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Generative AI Poised to Transform the Music Industry, Says Goldman Sachs
Generative AI Bringing Significant Opportunities
Goldman Sachs predicts that the music industry will undergo a radical shift, thanks to generative artificial intelligence (AI). In a note released on June 28, the investment bank described this technology as providing "significant opportunities" for the sector. It identified five buy-rated stocks, including Live Nation, Warner Music Group, Believe, NetEase, and Universal Music Group, as key players in this trend. According to Goldman analysts, generative AI will supercharge music creation capabilities and enhance productivity. They also dismissed concerns over AI-generated music, stating that they are "overstated."
AI for Detection and Protection
Companies like Deezer and Believe are already employing AI to detect when a music track has been created using AI technology. Publishers are also collaborating with streaming platforms like Spotify to take down artificially generated tracks. This highlights the music industry's ability to protect its intellectual property, as it is dominated by three major corporations that own the majority of artists' catalogs.
A New Era of Music Monetization
Goldman Sachs believes that the music industry is on the verge of another major structural change due to persistent under-monetization of music content, outdated streaming royalty structures, and the deployment of generative AI. Although streaming has made it easier for people to access music, revenue has not kept pace with consumption. For instance, the bank estimates that the revenue per audio stream has declined by 20% in the past five years. Furthermore, the revenue per hour streamed for Spotify is four times lower than that of Netflix.
Key Stocks to Watch
Goldman Sachs recommends Live Nation, as it anticipates that artists will tour more frequently due to the globalization of music. The bank also expects the younger generation's increased awareness of performers through social media to boost the industry. Additionally, Believe is poised to gain market share, particularly in fast-growing emerging markets across Asia. Warner Music Group is regarded as one of the highest quality long-term growth compounders with a clear track record of breaking artists. Universal Music Group possesses several competitive advantages, including scale, a diverse catalog, and an experienced management team. Lastly, Chinese internet company NetEase stands out for its use of AI in its music composition tools.
Conclusion: The Future of Music Business Lies in Harnessing Generative AI
Generative artificial intelligence (AI) is poised to revolutionize the music industry, according to Goldman Sachs. This technology brings forth significant opportunities, enhancing music creation capabilities and productivity. While concerns over AI-generated music are dismissed as overstated, the industry is taking proactive steps to detect and protect against unauthorized AI tracks.
This paradigm shift in the music industry is not only driven by the potential of generative AI but also by the need for a new era of music monetization. Despite the ease of streaming, the sector has struggled with under-monetization and outdated royalty structures. With the deployment of generative AI, the industry is set to overcome these challenges and unlock new revenue streams.
For aspiring entrepreneurs entering the music business, understanding the impact of generative AI is crucial. This technology offers immense potential for new market entrants, allowing them to capitalize on the changing industry landscape. By leveraging generative AI tools, businesses can enhance music production, stay ahead of piracy threats, and develop innovative monetization strategies.
As highlighted by Goldman Sachs, several key players, including Live Nation, Warner Music Group, Believe, NetEase, and Universal Music Group, stand out as leaders in this transformative trend. These companies are poised to exploit the opportunities presented by generative AI and shape the future of the music business.
In conclusion, generative AI holds immense promise for the music industry, offering new avenues for revenue generation and creative expression. Entrepreneurs who harness this technology effectively are likely to enjoy a competitive edge in the evolving music landscape. As the industry harnesses the power of generative AI, exciting prospects await those who are ready to innovate and capitalize on this groundbreaking trend.
Article First Published at: https://www.cnbc.com/2023/07/05/goldman-sachs-entertainment-and-music-shares-to-buy-to-play-ai-trend.html.svg)
