Universal Music strikes deal to reshape streaming economics

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Universal Music has struck a deal to reshape the economics of music streaming, with changes aimed at directing more money to professional musicians and away from a “sea of noise” that chief executive Lucian Grainge has criticised this year.

The world’s largest record company and the French streaming service Deezer have agreed an arrangement they expect will lift payouts to professional artists by 10 per cent, in the first big shift in the music streaming business model since the launch of Spotify in 2008.

As part of the new model, streams of songs from professional artists — defined as those who generate at least 1,000 listens a month — will be given double the weight of streams from non-professionals when calculating royalty payments. 

“This is a massive change in the way the music industry will work”, said Deezer chief executive Jeronimo Folgueira. “We have 90mn tracks and many of them are just noise, like literally noise, the sound of a washing machine and rain. It is fundamentally wrong that 30 seconds of the recording of a washing machine gets paid the same as the latest single by Harry Styles,” he said.

If a listener actively seeks out a song or musician, the weight of those streams will be doubled again. For example, if a user searches “Taylor Swift” on the Deezer app and listens to one of her songs, it will be counted as four streams for royalty calculations.

The goal is to reduce the money flowing towards amateurs, bots and white noise soundtracks. Goldman Sachs estimates that the “long tail” of such content generated about $900mn in royalties last year.

Universal chief digital officer Michael Nash told the Financial Times that the changes would be “revenue positive” for the company, which is home to stars including Swift, Elton John and Drake.

The changes, if replicated more widely across other streaming services, would have significant implications for the music business. Services such as Spotify, Apple Music and Deezer have revived the industry, growing sales for nearly a decade. But the way streaming money is paid out has remained the same, a source of frustration among music companies and musicians that feel short-changed.

In the current structure, listeners’ monthly subscription fees are pooled together into one royalty pot which is divided among copyrights-holders based on their share of listening. Royalties are paid the same regardless of who created the song or whether the song was listened to passively via an algorithm or actively by searching for it. As long as someone listens for more than 30 seconds, the stream counts.

Goldman Sachs projected the total music streaming market would make $38bn in revenue this year. The streaming services pay music rights holders such as Universal about two-thirds of every dollar they collect. On average, streamers pay about $0.005 per stream, or $5 for 1,000 streams. “Listening to a 31-second song by an independent artist, a full three-minute song by a popular artist, and five minutes of the sound of rain is all treated equally,” the Goldman analysts noted.

Music executives have expressed concern that fraud and clutter have proliferated on streaming services, taking royalty money away from record labels and artists. More than 120,000 tracks are being uploaded to Spotify daily in 2023, compared with only 20,000 in 2018.

Deezer will roll out the new payment model in October in France, with plans to expand globally from January. Folgueira said the 1,000 stream threshold was “pretty low”, adding that only “human artists”, not AI-generated songs, would qualify to have their royalty share weighted more. Songs that are detected as “noise” will not receive any royalty payments. 

The move would “ensure we are better supporting and rewarding artists at all stages of their careers, whether they have 1,000 fans or 100,000 or 100mn”, Nash said.

Universal is also in talks with other streaming platforms including Spotify, Tidal and SoundCloud about changing the way they pay royalties.

Sceptics say that the push to change the streaming business is a defensive move by the big labels who fear the streaming boom is slowing. “Universal Music, Sony and Warner need to maintain revenue growth in order to keep investors happy. So you start looking for non-organic growth,” said Midia analyst Mark Mulligan. 

Deezer’s Folgueira said the changes are meant to help artists who want to make a living from music. “We are taking away incentives for people to upload a ton of crap that has very little value for the actual listeners.”