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Universal Music chief talks more about the need to revamp the streaming model

By | Published on Friday 3 March 2023

Universal Music

Universal Music boss man Lucian Grainge has again talked about his desire to change the subscription streaming business model which, he reckons, has evolved in a way that under values all the musical brilliance of the world’s most magnificent music-makers. By which he means those music-makers magnificent enough to think about signing up to a Universal label, presumably. Maybe. Who knows?

Grainge’s new musings on the business model employed by streaming services like Spotify and Apple Music came during an investor call yesterday that accompanied the music major’s latest pretty positive financial report.

He was building on comments he made to Universal employees in a memo earlier this year in which he set out some of his concerns with the current streaming model and the way monies generated by the streaming services are shared out across the industry. That memo also included some albeit pretty vague suggestions as to how said model might be changed.

Plenty of people right across the music community would agree with Grainge that there are definitely some issues with the current streaming model, though whether they’d agree on what the main issues are and how to solve them is debatable.

Following that memo in January, Universal announced it was teaming up with Tidal to investigate what changes could be made. And yesterday Grainge told investors that the company was also working with Deezer on a similar investigation.

Deezer, of course, has long been a big advocate of the user-centric approach of allocating streaming monies to each track in the system. Currently services pool all the money and data generated in each market, and allocate each track a portion of that money depending on what percentage of total streams it accounted for. Under user-centric, each subscriber’s payment would be specifically allocated to the tracks they streamed.

There is plenty of support for user-centric among the artist and songwriter communities. However, the labels – although officially agnostic as to whether the current system or a user-centric system is better – are generally not that keen on shifting over to user-centric payments. And, indeed, when Tidal recently announced its research alliance with Universal, it also confirmed it was dropping its previously announced experiment with the user-centric approach.

So what new approaches is Universal going to be testing with Tidal and Deezer? Well, neither Grainge nor Universal’s Chief Digital Officer Michael Nash offered any specifics when questioned by investors on yesterday’s call.

Though better rewarding the artists who drive consumers to the streaming services was mentioned a few times. Which could mean providing artists with other ways to generate income through the streaming apps by offering premium content. Or it could mean allocating a bigger slice of the digital pie to the artists with higher profiles who, some might argue, play a key role in helping the streaming firms excite and engage new subscribers.

Alluding to the former of those options, Nash did talk about “superfan monetisation”, which suggests he’d like Spotify et al to offer new direct-to-fan type tools for artists and their business partners.

Which seems like a good idea. Though having a system where artists can upsell premium content through a streaming app probably needs the issue of Apple and Google taking 30% of any in-app purchases to be dealt with first.

And then we can start debating whether premium content of that kind should be label-led, or whether artists and their managers could utilise those extras without cutting the label in. Fun times.

Certainly some artists might question whether the likes of Universal really need to participate in any new revenue opportunities that the streaming services may or may not offer in the future. You know, given that the major’s CFO Boyd Muir confirmed yesterday that 2022 was “another year of sustained growth at UMG”.

“We saw revenue growth of 14% in constant currency; adjusted earnings before interest, taxes, depreciation and amortisation growth of 12% in constant currency; and free cash flow growth of 70%”, he added, “positioning us well for 2023, as we continue to work towards our mid-term targets”.

With the financial report accompanying those remarks confirming that further growth in subscription streaming very much contributed to the positive stats Muir ran through, some members of the music community might argue that the current streaming model seems to be working pretty damn well for the biggest music rights company in the world.