It’s no shock that TikTok was a key matter of dialogue on Common Music Group‘s Q1 earnings name on Thursday (Might 2).
Simply hours forward of UMG revealing that its revenues grew 7.9% YoY at fixed foreign money to USD $2.8 billion in Q1, the businesses ended a three-month-long licensing dispute with a shiny new deal.
The settlement implies that Common’s catalog of songs and recordings shall be returning to TikTok over the following two weeks and UMG Chairman/CEO, Sir Lucian Grainge confirmed in an inside memo to Common workers that “higher compensation” is coming from TikTok for UMG artists and songwriters by way of the brand new deal.
On the corporate’s name with analysts on Thursday, Grainge defined in his opening remarks that TikTok “agreed to key adjustments in a number of vital areas, which have been crucial to us, together with addressing our issues about generative AI on their platform in addition to higher aligning with the worth of different comparable partnerships”.
He added: “In consequence, we have now resumed licensing our music to them.”
As you’ll learn under, UMG’s management crew, together with Grainge, Michael Nash, (Government Vice President and Chief Digital Officer), and Boyd Muir, (UMG’s Government Vice President, CFO) have been upbeat concerning the corporations’ new deal, however that’s not all they mentioned on the decision.
In addition they make clear UMG’s Q1 monetary outcomes, methods for partnerships with rising music corporations, plans to monetize superfans, and extra.
Right here are some things that stood out…
1. AS UMG appears to be like to monetize superfans, it says that 1 in 5 paid music subscribers can be prepared to pay for an excellent premium subscription tier.
Monetizing superfans continues to be an enormous precedence for the music business.
That’s notably true at UMG, whose Chairman and CEO defined in his new 12 months observe to the corporate’s workers in January that UMG’s technique this 12 months shall be centered on “strengthening the artist-fan relationship”, particularly by way of “superfan experiences and merchandise”.
MBW requested, on this extensively shared ‘MBW Reacts’ piece in February, what these superfan experiences may appear like.
We obtained a primary glimpse of what UMG’s plans may entail when it invested in HYBE’s ‘superfan’ platform Weverse in March.
However conventional DSPs like Spotify even have a probably profitable position to play within the superfan class.
As we requested in February, may a ‘superfan’, of say, Taylor Swift, or Billie Eilish, subscribe to a ‘restricted tier’ of the artist’s content material (assume: bonus tracks, commentary, artist Q&As and so forth.) by way of a platform like Spotify for a few further {dollars} (or extra) added to their month-to-month invoice?
“We all know that we may higher monetize higher-value clients, the analysis means that 1 in 5 paid music subscribers can be prepared to pay for a premium tier. That’s engaging.”
In response to a query about superfan monetization by Wells Fargo’s Omar J. Mejias on Thursday, Michael Nash, mentioned: “We’re very inspired by [the] constructive response that we’re getting across the prospects of [a] super-premium tier at a better value level that may contain an much more superior worth proposition for purchasers”.
Nash additionally mentioned that UMG’s “analysis means that [it] may very well be within the vary of 10% to 20% of the subscriber base [that] may very well be the goal marketplace for a higher-value, higher-priced subscription tier.”
Commenting additional on the superfan alternative, Sir Lucian Grainge added: “The DNA of the corporate is product, product, product. Artists, expertise rights. That’s the place our funding is, in rights and merchandise that may speed up what our analysis is with the DSPs as companions.
“We all know that we may higher monetize higher-value clients, the analysis means that 1 in 5 paid music subscribers can be prepared to pay for a premium tier. That’s engaging.”
Goldman Sachs, in its newest Music within the Air Report, printed simply final week, highlighted the position that so-called ‘tremendous premium’ plans will play within the monetization of superfans in 2024 and past.
In keeping with the report: “We’d anticipate the business (report labels, artist managers, DSPs) to work on this chance, experiment and roll out both new superfan apps or new tremendous premium tiers on current streaming providers over the following 12-24 months”.
Goldman Sachs forecast that super-premium plans is perhaps rolled out in “future rounds of value will increase” which it added “could take the type of headline value will increase throughout all plans or extra nuanced product or feature-led value will increase (e.g. charging for audiobooks or Hello-Fi audio, or the launch of latest tremendous premium plans catering to superfans)”.
2. UMG nonetheless sees the complete social media class ‘as a piece in progress’.
As we famous within the introduction to this text, Common Music Group’s management crew was tremendous constructive concerning the firm’s new cope with TikTok.
A key query on the lips of analysts, nonetheless, was, how a lot better is the deal financially for UMG?
In response to Financial institution of America’s Adrien de Saint Hilaire, who wished to know concerning the monetary “upside” to the brand new deal vs the previous one, Michael Nash, UMG’s Government Vice President and Chief Digital Officer, confirmed: “On compensation particularly, income beneath this new deal does mark an enchancment from our final deal”.
He stopped wanting offering financial specifics, nonetheless, including that “there are, in fact, different facets, the financial worth of any deal that don’t essentially present up within the income line, together with issues like e-commerce, advert credit, information, advertising packages, different essential aspects of the platform relationship that we have now with TikTok”.
Nash additionally highlighted “the strategic significance” of TikTok’s dedication to accountable AI, which kinds a key a part of the deal.
Commenting additional on UMG’s new relationship with TikTok within the context of the broader social media class, Nash defined that UMG sees “all” its “partnerships as a piece in progress” and that, in actual fact, the corporate nonetheless sees “the complete social media class as a piece in progress”.
He defined: “[Social media] stays a comparatively new monetization class”.
He famous that the deal UMG did with then-Fb in 2017 “was the primary time that social platforms have been paying for using music”.
Added Nash: “We’re nonetheless at a degree proper now the place we have to give attention to persevering with our efforts throughout the sector to maximise artist and songwriter participation within the worth that they’re creating on these platforms. So this is a vital step ahead. It’s a journey right here. We’re considering long-term.”
3. Sir Lucian Grainge says that TikTok’s CEO ‘must be given credit score for his management’ across the renegotiation of UMg’s TikTok deal…
Agreeing with Nash’s feedback about the advantages of the TikTok deal for UMG and the expansion of the broader social class, the corporate’s Chairman and CEO Sir Lucian Grainge informed analysts that “every little thing in our DNA is about long-term conduct and long-term progress”.
He added: “What we’ve achieved with respect to accountable AI and our place and what we’ve been in a position to agree with [TikTok] on [attribution] and stream manipulation has actually, I feel, advantaged the complete social program”.
Sir Lucian Grainge additionally made particular point out of Shou Chew, the CEO of TikTok, telling analysts that the exec “must be given credit score for his management [around the negotiation of the deal] and grabbing this with me, with us, by way of what the alternatives and the chances are for each corporations in addition to clearly all of the writers and the artists”.
If we zoom out for a second, we should always observe that UMG and TikTok have agreed a brand new deal in opposition to a backdrop of the ByteDance app’s continued political scrutiny on the planet’s largest recorded music, the US.
TikTok, as we’ve reported in current weeks, is beneath hearth from lawmakers within the US, the place President Joe Biden lately signed into regulation a invoice that requires TikTok’s China-headquartered proprietor to divest the app’s enterprise within the US, or face a ban available in the market, the place it counts round 170 million customers.
The corporate has simply at this time (Might 7) sued the US authorities over the regulation.
A shout-out from the top of a Los Angeles-headquartered music large that noticed 51.1% of its complete recorded music turnover in 2023 (EUR €8.46bn/USD $9.16bn) happen within the US and Canada shouldn’t be a foul search for TikTok’s CEO.
4. A few of UMG’s partnerships “could start as lower-margin offers” however they’ve “nice potential”…
In Sir Lucian Grainge’s ready remarks at the beginning of the decision, he highlighted the “strategic and monetary significance” of UMG’s partnerships with “rising and established music corporations and entrepreneurs”.
Grainge defined that “these relationships can be found to us as a result of we’ve designed and constructed UMG in order that we’re in a position to leverage our scale and international infrastructure to offer third events with a variety of distribution, advertising, promotion and different providers”.
He defined additional that “whereas these relationships could start as lower-margin offers”, UMG views them “as having nice potential”.
That’s as a result of “the connections” UMG makes with what he says are a few of “essentially the most thrilling entrepreneurs and artists” within the enterprise, “usually, over time, broaden right into a broader suite of providers in addition to develop into alternatives for multifaceted partnerships”.
These partnerships, in return, “end in higher strategic advantages and better margins” he mentioned. A key instance cited by Grainge is UMG’s long-term relationship with South Korean-headquartered leisure large HYBE.
In 2017, UMG teamed up with HYBE in South Korea on a label providers settlement for its flagship group BTS.
Grainge added that “4 profitable years later in 2021, the corporate has expanded the connection with a world strategic settlement offering for collaborations throughout a lot of artists and initiatives.”
Final 12 months, as Grainge famous on the decision final week, Common’s Geffen Information and HYBE inked JV to final 12 months to launch The Debut: Dream Academy “geared toward implementing HYBE’S Ok-Pop methodology to launch a brand new group within the US”.
UMG additionally entered into a brand new partnership with HYBE in Q1. The deal offers UMG with unique distribution rights for HYBE’s music for the following 10 years and also will see UMG put money into – and additional collaborate with – HYBE’s international superfan platform, Weverse. (Sources informed MBW on the time that UMG made a minority funding in Weverse as a part of the brand new partnership.)Music Enterprise Worldwide
