LIVE MARKETS-Can the music industry keep up with AI's fast tempo?

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CAN THE MUSIC INDUSTRY KEEP UP WITH AI'S FAST TEMPO?

Artificial intelligence is creating both threats and opportunities for the world's largest music labels, according to Barclays, with Universal Music Group UMG.AS, Warner Music Group WMG.O, and Sony Music Group 6758.T set to face significant uncertainty as AI-generated music gains popularity.

Barclays analysts said usage revenues from social platforms and market share are at risk for Universal Music Group and Warner Music Group, as AI music quality rapidly improves and piracy becomes more sophisticated. "It's too early to be definitive so execution will be key as the status quo would be negative," Barclays analyst Julien Roch wrote.

Earlier this week, The Information reported that OpenAI is developing a music generation tool. Universal Music Group shares fell 2.4% on Monday.

Barclays expects AI music to erode the majors' market share, noting, "quality has vastly improved...(and) AI opens music creation to 300 million creators who previously lacked musical skills."

Barclays modeled three scenarios for Universal Music Group and Warner Music Group for 2028E EBITDA (earnings before interest, taxes, depreciation, and amortization). In the worst case, Universal Music Group's EBITDA could drop by 13% and Warner Music Group's by 18%. In the best case, EBITDA for both could rise by 17%.

That said, "EBITDA impact on Universal Music Group and Warner Music Group ranges from -15% (worst) to +15% (best)," Roch said.

Meanwhile, legal uncertainty persists, with Universal Music Group, Warner Music Group, and Sony Music Group suing AI companies for alleged copyright infringement. "We see licensing deals as the most likely way out of the current legal dilemma," Roch added.

(Akriti Shah)

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