The Zhitong Finance App learned that Dongwu Securities released a research report saying that as AI music models at home and abroad continue to be updated, companies such as Wanxing Technology and others have implemented relevant functions on the B-side to empower creators, and C-side applications are also continuously implemented. For example, 1) Kunlun Wanwei launched an AI music function in the Tiangong App, which allows users to create and share AI music on WeChat and Douyin, 2) Shengtian Network's digital music, positioning AI for social networking and commercialization of music, etc. I am optimistic that with AI, music is expected to change from unidirectional transmission (simple music appreciation) to an interactive ecosystem co-created by UGC and PUGC, spawning a new space for AI music. I am optimistic about companies that are pioneering in layout exploration and application implementation. I recommend Kunlun World Wide (300418.SZ), Shengtian Network (300494.SZ), Wanxing Technology (300624.SZ), etc.

The main views of Dongwu Securities are as follows:

Suno V3's generation effects have improved rapidly, or it has become a phenomenal application

In March of this year, Suno released the v3 version, which supports the generation of 2-minute, broadcast-quality music, with a deeper understanding of prompts and fewer illusions. This version is regarded by many as the “ChatGPT of the music industry” because it doesn't require professional prompt vocabulary, or even professional knowledge to understand music, so ordinary people can generate the music they want. Suno V3 has rich options, an active community atmosphere, relatively high quality generation results, and uses a free+paid ToC business model.

The field of audio generation is still in its early stages and has great potential for development. Technical and copyright issues still need to be solved

The founder of Suno said that now we must consider audio generation in the same way we thought about text generation in 2022. Currently, Suno is not perfect, and there is still room for improvement in terms of time, language comprehension, and music distribution. Solving these problems requires data, time, and some technological breakthroughs. Furthermore, copyright is an issue that cannot be circumvented in the development of AI music. Sound has strong personal attributes, and is also fundamental to the survival of singers. Using AI technology to falsify voices without their permission, even if it harms the singer's personal rights and interests, it may cause fraud. Since 2023, Google has tried to negotiate with Universal Music, hoping to reach a copyright partnership.

AI lowers the threshold for music creation and is expected to unleash the potential of UGC music

Dongwu Securities said that as the creative threshold has been lowered, UGC for text, images, and videos has spawned many online articles, social media, short video platforms, etc., but music is still in its infancy. We are trying to explore the space for music UGC from (1) whether there is a demand for UGC music content, and (2) the factors that limit the development of UGC music, and why we think in the AI era, music UGC is expected to unleash its commercial potential.

Difficulty in reconciling with others and personalized creation are the foundation for the existence of UGC in music

Dongwu Securities believes that users' music demand is characterized by decentralization, stratification, and niche. Even though top hits occupy most of the market, there is still a large market for long-term demand from users in the circle and niche users. Covering songs such as AI Stefanie Sun on Station B, and users have already written songs based on hot events, etc., and have had a good number of plays, which also verified the existence of UGC demand for music.

However, unlike text and short videos, there are no low-threshold tools for music creation. Arrangement, recording, etc. all require certain technical reserves and costs, which limits the music creation of ordinary users. Currently, the big music AI model allows users to generate mature music works within a short period of time and without a threshold. Benchmarking online text and short video platforms, I am optimistic that after the creative threshold is lowered, C-side applications will continue to explore and hope to expand the commercial potential of music UGC.

Risk warning: legal and copyright risk, technology development risk, market acceptance risk, competition risk.