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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: You're listening to Bloomberg Business Week with Carol Masser and

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Speaker 2: Tim Stenebeck on Bloomberg Radio. Carol, you'll recall just last

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Speaker 2: week at the Bloomberg techt Summit, we sat down with

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Speaker 2: hit Boy.

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Speaker 1: Was it one we could go today?

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Speaker 2: It was one we could go today? Three time Grammy

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Speaker 2: Award at winning artist. Producer is known for shaping the

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Speaker 2: sounds of jay Z, Beyonce, Nosdrach and Moore. Check out

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Speaker 2: his instagram for some fun shots from last week behind

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Speaker 2: the scenes.

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Speaker 1: It's a lot of fun.

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Speaker 2: The topic of our chat was all about AI and

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Speaker 2: using AI to create music. He's actually game. He says

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Speaker 2: that it's music the same way he was using fruity

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Speaker 2: loops earlier in his career. It's just you got to

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Speaker 2: adjust with the times. That is not, in fact, the

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Speaker 2: AI problem with music that Michael Huppy, the Presidency of

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Speaker 2: Sound Exchange, has identified. Sound Exchange is this nonprofit. It's

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Speaker 2: owned by the radio industry. It calls itself the music

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Speaker 2: industry excuse me, calls itself the largest global neighbor rights

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Speaker 2: organization in the world. It says it's collected and distributed

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Speaker 2: more than thirteen billion dollars in digital performance royalties to date,

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Speaker 2: on behalf of more than eight hundred thousand music creators.

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Speaker 2: Michael Hupy joins us here in the Bloomberg INTERACTI broker's studio.

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Speaker 2: It has been quite a bit since we've talked to you.

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Speaker 2: I want to get to the AI problem that you've

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Speaker 2: identified before. We do that though. Sound Exchange not a

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Speaker 2: household name for a lot of people, even though every

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Speaker 2: day they're interacting with the product that it touches. Where

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Speaker 2: do you sit? Remind everybody where you sit in sort

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Speaker 2: of the artists get paid when you listen to the

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Speaker 2: radios or when you listen to certain radio.

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Speaker 3: Should sure, first off, thanks for having me back. It

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Speaker 3: was always great to be here. Sound Exchange is a

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Speaker 3: company that represents the entire recorder music industry, all artists,

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Speaker 3: all record labels. We sit between a lot of the

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Speaker 3: streaming radio services Thinks, Sirius, xm Pandora, iHeart Online and

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Speaker 3: not Spotify Spotify, but a lot of the ones that

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Speaker 3: are not interactive radio. And then on the other side

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Speaker 3: you have all the labels, all the artists, and we

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Speaker 3: help pay out all of the all of the royalties

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Speaker 3: basically that are created by all these services to the

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Speaker 3: whole record and.

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Speaker 2: So every time somebody listens to Taylor Swift on Pandora,

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Speaker 2: for example, you then handle writing the check.

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Speaker 3: To who exactly, to Taylor Swift or her management company

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Speaker 3: or whoever may be, and we also send half that

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Speaker 3: money to a record label.

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Speaker 2: Okay, So.

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Speaker 3: It's a centralized place, makes it very efficient. You know,

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Speaker 3: thousands of services, over eight hundred thousand accounts we have,

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Speaker 3: and it's one efficient, centralized way to get all of

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Speaker 3: that money out to the artists and labels who form

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Speaker 3: the basis of these products.

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Speaker 1: I'm curious, are you paying out more than you were

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Speaker 1: last year? Like, is it growing or is there more competition?

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Speaker 1: It's an other.

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Speaker 3: Yeah, it's pretty it's consistently grown. I would say fifteen

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Speaker 3: twenty years ago we were paying out twenty five million.

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Speaker 3: Now we pay north of a billion dollars a year.

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Speaker 3: It's been pretty consistent growth due to a lot of reasons. Obviously,

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Speaker 3: streaming is up and the way people consume music, you know,

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Speaker 3: it's all collapsing onto the phone. So it's been a

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Speaker 3: pretty banner of fifteen years.

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Speaker 1: What do people get, Hey, like for an album a song.

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Speaker 1: I'm always curious or does it vary, like how is it?

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Speaker 3: Well, it varies and it depends on the product. Right.

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Speaker 3: So satellite radio, for instance, a subscription based business, they

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Speaker 3: we get a percentage of revenue based on you know,

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Speaker 3: relevant revenue. But when you're talking about webcasting, for instance,

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Speaker 3: typically every stream to every set of years is a

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Speaker 3: fraction of a penny and it's all set every five years.

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Speaker 3: And you know that doesn't sound like a lot of money,

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Speaker 3: but as I said, over the course of a year

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Speaker 3: adds up to over a billion dollars. We are alone,

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Speaker 3: you know, twelve twelve ish fifty percent or so of

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Speaker 3: the whole US recorded music revenue.

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Speaker 2: I know it's past his bedtime, but Tom Keene, he

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Speaker 2: the host of Bloomberg.

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Speaker 1: Think he sleeps.

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Speaker 2: He has you know, he has a new England folk

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Speaker 2: album out, I know, nineteen ninety two searching for Ward

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Speaker 2: in June. So you could ask him about the royalties.

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Speaker 3: He should register for sound Exchange because if he gets

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Speaker 3: play on any of those platforms, we have money for him.

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Speaker 2: I love it.

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Speaker 1: So where does AI fit into all of this?

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Speaker 3: AI is a fascinating part of the industry, coming up.

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Speaker 3: It's something that has a lot of danger but also

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Speaker 3: a lot of potential. So you know, I think we

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Speaker 3: should all view AI as something that can make really

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Speaker 3: potential revenue growth for the industry, new products for consumers.

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Speaker 3: But it has to be rolled out the right way. Specifically,

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Speaker 3: we need to make sure that human creators are protected.

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Speaker 3: There need to be guardrails so that doesn't steamroll over

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Speaker 3: the whole creative industry.

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Speaker 2: Well, what's the problem that right now artists are facing

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Speaker 2: with when it comes to AI generated music.

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Speaker 3: I mean, there's a lot of potential problems. One is,

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Speaker 3: you know, when you think about the streaming world, there

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Speaker 3: are services now that are reporting seventy five thousand uploads

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Speaker 3: a day a day of new recordings, eighty percent or

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Speaker 3: plus of them are AI music. When you dump what.

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Speaker 2: Does that make it onto Pandora? Does it make it

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Speaker 2: onto serious excent?

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Speaker 3: It is making it into some of these streaming services,

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Speaker 3: maybe not at the scale that you would expect yet,

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Speaker 3: but I mean there have been reports of you know,

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Speaker 3: whether it's one to two or three percent. Sometimes people

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Speaker 3: estimate that it's up to ten percent. Also, the ability

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Speaker 3: to streaming fraud is another big issue. There are cases

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Speaker 3: where people use AI tracks, set up bots around and

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Speaker 3: they siphon away payment from the from the pipeline that

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Speaker 3: would otherwise go to real artists and real record labels.

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Speaker 3: It's fraud, basically straight up fraud. There are people in prosecuted.

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Speaker 3: There's a famous case in the Southern District of New

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Speaker 3: York that was prosecuted recently.

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Speaker 2: What's a bigger issue for a for AI generated music?

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Speaker 2: Is that the fraud or is it the uploading of

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Speaker 2: AI generated music?

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Speaker 1: Right?

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Speaker 3: I mean it's both the uploading of I mean, fraud

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Speaker 3: is something that I think we're tackling better as an industry.

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Speaker 3: There are company is dedicated to it now. I think

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Speaker 3: if you were to talk to a lot of the

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Speaker 3: artists or the labels, they want to make sure that

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Speaker 3: when as AI expands that it doesn't squeeze out the

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Speaker 3: human element, you know, human creativity, human input is critical.

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Speaker 1: But will you get a percentage of AI created songs?

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Speaker 1: Like it's like, how is that?

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Speaker 2: What this?

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Speaker 1: Like? I'm just curious how you guys are jockey?

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Speaker 3: Well so so sound exchange AI created songs. Actually, this

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Speaker 3: is going to be interesting. They actually don't merit a

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Speaker 3: payment because they're not protectable under the law, and under

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Speaker 3: US law, something is holy AI created, it's literally not copyrightable.

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Speaker 3: So this isn't about more money coming through sound exchange

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Speaker 3: or not. It's basically about looking to protect the creative community,

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Speaker 3: protect creators, and make sure that these companies, I mean

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Speaker 3: AI companies are made are going to will make trillions

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Speaker 3: of dollars and they part of that. Part of that

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Speaker 3: business models built on the backs of artists and labels

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Speaker 3: when they scraped their content.

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Speaker 2: So but if it's not good, nobody's going to listen

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Speaker 2: to it.

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Speaker 3: Well, do you think a music is good.

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Speaker 2: I've never known till I don't know. I've never listened

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Speaker 2: to it.

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Speaker 1: Sometimes did it like a study, like pick the AI

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Speaker 1: generated song, and I was pretty impressed at how good

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Speaker 1: it was. But I mean, if it if it sounds

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Speaker 1: like vocals, I think it did have vocals. Yeah.

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Speaker 3: AI music has come a long way, and say, when

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Speaker 3: it first started out you could pretty much tell. But

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Speaker 3: the stuff that AI is putting out now is pretty impressive.

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Speaker 3: But but it's great if they do that. I want

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Speaker 3: to be clear. You know, AI has this risk, but

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Speaker 3: it also has a lot of potential to grow the industry,

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Speaker 3: grow revenue, and one thing about what's happening now compared

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Speaker 3: to say, the napster days. I mean, you guys remember

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Speaker 3: the napster days. What's very different now is the recording

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Speaker 3: industry is leaning in. They're working with the AI companies.

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Speaker 3: Their AI companies are licensing, and they're trying to work

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Speaker 3: together to develop these models.

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Speaker 1: I mean computers. Technology has been part of music for

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Speaker 1: a long time. What do they call those things when

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Speaker 1: people can't sing and.

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Speaker 2: They auto ten auto.

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Speaker 1: There you go, Michael Happy, Thank you so much, President,

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Speaker 1: CEO of Sound Exchange,