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Universal Music announces alliance with Tidal to shake up the streaming business model

By | Published on Wednesday 1 February 2023

Universal Music

Following Universal Music boss Lucian Grainge’s recent memo calling for a shake up of the way music streaming works, the mega-major has announced a new partnership with Tidal which will see the two companies collaborate on figuring out how that shaking might go. Which is to say, they will “explore an innovative new economic model for music streaming that might better reward the value provided by artists”.

Confirming the partnership yesterday, the two companies said they will consider how “by harnessing fan engagement, digital music services and platforms can generate greater commercial value for every type of artist. The research will extend to how different economic models could accelerate subscriber growth, deepen retention, and better monetise fandom to the benefit of artists and the broader music community”.

So, quite a wide remit, with no real specifics. Maybe Grainge will just lock himself and Team Tidal in a big old box and they’ll all shake around until a workable new approach falls out of someone’s pocket.

But will it be a black box hidden in a secret location, so no one else knows what’s going on in side, nor what model is ultimately shaken out? You know, like normal. Or maybe this time it will be a glass box on full view, like that time David Blaine was dangled above the Thames in a transparent container. I think can we all agree that would be a much better approach. I mean, if nothing else, at least we could all throw things at them.

There has been plenty of debate about the economic model employed by the music streaming services of course, especially here in the UK since the headline-grabbing inquiry by Parliament’s culture select committee into how streaming works and how streaming income is shared out.

Currently, streaming is a revenue share based on consumption share business. From an artist perspective, there are three steps to getting paid.

First, the streaming service allocates the money it made in any one month to all the tracks on its system, based on what percentage of total consumption each track accounted for. So, for each track, what matters is what percentage of total plays on the service were plays of that track – a play being counted if a user listens for more than 30 seconds.

Then secondly, whatever money is allocated to a track is shared with the label or distributor that provided it, and the publisher or collecting society that licences the song contained in the recording. The label, distributor, publisher and society gets whatever share of the allocation it has negotiated in its licensing deals with the streaming service.

And finally, the label, distributor or publisher pays a portion of what it receives to the artist or songwriter, subject to the terms of the relevant record, distribution or publishing deal. If the money flows through a collecting society on the songs side, it is paid on to the songwriter subject to the society’s distribution rules, with any admin costs deducted.

Issues have been raised about what happens at each of those three steps. Though Grainge’s memo last month was focused on step one and was mainly concerned with the fact that all the mood music and background noise that has been uploaded to services like Spotify is treated the same as more conventional music releases when money is being allocated based on consumption share.

This is annoying for Grainge – and others in the music industry – because this content is arguably easier and cheaper to create; often serves a functional rather than artistic role which can result in relatively high consumption; plus it can be easier to slice this content into short tracks, which boosts the total number of plays when a play is counted at 30 seconds.

Grainge wrote in his memo: “The current environment has attracted players who see an economic opportunity in flooding platforms with all sorts of irrelevant content that deprives both artists and labels from the compensation they deserve”.

With that in mind, he went on, “what’s become clear to us, and to so many artists and songwriters – developing and established ones alike – is that the economic model for streaming needs to evolve. As technology advances and platforms evolve, it’s not surprising that there’s also a need for business model innovation to keep pace with change”.

But how could the model evolve to address the specific issues Grainge wrote about? According to the FT, Universal execs have floated the idea of banning 31 second tracks or at least factoring track length into the consumption metrics. Another option is applying a premium at the track allocation stage to artists who specifically drive engagement in some way.

Alongside that is the proposal that services allow artists to offer extra content and experiences through the streaming apps accessible to users who pay a premium, with that add-on payment shared with the artist and their label.

These are all tweaks to the system that have been discussed before. For example, in the white paper on streaming it published in 2021, IMPALA – the pan-European group for the independent community – proposed factoring in track length, rewarding artist-led engagement and offering functionality where artists can generate extra revenue from the fan relationship.

Some services have already dabbled with the latter proposal, integrating some direct-to-fan tools into the system. There are some complexities there though, partly over the respective role of a label and an artist in offering such extras, and partly because successful direct-to-fan upsell tools require a super simple in-app payment mechanism on mobile, and currently that would mean Apple or Google taking 30% of any money.

Of course, the other way the allocation stage of the streaming model could be altered is to simply segment the catalogue and prioritise one segment over another. So put all the mood music and background noise into its own segment and allocate it less of the money. Though, once you’re segmenting the catalogue, how long is it before some people at one end of the industry start proposing you similarly segment off all the DIY artist releases?

So, fun times. But where does Tidal fit into all of this? It, of course, has always liked to position itself as the “artist-friendly” streaming service, certainly since Jay-Z got himself involved in the business and staged that all-star press conference you’ve all tried very hard to block from your memories.

And that “artist-friendly” positioning has actually often worked. Even though, really, Tidal has always operated pretty much operated the same business model as everyone else. But you know, with some sneaky data-meddling to be extra friendly to Beyonce. Maybe. Possibly. Allegedly, allegedly.

That said, it was Tidal – in its previous iteration as WiMP – that had the idea of trying to persuade users that they might want to pay extra for higher quality audio, in doing so increasing the amount of money to be allocated to each track.

It was an interesting idea. Possibly slightly flawed due to the fact that the 857 people interested in higher quality audio all work in the music industry. And definitely flawed due to the fact that Apple decided that higher quality audio should come as standard because, you know, there were headphones to sell.

More recently, in late 2021, Tidal announced that two other innovations were in the pipeline. First, bonus payments for each subscriber’s favourite artists. And secondly, a shift to user-centric track allocation – or ‘fan-powered royalties’ if you prefer – on its top tier subscription package.

Plenty of people in the artist community support a total shift to user-centric, so that rather than money being allocated to tracks based on what percentage of total listening in any one country any one track accounts for, instead each subscriber’s monthly payment would be allocated to the specific tracks they listened to.

Some reckon that user-centric would deal with some of the issues raised by Grainge. It would certainly stop some of the outright scams that exploit the current system and grab a share of the money each month. Though – while most labels are officially agnostic on user-centric – it’s fair to say that the label community has not readily embraced the approach.

And, it seems, Tidal will put its user-centric plans on hold so that it can invest more time into shaking things up with Lucian Grainge. Which seems to suggest that a post-it note containing a scrawled message to the effect of “move to user-centric you fucking idiots” won’t be falling out of anyone’s pocket when Grainge and his Tidal buds start shaking around in that big old box.

“From day one, Tidal has stood out as artist-first, leading with a premium subscription tier to pay artists more and experimenting with new ideas like fan-centred royalties to see if there are fairer and more equitable ways to get artists paid”, Tidal’s Jesse Dorogusker said yesterday when announcing the new model shaking alliance with Universal.

“We are setting aside our current fan-centred royalties investigation to focus on this opportunity for more impact”, he went on. “We’re THRILLED to partner and learn along the way about the possibilities for more innovative streaming economics. This partnership will enable us to rethink how we can sustainably improve royalties’ distribution for the breadth of artists on our platform”.

“As the digital landscape continues to evolve, it’s become increasingly clear that music streaming’s economic model needs innovation to ensure a vibrant and sustainable future”, added Universal’s Chief Digital Officer Michael Nash.

“Tidal’s embrace of this transformational opportunity is especially exciting because the music ecosystem can work better – for every type of artist and fan – but only through dedicated, thoughtful collaboration”, he went on. “Built on deeply held, shared principles about the value of artistry and the importance of the artist-fan relationship, this strategic initiative will explore how to enhance and advance the model in keeping with our collective objectives”.

Lovely stuff. Though, so many questions remain unanswered. What will Grainge and Tidal come up with after all that shaking around? How will they make it a reality with so many stakeholders with different interests wanting a say? Will it actually result in any short-term changes? If so, who will be the winners and who will be the losers? Who will even be allowed to know how the new model works? And is there a model that will make everybody happy? Oh, actually, I can answer that one. No.