‘Music Isn’t a Commodity’: Warner Music CEO Stephen Cooper on That Streaming Milestone, the ‘Value Grab’
Billboard caught up with CEO Stephen Cooper for an indepth chat on the group's digital strategy, the shape of its global business and the commoditization of music.
Last week, Warner Music Group became the first major label to announce streaming as its primary revenue source, a major milestone and an oasis in the shifting sands of the digital media economy and the recording industry in particular.
On the news, Billboard wanted to survey someone at the company about this mile marker — and who better than CEO Stephen Cooper.
How important are playlists? What’s that strategy look like?
In the past it was about radio play, weekly charts and sales — now it’s a minute-by-minute battle for people’s time and attention. So playlisting is one of the big reasons why artists need record labels today. What sets the companies apart here is how well they are organized and how strong the work ethic is. It’s not sexy, but it’s what gives us our edge. You have to react quickly when a song starts to break, you have to have the relationships with the services, and put energy into understanding fan behavior. Every track needs a story around it.
We’ve worked hard at making sure everyone around the world is up to speed, and I have to take my hat off to WEA. It’s never been a consumer-facing brand, but it’s one of the strongest with music retailers and digital services. One of the first things we did when I got to WMG was globalize WEA. By that I mean taking their expertise and using it to connect every team around the world. You could say WEA is our secret weapon.
It’s cliché but you can have the best playlisting team in the world but, if the music’s no good, then you’re screwed. We had more singles in 2015’s Global Top Ten than any other music company, so we’re doing just fine. But this is not just about new releases, it’s about catalog too. Playlisting is an amazing tool for discovering or rediscovering classic records. We have some new things cooking here and you’ll hear about them soon.
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Can you outline Warner’s global strategy and China’s importance to it? You held this quarter’s earnings call from Beijing.
It was a happy coincidence that I was in Beijing for the call, but I liked the symbolism of it. Our revenue in Asia was up 17%, versus 13 percent overall, and China was a factor in that. We bought Gold Typhoon and were the first music company to do the deal with Tencent and we’re now vying for number one in market share there. It’s traditionally a country that skews heavily towards local repertoire, but it’s been cool to see artists like Christopher, who is huge in Denmark, go over to China and play the QQ Awards to thousands upon thousands of screaming fans. While it’s largely about the long-term opportunity, I think the future is closer than some people think and we’re ready.
Our strategy is simple, if you’re hot locally, then you are more powerful globally, and vice versa. This isn’t just about emerging markets like China — we’ve also been investing in developed countries where we are already strong. Parlophone Label Group really boosted us in Europe, and we bought Gala in Russia, Polskie Nagrania in Poland and bought out Gallo in South Africa. The impetus for this comes direct from Len and Access. One of the best things about our ownership structure is that we can take a calculated bet on what the industry will be like in ten years’ time and look to get in early.
I think Robin Schulz is a perfect example of our global strategy at work. We made the conscious decision to beef up our A&R spend in Germany and our German CEO, Bernd Dopp, did a deal with a management company there called WePlay. Robin came out of that and he’s had five massive global hits. He’s a huge streaming artist and it’s made him the biggest German export in decades. We’re on the verge of a much flatter world where stars are born out of almost any country.
How has opting out of Vevo affected the company’s digital footprint?
I can’t claim credit for the genesis of our video strategy, that was born during Edgar Bronfman Jr.’s time as CEO. We’ve been free to focus on building up our artists, rather than on creating a standalone brand.
We’ve been free to try out different partners. We were first to try Vessel, Snapchat, Interlude and others. That experimentation feeds into what I said about streaming and sharing knowledge throughout the company. So our WMG branded channel on Discover wasn’t a long term proposition but we have an ongoing relationship with Snapchat and probably know more about what works on that service than any other label. I’m looking forward to seeing what we learn from our new board member Ynon Kreiz, who has some great experience in video programming.
All that said, I think Erik Huggers is a really smart and determined guy. I can’t comment any further than that.
Can you dig in a little bit to the campaign against YouTube and the “value gap”?
I used “value gap” because it was the first term that was coined to sum up the debate. Thankfully, European policy makers led on this issue, and that disparity between what some services are making and what gets passed on to artists and rights holders seems to be really resonating in Brussels. I actually prefer “value grab.” It speaks more directly to the situation and what is going on.
The problem is that services like YouTube are on-demand, just like the paid ones. The key distinction is that unlike subscription services, these guys are taking advantage of “safe harbors” to negotiate licenses. It’s a fundamental market distortion that skews competition. Multi-billion-dollar businesses have been built on the back of music. They are taking music for granted and treating it like a commodity.
I’ve been at WMG for five years now and I’ve never seen the entire music community come together with such solidarity. There were other instances like the defeat of IRFA in the U.S., but this time it’s global and much more passionate. Artists like Nelly Furtado, Debbie Harry and Cee Lo are brave for stepping up early. The trade bodies came out at Canadian Music Week last week, I mentioned it on our call, and Irving wrote about it, all in the space of a week. People are angry and this is just the beginning.
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Is it not labels’ prerogative to treat music as a commodity? Isn’t that… your job?
Music isn’t a commodity. It’s not something that fills pipes. Songs by Led Zeppelin or Andra Day are unique works of art. Irreplaceable moments in culture, where only the real thing will do. Our industry is made up of two words. Music. Business. I’m good enough at the business side that I see it as my job to create an environment where the creatives can work their magic and the music can flourish.
What’s the near-future of the streaming business? Is freemium doomed?
Well, I wasn’t trying to be provocative when I said that freemium shouldn’t be burned at the stake. I think I was clear that the primary reason we support freemium is as a conversion tool. Only by moving fans from ad-supported to paid will we have a sustainable model for the industry. And we’ve already seen victims such as Mix Radio or Rdio, who were unable to build a business in this environment. In any case, the debate has moved on from freemium. These days all anyone seems to be talking about is exclusives. A week-long exclusive can be a good thing, but I’d say as a general rule you’re better off offering fans the music everywhere at the same time.
Whether we are talking about freemium or whatever, it’s not as crucial as that fundamental point about the value of music. I hate to reduce it to this, but an on-demand stream is an on-demand stream. It is one fan enjoying a song, when and where they want to. To me, any business model, format or service is cool, as long as they fairly compensate artists, songwriters, publishers and labels. The music business is wonderfully complex, but this issue is really simple.
So why then, despite the relatively impressive scale that Spotify has been able to reach, has it never generated a profit? This op-ed from VC David Pakman was particularly harsh on labels’ approach to licensing and rates.
So why then, despite the relatively impressive scale that Spotify has been able to reach, has it never generated a profit? This op-ed from VC David Pakman was particularly harsh on labels’ approach to licensing and rates.
I wouldn’t want Spotify commenting on our financials so I’m not going to comment on theirs. Spotify are masters of their own destiny. It’s a great service with explosive growth and they have this massive valuation. Look, we try to strike a balance. Competition among the digital services is a healthy thing. It accelerates innovation and encourages them to advertise more. But we don’t intend to let music underwrite the value that these companies are creating for themselves or the VCs that back them, who are in it for one thing, to make massive returns.
All of these services chart their own course, they set their own strategy and business model and pick their own price point. Despite inflation and other factors, prices haven’t changed for a decade or more and that’s unusual for any industry. The music companies and the artists don’t set the end price, the services do. And we aren’t going to devalue music because of someone else’s business model.
At the end of the day whether you are a massive tech or a pure play music company, music is fundamental to your business. Some players are ultimately more reasonable than others, but every negotiation is tough on both sides. That’s the way it should be and it’s what our artists and songwriters expect from us.