How AI-generated Tracks are Exploiting Streaming Platforms’ Royalty Systems

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1:36Learn more at thehartford.com slash risk mitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Carol, you'll recall just last week at the Bloomberg Tech Summit, we sat down with Hit Boy. Was it one week ago today? It was one week ago today. Three-time Grammy Award winning artist, producer, he's known for shaping the sounds of Jay-Z, Beyonce, Nasdrake, and more. Check out his Instagram for some fun shots from last week behind the scenes.

2:17He was a lot of fun. The topic of our chat was all about AI and using AI to create music. He's actually game. He says that it's music the same way he was using Fruity Loops earlier in his career. It's just you've got to adjust with the times. That is not, in fact, the AI problem with music that Michael Huppie, the president and CEO of SoundExchange, has identified. SoundExchange is this nonprofit. It's owned by the radio industry. It calls itself the music industry, excuse me, calls itself the largest global neighboring rights organization in the world. It says it's collected and distributed more than$13 billion in digital performance royalties to date on behalf of more than 800 ,000 music creators.

2:54Michael Huppie joins us here in the Bloomberg Interactive Brokers Studio. It has been quite a bit since we've talked to you. I want to get to the AI problem that you've identified. Before we do that, though, SoundExchange, not a household name for a lot of people, even though every day they're interacting with a product that it touches. Where do you sit? remind everybody where you sit in sort of the artists get paid when you listen to the radios, or when you listen to certain radio, I should say. Sure. First off, thanks for having me back. It was always great to be here. Sound Exchange is a company that represents the entire recorded music industry, all artists, all record labels.

3:27We sit between a lot of the streaming radio services, think SiriusXM, Pandora, iHeart Online. And not Spotify, not Apple Music. But a lot of the ones that are not interactive radio. And then on the other side, you have all the labels, all the artists. And we help pay out all of the royalties, basically, that are created by all these services to the whole record industry. So every time somebody listens to Taylor Swift on Pandora, for example, you then handle writing the check to who? Exactly. To Taylor Swift or her management company or whoever it may be. And we also send half that money to her record label.

4:02Okay. So it's a centralized place, makes it very efficient. thousands of services, over 800 ,000 accounts we have, and it's one efficient, centralized way to get all of that money out to the artists and labels who form the basis of these products. I'm curious, are you paying out more than you were last year? Is it growing, or is there more competition on other... Yeah. It's pretty... It's consistently grown. I would say 15, 20 years ago, we were paying out$25 million. Now we pay north of a billion dollars a year. It's been pretty consistent growth due to a lot of reasons. Obviously, streaming is up and the way people consume music, you know, it's all collapsing onto the phone.

4:42So it's been a pretty banner of 15 years. What do people get paid? Like for an album, a song? I'm always curious, or does it vary? Like, how is it? Well, it varies and it depends on the product, right? So satellite radio, for instance, a subscription-based business, we get a percentage of revenue based on, you know, relevant revenue. But when you're talking about webcasting, for instance, typically every stream to every set of ears is a fraction of a penny. And it's all set every five years. And, you know, that doesn't sound like a lot of money. But as I said, over the course of a year, it adds up to over a billion dollars.

5:18We are alone, you know, 12 or 12 or 15, 12 ish percent or so of the whole U.S. recorded music revenue. I know it's past his bedtime, but Tom Keene, he the host of Bloomberg. I don't think he sleeps. He has. You know, he has a New England folk album out. I know. 1992, searching for Ward in June. So you could ask him about the royalties. He should register for SoundExchange because if he gets play on any of those platforms, we have money for him. I love it. So where does AI fit into all of this? AI is a fascinating part of the industry coming up. It's something that has a lot of danger but also a lot of potential.

5:50So I think we should all view AI as something that can make really potential revenue growth for the industry, new products for consumers, but it has to be rolled out the right way. And specifically, we need to make sure that human creators are protected. There need to be guardrails so that it doesn't steamroll over the whole creative industry. But what's the problem that right now artists are facing when it comes to AI-generated music? I mean, there's a lot of potential problems. One is, you know, when you think about the streaming world, there are services now that are reporting 75 ,000 uploads a day, a day, of new recordings.

6:2780 % or plus of them are AI music. When you dump all of - But does that make it onto Pandora? Does it make it onto SiriusXM? It is making it into some of these streaming services, maybe not at the scale that you would expect yet, but I mean, there've been reports of, whether it's one to two or 3%, sometimes people estimate that it's up to 10%. There's also the ability to, streaming fraud is another big issue. There are cases where people use AI tracks, set up bots around, and they siphon away payment from the pipeline that would otherwise go to real artists and real record labels. It's fraud, basically, straight-up fraud.

7:03There are people in prosecuted. There's a famous case in the Southern District of New York that was prosecuted recently. What's a bigger issue for AI-generated music? Is it the fraud or is it the uploading of AI-generated music? I mean, it's both. The uploading of, I mean, fraud is something that I think we're tackling better as an industry. There are companies dedicated to it now. I think if you were to talk to a lot of the artists or the labels, they want to make sure that when, as AI expands, that it doesn't squeeze out the human element. You know, human creativity, human input is critical.

7:33But will you get a percentage of AI-created songs? Like, it's, like, how, is that what this, like, I'm just curious how you guys are jockeying for that. Well, so, so, SoundExchange, AI-created songs, actually, this is going to be interesting, They actually don't merit a payment because they're not protectable under the law. Well, that's what I'm curious about. Something is holding AI created. It's literally not copyrightable. So this isn't about more money coming through SoundExchange or not. It's basically about looking to protect the creative community, protect creators, and make sure that these companies – I mean, AI companies will make trillions of dollars, and part of that business model is built on the backs of artists and labels when they scraped their content.

8:18so but if it's not good nobody's gonna listen to it well do you think i have music is good i've never known to be i don't know i've never listened to it the air times did like a study like pick the ai generated song and i was pretty impressed at how good it was but i mean if it if it sounds like you know vocals uh i think it did have vocals yeah i mean ai music has come a long way i would say when it first started out you could pretty much tell but the the stuff that ai is putting out now is pretty impressive, but it's great if they do that. I want to be clear, you know, AI has this risk, but it also has a lot of potential to grow the industry, grow revenue, and one thing about what's happening now compared to, say, the Napster days, I mean, you guys remember the Napster days, what's very different now is the recording industry is leaning in, they're working with the AI companies, the AI companies are licensing, and they're trying to work together to develop these models.

9:10I mean, computers, technology has been part of music for a long time. Yeah. What do they call those things when people can't sing and they... Auto-tune. Auto-tune. There you go. Michael Huppie, thank you so much. President and CEO of SoundExchange.

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