while the basic tier provides access to new releases
“I would say that catalog is probably even more valuable than new release content today,” Kyncl said. “So you could have [streaming] subscriptions that are for new releases only. And then if you want the entirety… you end up paying extra for catalog.”
Kyncl argued that going down “memory lane” is more valued by music listeners than new releases, meaning they would be more willing to pay extra for catalog.
“They value that more and have a higher propensity to pay than for new releases,” he said.
Kyncl didn’t outright suggest that streaming services get rid of family plans – he just strongly hinted at it.
“There are no family plans in China. It’s only individual subscriptions,” he noted, during the segment where he discussed changes to payment models.
Getting rid of family plans would make sense from a revenue standpoint, given that they tend to have lower average revenue per paying user (ARPPU) than individual subscriptions.
For instance, Spotify’s family plan in the US offers up to six Premium accounts for people in a single household, for USD $16.99. That compares with $10.99 for an individual subscription. This means that the revenue per user from a family plan can be as little as 28% of the revenue from an individual subscription.
That said, China might not be a good point of comparison here, because of the much lower prices that streaming services charge there. At Tencent Music Entertainment’s streaming platforms, monthly ARPPU in Q2 2023 was just RMB 9.70, or around $1.35 per user per month.
2) Warner is axing its ‘owned media’ assets because they’re a ‘drag’ on margins
Shortly before its earnings release in February, Warner announced a reorg that aims to save $200 million by September 2025, complete with a 10% reduction in headcount.
The majority of these job cuts will take place in Warner’s owned-and-operated media properties such as news/entertainment websites Uproxx and HipHopDX, and social media publisher IMGN.
Kyncl announced the company is “exiting” these properties, seeking new owners for Uproxx and HipHopDX, while IMGN and podcast platform Interval Presents are being shut down.
“We’re here to serve our roster, our artists and songwriters.”
Robert Kyncl, Warner Music Group
During his Q&A last Wednesday, Kyncl offered some insight into the reasoning behind that move.
“We’re here to serve our roster, our artists and songwriters,” Kyncl said, but reporting on pop culture means sometimes you have to promote other companies’ rosters – “otherwise, you lose credibility in the market and in what you do.”
So running these sites was “not in the service of [our] roster,” Kyncl said. “It doesn’t have that strategic component.”
He added that these properties were “focused on brand sales, and that’s an area that’s not growing so much.”
Finally, he added that the properties were “a margin drag.”
That’s a strong hint that these media properties may be suffering from the same ad revenue slump that has hit other news and pop-culture sites. Note for instance, recent news of the shutdown of Vice.com, and the layoffs that hit much of the staff of Sports Illustrated.
3) Kyncl on AI: Warner was the ‘driving team’ behind a new law against deep-fakes of artists
Like many other record companies, WMG is heavily focused on the good and the bad of the AI revolution – the good being the new AI tools available to creators, and to record companies’ admin back offices, and the bad being the potential for deepfakes of artists, and the potential draining of music revenues by AI-generated music.
Part of the reason WMG signed up for YouTube’s AI music incubator is that it’s “allowing us to be under the hood,” Kyncl said.
Under the same Alphabet roof as YouTube are Google’s DeepMind and Gemini AI engines, Kyncl noted, “so you have both the generative AI engine and the consumption platform under the same roof. So that’s actually quite useful to be engaged with a company like that.”
“We think there is a lot to be done to protect not just artists’ name, image, likeness and voice, it actually should really apply to any human being.”
Robert Kyncl, Warner Music Group
In the fight against deepfakes, Kyncl just about took credit for the Ensuring Likeness Voice and Image Security (ELVIS) Act in Tennessee, a bill making its way through the state legislature that expands personal rights protections to cover songwriters, performers and music professionals’ voices.
“We love the fact that the ELVIS Act just passed in Tennessee. Our team was actually the driving team behind that,” Kyncl said.
He added that “we’re using that for momentum on a national level with the two acts, both in the House and the Senate.”
That likely refers to two pieces of legislation that are similar to Tennessee’s ELVIS Act: The No AI FRAUD Act, introduced in the US House of Representatives in January, and the NO FAKES Act, floated in the US Senate last fall.
“We think there is a lot to be done to protect not just artists’ name, image, likeness and voice, it actually should really apply to any human being,” Kyncl said, “but we’re representing artists and songwriters.”
Music Business Worldwide
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