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Warner Music or how ‘streaming’ has saved record companies | Business

Yes, as the song Video Killed the Radio Star said, the video killed the radio star. At the dawn of the new millennium, digital disruption did the same to the recorded music industry. The emergence of Napster in 1999 and the proliferation of file sharing drove the drop in revenue for three decades, in which the sector almost halved its size. In 2015, the streaming came to the rescue of an industry in transformation. Warner Music, one of the three largest labels, seeks to lead this new wave marked, among other aspects, by high competition. His latest step in this direction has been the opening of The Music Station, a hub creative, in Madrid.

“We want to turn this venue into a culturally unique complex,” says Guillermo González, president of Warner Music Iberia, sitting in one of its rooms. Its origin dates back to 2015, when they joined the project to transform the head of the old North Station, in Madrid, into a theater. At that moment, González noticed the side towers and thought that they would be a good place to move to. With the arrival of the pandemic, this possibility gained strength due to the departure of the companies that had decided to settle in them.

The Music Station has space for co-working for employees, recording studios, composition rooms, rehearsal rooms and a set, among other spaces that are managed through a mobile application and available at any time. In addition to the theater and offices, it will also house a nightclub, a restaurant, a shop and a museum.

From a strategic perspective, González says, the hub aspires to become an access point and place of collaboration for artists, in a context in which production in Spanish is already looking at the Anglo-Saxon production face to face and in which musicians from emerging markets are stomping. “This site, and my colleagues have told me this, is like the gateway to a lot of cultures,” says the manager. “I think it’s going to give Spain and Madrid an international place, as far as music is concerned, which we didn’t have”.

Guillermo González, president of Warner Iberia, at the company's new 'hub': The Music Station.  Jaime Villanueva
Guillermo González, president of Warner Iberia, at the company’s new ‘hub’: The Music Station. Jaime Villanueva

For the company, this commitment means assuming a pioneering position and, in some way, González comments, leading the transformation of the sector, which has changed the role of these companies. “We are not a record label anymore, we are a music company. A record company, as the word says, released records. Now our role is much broader.”

He knows in depth all the sides of the coin.

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In 2021, the sector’s revenue exceeded that of 1999 for the first time since then, reaching 25.9 billion dollars (24.205 million euros), 18.5% more than in 2020, according to the latest report by the International Federation of Phonographic Industry (IFPI). 65% comes from streaming, 24.3% more than the previous year. “The music industry is multifaceted now,” says the company’s president of International, Simon Robson, by video call. “But yes, streaming is the significant growth opportunity right now.”

Simon Robson, Chairman of Warner Music.
Simon Robson, Chairman of Warner Music.

In the accounts of Warner, which went public in 2020 (its capitalization is 15.3 billion dollars), streaming accounts for around 56% of revenues, which reached 5.301 million dollars in 2021, 19% more. The company, which has best-selling names such as Ed Sheeran or Dua Lipa in its catalog, recorded an operating result of 1,090 million and profits of 307 million, recovering from losses of more than 400 million the previous year.

Music no longer needs a physical support and the mobile has become one of the preferred devices for playing it, which has made it easier for consumers to access it and broadened its reach in both mature and emerging markets. North Africa and the Middle East, for example, is the region that has experienced the greatest growth compared to last year, 35% more —with streaming revenues accounting for 95% of the total—, followed by Latin America, with 31.2%, according to IFPI.

“The most exciting thing from a recorded music perspective is that it’s becoming a truly global market and that means it’s opening up to a lot more artists and interesting sounds,” says Robson. Consumers are increasingly listening to local artists, and at the same time, their music can reach anywhere from the get-go. The executive assures that one of his specific focuses is to try to launch non-Anglo-Saxon hits around the world: “It is one of my priorities.”

Innovation across lines of business is critical to maintaining momentum. “I would like to think that Warner is really at the forefront of looking for opportunities,” Robson says of this. The company, for example, works with Peloton, the bike training platform, and Roblox, dedicated to online gaming. They have also closed agreements with TikTok and Facebook and have recently looked into the phenomenon of NFTs (non-fungible tokens) with Web3, among other bets.

Streaming has been the industry’s life jacket, but it also brought new challenges for labels. “It’s a very exciting time to be in the industry, but also a very demanding one,” says Robson. The sector is very competitive. There’s more music — around 60,000 new songs are uploaded a day on one of the existing platforms — so it’s harder for artists to get noticed. On the other hand, they have more options and platforms to choose from for their career and can also be more independent. In this context, Warner has several strengths, such as its ability to reach consumers, open other lines of monetization and lead artists to global success.

The importance of the new business model in the recovery of the sector is evident, but it has sparked criticism for the way in which the profits are distributed. For example, the British Parliament published last year, after an investigation, that between 30% and 34% of streaming income in the United Kingdom ended up in the hands of the platforms and 55% in those of the record companies. “It’s very rare to have something that’s perfect,” says Robson when asked about the criticism of the system, “but I think the benefits outweigh the negatives, because more and more artists have been able to make a living from music, and especially beyond the UK, US and Europe.

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