News

Trending on Billboard

A few years into the debate about AI’s potential economic impact on music, the jury is still out.  

AI could be great for the music business, enabling new products and creating new revenue streams for artists and songwriters. Universal Music Group (UMG) has said as much. “We believe the commercial opportunity is potentially very significant,” chief digital officer Michael Nash said during the company’s earnings call on Thursday (Oct. 30), a day after it announced a licensing deal with AI music generator Udio. “These new products and services could constitute an important source of incremental additional new future revenue for artists and songwriters.” 

Related

Then again, AI could erode record labels and music publishers’ businesses by flooding the internet with inexpensively made music that takes some — not all — of their market share. Record labels have already lost market share to independent artists in recent years, and AI could be either a continuation or acceleration of existing trends.   

Two years ago, analysts at Barclays Research were dismissive of AI-generated music’s threat to the established music business. The general population might have access to music-making tools, but, Barclays reasoned, the quality of the music was poor, and songs created by faceless software housed on computer servers couldn’t create the human connection that listeners desire. Record labels and music publishers could be hurt if social platforms pushed AI music, but the money-saving tactic could run into legal roadblocks, they said. For all the initial hoopla about AI’s ability to upset the status quo, too many questions at the time remained unanswered.

Today, though, Barclays is singing a different tune, and advancements in AI platforms have answered some of their earlier questions. Now, the analysts are more convinced of AI music’s potential to erode record labels’ market share and weaken their financial standing. The quality of music has “improved significantly,” they wrote in a Tuesday (Oct. 28) report titled “AI in Music: Danger Zone,” adding that it’s “hard to differentiate between human music and AI music.” Fans still crave connections with human artists, they wrote, but as opposed to their earlier take, they conceded that AI music represents a threat to the music establishment.  

Related

In the Barclays analysts’ view, AI is a mixed bag of gains (such as AI-enabled superfan tiers) and losses (lower royalties from social media platforms’ adoption of cheap AI music). Overall, though, they believe the damage that AI can create will outweigh its benefits. Their bottom line: In an average scenario, UMG takes a 1% hit to earnings before interest, taxes, depreciation and amortization (EBITDA) and Warner Music Group’s EBITDA drops 4%. A worst-case scenario calls for deeper losses. A best-case scenario sees AI providing a boost.

Not everybody is in the Barclays camp, however. Despite advancements in the quality of music produced by AI platforms, analysts at J.P. Morgan are sticking with their opinion from 2023 that AI will not have “a meaningful impact on industry revenues.” Analysts wrote in a note to UMG investors on Monday (Oct. 27) that AI risks have been “negated” and “controlled” by the company’s efforts in recent years to get streaming platforms to prioritize and reward professional artists over mass-produced, low-quality recordings.   

Like Barclays, J.P. Morgan believes market erosion is a genuine threat to UMG’s market share. But J.P. Morgan analysts see much more upside in AI. (Notably, J.P. Morgan’s analysis was less thorough; unlike Barclays, it didn’t put a dollar value on AI’s potential impact.) They note that UMG will benefit from AI artists’ need for publishers and record labels (which jibes with Billboard’s assessment of Hallwood Media’s impact on Xania Monet’s on-demand streams). AI can also generate revenue streams from new licensing opportunities and make listening to music more enjoyable, they write.  

Related

The major labels and publishers haven’t signed or created AI artists yet, but if they do, J.P. Morgan believes they will benefit from economics that are superior to their deals with human artists and songwriters. It’s not a stretch: To capture some of the market share that has shifted to independent artists, UMG has invested heavily in artist services by building up Virgin Music Group and attempting to acquire Downtown Music Holdings (the European Commission will announce its decision on the proposed merger in February 2026). If AI artists are to compete in the marketplace, they will need the same services that are available to human artists, such as promotion, distribution, copyright administration and public relations.

One thing is certain: Because AI music is in its infancy, trying to figure out its long-term trajectory is difficult. When the music industry began navigating the shift from physical to digital in the late ‘90s, few people could have guessed that the marketplace of 2025 would be dominated by subscription royalties and that download revenue would be almost nonexistent. When Napster launched in 1999, nearly a decade before the iPhone debuted, imagining the influence of an app like TikTok would have been nearly impossible. Music companies got to this point by enforcing the value of their intellectual property through a few decades of licensing agreements and lawsuits.

In the near term, expect more deals like UMG’s partnership with Udio. Over the long term, expect to be surprised.