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Universal Music chief Lucian Grainge has scored his first victory in a war against “noise”.
The proliferation of low quality content on streaming services poses a threat to artists and music rights holders such as Universal. Examples include the sound of a washing machine. Dull as that may be, such downloads are currently rewarded in the same way as a Rolling Stones song when it comes to streaming royalties. The rise of generative AI will only add to the problem.
On Wednesday, Universal struck a deal with French streaming group Deezer. This should see more royalties flow to music rights holders. Universal calls it a new “artist-centric” model. Label-centric might be more apt.
Under the terms of the deal, streams of songs from professional artists will count as double in royalty calculations. This change is more symbolic than a revenue-changer. The economics of the industry will not alter significantly unless Universal can nail similar deals with market leader Spotify and the other streaming giants.
Deezer is a minnow in the streaming market. Research group MIDIA estimated its share last year at 1.5 per cent. Spotify dominates with a 30-plus per cent share of the market. Apple, Tencent Music and Amazon each have more than 13 per cent.
Streaming and subscriptions accounted for half of Universal’s €10.3bn of revenues last year. It says the Deezer deal will be “revenue positive”. Yet it is unlikely to deliver a significant boost on its own.
Across the industry, Goldman Sachs estimates noise such as the sound of rain generated $900mn in royalties last year. That is 5 per cent of the total market. AI will surely drive up that share.
Universal’s shares fell 23 per cent between February and mid-May as investors feared AI would disrupt the industry. The stock has recovered much of that, as Universal investigates ways to monetise AI.
It says it is in talks with other, bigger streaming platforms. This move should offer some reassurance it is taking the AI threat seriously.
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