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The analysts explained the downgrade is due to slower growth and artificial intelligence (AI) concerns.
“Over the past six months, there have been two key developments 1) loss of streaming share means recorded music streaming revenues are growing slower than expected, and 2) the rapid development of AI-created music is placing a major cloud over the whole sector,” said the analysts.
They added that when the firm upgraded WMG six months ago, AI was not seen as an issue. However, since then, AI has dominated the headlines, and songs and tracks mimicking existing artists have become commonplace.
“WMG and other music labels insist they should be paid for any AI-created track that is derived from their artists’ work, yet the primary defence appears to be regulation, which could take years to pass into law,” stated the analysts.
While they noted that Spotify (NYSE:SPOT) and other DSPs have acted quickly to take down AI tracks, the firm does “not believe the AI debate is anywhere near to being resolved.”
