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Don’t be surprised if artificial intelligence generates one of the next pop sensations. As AI and large language models boom in popularity, harnessing these tools to create the next hit is becoming an increasingly likely outcome in the not too distant future. Dozens of companies face a period of drastic change as AI mania threatens to reshape industries, and the investing community scrambles to capitalize on the next big winners. Many executives have come to view AI tools as a necessity for any business looking to grow market share or improve efficiency, with top names across health care and technology highlighting use cases. But for many sectors – including the music industry – AI could fundamentally shatter the way some companies operate, and implode some lucrative revenue sources underpinning their dominance. SPOT YTD mountain Spotify shares in 2023 Nowadays, record labels and pop stars benefit handsomely from the royalties earned from music streamed on the radio, or platforms like Spotify . A chatbot capable of generating hit songs would shatter popular monetization strategies harnessed by studios, said Rosenblatt analyst Barton Crockett. “That’s the growth story right now in the music industry,” he said. “If AI is able to create the next hit song, then you’ve broken that model and that’s an existential challenge for music labels, and for pop stars.” Copyright challenges — like the unauthorized replication of an artist’s voice or likeness — present another major obstacle, said equity research firm Redburn in a recent note to clients. Some countries worldwide are working to loosen certain copyright laws supporting music owners and labels in favor of AI and innovation, and that could erode market share for companies like Warner Music Group and Universal Music Group , while weakening their catalog value, Redburn added. Even as uncertainty lingers over how courts may interpret copyright laws to oversee AI models, Wall Street does foresee some major revenue-winning opportunities. In a recent note to clients, Morgan Stanley’s Omar Sheikh noted that labels could charge for AI tools to utilize their creative material, or harness generative AI capabilities to craft music that resonates with, or better targets certain audiences. But what could mark a major setback for music labels, could prove a boon for companies like Spotify that contribute a hefty chunk of money annually to royalty fees. The company’s already begun experimenting with AI technology, recently debuting an DJ tool that personalizes and plays curated music. AI tools would allow music distribution platforms to cut costs, and take advantage of cheaper and independent music generated by AI, said Credit Suisse’s Douglas Mitchelson in a recent note. As the technology takes flight, Redburn sees long-term opportunities for Spotify to become an “aggregator of independent content for licensing to AI developers.” “That would be an indescribable win for Spotify, and they have an advantage in that they’re coming into this with a larger listenership, larger subscriber base than anyone on the planet,” said Rosenblatt’s Crockett. — CNBC’s Michael Bloom contributed reporting
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