Analyst that double-downgraded Universal Music Group over AI, streaming concerns earlier this year just upgraded firm’s stock

BNP Paribas Exane has been one of many closest observers of Universal Music Group within the monetary analyst group for years – protecting UMG’s streaming development story over the previous half-decade, and its extraction from Vivendi possession into changing into a publicly-traded firm in 2021.

BNP PE’s Managing Director of Media & Web, William Packer, was largely bullish on UMG at some stage in that story. However in April this 12 months, Packer’s view of Common’s future took a flip for the bitter.

In a analysis word at the moment, Packer wrote of what he noticed as important vulnerabilities for UMG – together with a menace from generative AI, with machines doubtlessly creating lots of music every day that might then be uploaded to music streaming providers.

London-based Packer known as into query what this might imply for UMG’s market share on streaming platforms, whereas additionally elevating issues over TikTok’s potential contribution to business development, amongst different observations.

On AI particularly, he urged {that a} “a glass half full business narrative is holding… for now”.

Because of this, BNP Paribas Exane double-downgraded UMG’s inventory in April, with Packer decreasing his share value goal for the corporate from EUR €25 to EUR €19.

Since Packer’s word in April, after all, quite a few important occasions have taken place involving, or impacting, UMG. Examples:

• UMG and Deezer co-announced a brand new ‘artist-centric’ streaming royalty mannequin on the latter’s platform final month, designed to spice up the earnings potential of well-liked music – and cut back the business energy of each non-music “noise” and of so-called “purposeful music”. That royalty mannequin is rolling out in France on Deezer for UMG artists this month (October) and can attain different components of the world within the months forward.
• Common Music Group additionally announced a partnership with YouTube in August that may see each corporations co-develop generative AI music instruments that “supply “secure, accountable and worthwhile” alternatives to music rightsholders. (Associated: a brand new Bloomberg report now means that YouTube is eager to launch a licensed AI music platform that enables customers to replicate the vocal tones of famous person artists – with out infringing copyright.)
• TikTok has launched its TikTok Music service in a number of territories, and inked what has been billed as a landmark licensing settlement with UMG rival Warner Music Group;
• Spotify has raised its prices globally, whereas Deezer not too long ago increased its prices for the second time in 12 months;
• UMG’s inventory value has soared to its highest level in practically two years. As this story is printed, UMG’s share value sits at EUR €24.65.

Referencing a number of the above and different components, William Packer and BNP Paribas Exane have right this moment (October 19) upgraded UMG’s inventory to “impartial” from their earlier place of “underperform”.

With reference to AI, Packer writes in a brand new analysis word: “Within the coming months, we count on UK and EU to codify beneficial LLM coaching information copyright protections. UMG’s whirring communications machine has been energetic and we’ve got been positively stunned by DSPs’ cooperation and lengthy tail content material homeowners’ solidarity with majors.”

The analyst has additionally been impressed with the roll-out of “artist-centric” with Deezer.

“UMG stunned the market with the speedy rollout of a brand new ‘artist centric’ mannequin in cooperation with Deezer which advantages majors,” Packer writes. “Whereas we don’t see the brand new mannequin as a panacea to [long-term] market share loss headwinds, we predict it improves the narrative and de-risks [generative] AI music considerably.

“Whereas we count on Spotify to observe, ‘onboarding’ the opposite DSPs will take time. Long term, we see scope for an business ‘win/win’ ‘grand discount’, the place labels can profit from additional pricing and improved share in return for improved royalty economics for DSPs the place margin construction stays a problem.”

Packer cites a Monetary Instances article that not too long ago urged UMG was making it a situation of its new licensing take care of Spotify that SPOT considers adoption of an ‘artist-centric’ royalty mannequin.

Nonetheless, the analyst reiterates that he doesn’t see “artist-centric” as a “panacea” to the general market share lack of main document corporations on streaming providers.

Packer notes that he expects UMG and TikTok to signal and announce a brand new licensing deal within the subsequent six months.

Elsewhere, analysts that at the moment charge UMG’s inventory as a ‘Purchase’ right this moment embody the likes of Richard Eary at UBS, Daniel Kerven at JP Morgan, Michael Morris at Guggenheim, Lisa Yang at Goldman Sachs, and Ed Younger from Morgan Stanley.Music Enterprise Worldwide