Robert Kyncl talks Spotify deal, Warner Music’s distribution strategy at Morgan Stanley event

Yesterday (March 8), Robert Kyncl gave one of his most energized interviews yet…even if the timing was a little odd.

Kyncl took the stage at the annual Morgan Stanley TMT conference in San Francisco, just as his rival, Sir Lucian Grainge, was announcing UMG’s much anticipated FY 2024 earnings. MBW listened in.

The Warner Music Group boss came with a message – building a case for how he is differentiating WMG in a fiercely competitive market.

“I don’t worry about what the others are doing,” he said. “I’m focused on how we can deliver the best for artists and songwriters, and for shareholders.”

Warner’s latest earnings were decidedly mixed, but investors responded positively. Afterwards WMG’s share price tickled its 52 week high, propelled by crucial new contracts with Spotify and Amazon, plus the acquisition of Tempo Music (valued at north of $450 million).

Talking to Morgan Stanley’s Ben Swinburne yesterday, Kyncl expanded on what he achieved with those deals, and laid out how he’s combining Warner’s A&R chops with sustained tech investment in an attempt to sharpen his competitive edge.

Here are four of the biggest takeaways from the discussion…

1. WMG’s latest DSP pacts gives it “certainty” on price increases

In recent months, Universal Music Group first announced new licensing deals with Amazon and Spotify; WMG quickly followed suit. As you’d expect, all parties tout these deals as “win-wins”.

Yesterday, Kyncl was at pains to emphasize that WMG is “aligned” with its partners: “It’s really important to approach it collaboratively and build for the future together… you have to understand what’s important to both sides.”

But what exactly does that entail? Making sure Spotify can’t do bundling shenanigans and cut out the music companies?

It sounds like yes.

“We’re very happy about the certainties that we got [on price increases]. And then we’ve moved the ball meaningfully forward on a whole bunch of other items,” said Kyncl.

“We’re very happy about the certainties that we got [on price increases]. And then we’ve moved the ball meaningfully forward on a whole bunch of other items.”

Robert Kyncl on WMG’s new Spotify deal

He predicted “a lot more price innovation” in music streaming is coming, something which he said “obviously hasn’t been there for the previous 15 years”.

According to Kyncl, that means both higher prices such as Spotify’s much-discussed ‘Music Pro’ tier, as well as lower prices, like YouTube’s new Premium Lite tier, which was unveiled this week.

When pushed on whether Warner’s new Spotify deal cleaned up the music publishing (mechanical royalties) bundling issue, Kyncl – no doubt being careful to abide by NDAs – was coy. Yet to our ears, his message was obvious: “We are very strong supporters and defenders of songwriters and all the associated rights, and we’re very happy with our deal.”

Interestingly, Kyncl said the prospect of future streaming price increases represented only 25% of Warner’s confidence about its long-term growth. The continued boom in streaming’s volume/reach, he said, makes up the other 75%.

Kyncl opined that music streaming services were “still pretty significantly under-penetrated from a subscription standpoint relative to subscription video-on-demand [like Netflix etc.], even less so versus the television.

“There’s a lot of room to grow in all markets; even in the mature markets we’re still under-penetrated versus [video-on-demand platforms].”

2. Kyncl believes Team WMG’s secret sauce is “institutional knowledge” combined with “new blood”

All music company CEOs excitedly name-drop their artists. So it’s no surprise that Kyncl mentioned everyone from Ed Sheeran to Lizzo, Linkin Park to Bruno Mars in his JPMorgan discussion. But he also went out of his way to give his creative execs credit.

He pointed out the initial success of Atlantic Music Group CEO, Elliot Grainge. He hailed Warner’s new Japanese CEO, Takeshi Okada (pictured inset), as a “local superstar”, and praised Alejandro Duque who “runs our Latin American business…he 1741368740 reports to me, whereas before he was two layers down”.

Kyncl argued that Warner’s “cradle to superstardom” A&R capabilities are an “underappreciated” part of the Warner story.

“Even last year, Benson Boone and Teddy Swims [showed artist development] is in the DNA of our company,” he stated.

Kyncl also highlighted his commercial team, including Chief Digital Officer Carletta Higgson, who Kyncl brought over from YouTube, plus Chief Corporate Development Officer, Michael Ryan Southern, who was hired “from Goldman Sachs to help acquire more IP – the Tempo acquisition was a great example of that”.

Said Kyncl: “Change management is hard and doing it while you’re [publicly traded] is hard, but I’m really excited about the team. It’s a combination of having institutional knowledge and a whole bunch of new blood… mixing it all together and having safe space to basically argue it all out and move the ball forward… not following others, charting our own path.‘

3. Kyncl sees restructuring and technology as ways to strengthen WMG’s “value proposition to artists” while “driving efficiency”

Kyncl talked about how WMG has fixed its “core infrastructure, like our digital supply chain, and lots of effectively boring things that you will never hear about, but they’re absolutely necessary to drive the business, drive it efficiently, and give ourselves optionality for scaling.”

And he admitted the company is in its next phase, “the build phase”, with “tools that strengthen [its] value proposition with artists and songwriters”.

At the same, he’s clearly thinking about the right balance between global reach and local expertise.

“Our organizational structure needs to be [local] to a certain extent, but it is also less nimble than it could be. So there’s a lot of work that we’ve been doing on that front to change that.”

“Across the industry overall…today the majority of our revenue is derived from global sources, from digital service providers, but our organizational structure is much more local,” he said.

“It needs to be [local] to a certain extent, but it is [also] less nimble than it could be. So there’s a lot of work that we’ve been doing on that front to change that.”

What does all this add up to?

WMG is making “significant changes while expanding market share at the same time.”

4. WMG’s distribution strategy is “full force ahead” but “not at all costs”

Whether you call it “distribution” or not, it’s a major growing force in the modern global marketplace: distie and services offerings for independent labels, artists, and entrepreneurs.

Warner Music Group’s in-house platform is ADA, a direct rival to the likes of The Orchard and Universal’s Virgin Music Group.

Notably, Kyncl and BMG previously agreed to end a long-running distribution deal through ADA. (BMG now distributes to Spotify and YouTube direct, while its physical releases go via Universal.)

Meanwhile, Warner took a long, hard look at acquiring Believe last year, but ultimately walked away from a potential USD $1.8 billion takeover of the French company.

“I’ve looked at all distribution companies over the last 18 months, just being a responsible steward…and what I can tell you is that we’re not willing to grow [the market share of this area of the business] at all costs.”

Kyncl has previously told MBW that he is determined to avoid “empty calories” distribution agreements with partners – a reference to thin margin deals that, as the adage goes, flatter the ‘vanity’ metric of topline revenues but add little to the ‘sanity’ metric of bottom-line profits.

Speaking yesterday, Kyncl said: “I’ve looked at all distribution companies over the last 18 months, just being a responsible steward…and what I can tell you is that we’re not willing to grow [the market share of this area of the business] at all costs.

“We have investment criteria that are important to us. Expanding our margin is important to us. That doesn’t mean that distribution isn’t important to us; it just comes with specific investment parameters, and we also are in a unique position.”

Kyncl teased that Warner’s “incredible technology team” has, for the past year, been “building features” that would augment WMG’s distribution offering to independent partners.

He said the build of these features has “a little bit more to go” before launch, noting that a ‘build vs. buy’ strategy would “forego market share jump[s] and those kinds of things in the short term.”

However, he argued that by investing in building new tech solutions internally, Warner can “get to the same outcome much more efficiently – [although] it takes a little bit longer”.

That said, Kyncl noted that Warner had accomplished substantial acquisitions in the distribution space in recent years, citing the examples of Africori in Africa and Qanawat in MENA.

He added that significant distribution partnerships with indies, including a recent tie-up with Three Six Zero’s record company, showed it was “full force ahead” for ADA.Music Business Worldwide