UMG shareholder Pershing Square doesn’t think AI poses a threat to the industry since most AI-generated music ‘will likely never be heard.’
Pershing Square, the New York City-based hedge fund management company headed by billionaire investor Bill Ackman and owner of about 10% of Universal Music Group (UMG) shares, released a half-year fiscal update letter to shareholders last week. The company remains bullish on UMG and sees AI as an opportunity for growth on which the music rightsholder giant is already capitalizing.
“UMG’s business progress, as evidenced by its first half results, and the articulation of the company’s AI strategy, on both an offensive and defensive basis, has largely put (AI-related) concerns to rest,” writes Pershing. “We believe that investor concerns about AI displacing major labels and artists are misplaced. Rather, we believe that AI represents a significant opportunity for the company.”
Despite losses in H1 2023 (the six months ending in June), UMG’s stock regained its share price of around €23 by mid-August after dropping to approximately €18 per share. That lines up with Ackman’s assertion last year that UMG has the potential to grow revenue by at least 10% each year for the next ten years, an assessment that Pershing Square hasn’t updated since but on which UMG has all but delivered.
Pershing Square argues that AI is a positive force for UMG and the industry as a whole, that despite the sudden boom in AI content — which contributes to approximately 120,000 new audio tracks uploaded to DSPs each day — UMG’s market share has stood firm at around 30%.
“While excitement around AI will increase the proliferation of content even further, we believe that this long tail of AI-generated content will likely never be heard and will not displace legitimate artists’ work,” reads the letter to shareholders.
“In the handful of instances where unsanctioned AI-generated songs imitating well-known existing artists have achieved virality, they have been promptly removed by DSPs to protect artists’ rights,” the letter continues before adding that any DSPs’ failure to act on unsanctioned AI-generated tracks represents “opportunities for artists and their labels for compensation.”
The need to protect artists from unlicensed or unwanted use of AI that could compromise their public image is part of what Pershing Square calls the “defensive” aspect of UMG’s strategy. Meanwhile, the “offensive” aspect is evidenced in deals the rightsholder has secured with AI developers.
“UMG’s partnership with Endel and HYBE’s recent release of a track in multiple languages provide a framework for how the company can monetize AI-assisted music,” reads the letter, referencing HYBE artist MIDNATT’s release featuring “the first-ever multilingual track produced in Korean, English, Japanese, Chinese, Spanish, and Vietnamese,” and a first-of-its-kind deal that UMG struck in May with AI-startup Endel.
UMG has also entered into a new agreement with YouTube to jointly develop AI tools offering “safe, responsible, and profitable” opportunities to music rights holders, featuring a new “Music AI Incubator” at YouTube.