AI Wagers from Music Giants Don’t Hit the Appropriate Notes

The world anticipates an equally outstanding follow-up from a musician after they have released one successful album. A variant of the dilemma is currently facing large labels like Universal Music Group (UMG.AS) and Spotify (SPOT.N).

Years of expansion have been fueled by the growth of streaming: at the end of June, Spotify had 300 million paying subscribers. However, as the business develops, the industry is focusing on charging listeners more for new AI-based capabilities instead of hiring them.

Investors at Spotify appear to have little cause for concern. Revenue for the three months ending in June was €4.8 billion, a 14% increase over the previous year. However, its recommendations suggest a slowing in new consumers.

Compared to 7 million in the second quarter, the group anticipates adding about 5 million paying customers in the third.

In other areas, the labels are facing pressure to negotiate stronger license agreements with their streaming partners. With acquisitions excluded, UMG’s recorded music subscription revenue, which is a measure of royalties from paid streaming subscriptions, increased 6.7% year over year in constant currency during the second quarter. That is below market estimates and down from 7.9% in the previous quarter. That announcement caused its shares to drop more than 25%.

AI is one potential remedy, as demonstrated by Spotify’s outcomes. This year, the Swedish group intends to spend €200 million on the technology and a corresponding marketing campaign. It inked a contract with UMG in May that will allow fans to produce AI-generated remixes and covers of songs by participating artists, who will receive a portion of the sales.

The goal of the deal is to provide a legal substitute for AI music producers such as Suno and Udio, which some claim used copyrighted music to train their models. It is therefore anticipated that Spotify will be able to raise user fees and transfer some of these profits to its label partners.