Over the last decade, we’ve seen the size of the music revenue pie grow significantly as the popularity of streaming services has skyrocketed. Today, streaming accounts for 84% of U.S. recorded music revenue. Over 90 million people in the U.S. subscribe to one or more music streaming services for the price of a few cups of coffee a month. And global revenue from music streaming, both paid and ad-supported, is predicted to grow to $90 billion by 2030.
Yet, since the inception of music streaming, a core question remains unanswered: How should these streaming services pay music creators? How do we slice up the revenue pie? It’s a question of fairness with no easy answer.
Pro Rata Model Vs. User-Centric Model
Currently, the primary model for the distribution of digital royalties is the “pro rata model.” Under this approach, all music usage and royalty payments are aggregated across the platform. In other words, listeners’ subscription fees pour into a single pot of money, which is then divided (pro rata) across the billions of streams every month on the service. The percentage that creators are paid is proportional to their number of streams across the overall platform.
As an alternative, some services are starting to experiment with a new “user-centric” or “fan-centric” model whereby a particular person’s subscription dollars are divided up only among the artists to whom they specifically listen. None of your subscription payment goes to artists that you don’t stream. And there are other variations on this individual-focused approach (such as the “ethical pool” or the “creator support” models).
Category: User Centric
@murraystassen: UNIVERSAL PARTNERS WITH TIDAL TO DEVELOP ‘MORE ARTIST AND FAN-FRIENDLY’ STREAMING MODEL
In a memo sent to UMG staff on January 11, Universal Music Group‘s Chairman and CEO referenced UMG’s preference for a switch to an “artist-centric” model to transform the way that artists and rightsholders are paid by streaming services.
Today, UMG has announced an interesting alliance with Tidal that will see the two companies work together to explore what they call “an innovative new economic model for music streaming that might better reward the value provided by artists”.
@alliecanal8193: Spotify not raising prices reveals ‘competitive weakness’: Analyst
[Editor Charlie sez: For the impact on streaming royalties, read the background on MusicTech.Solutions: The Elusive Obelus: Streaming’s Problem With Denominators]
Spotify’s (SPOT) decision not to raise prices on its U.S.-based premium subscription plan speaks volumes about the music streaming giant’s lack of pricing power. At least according to one bearish analyst.
“[It’s] a strategic play. It speaks to the relative competitive weakness of their business compared to these bigger firms that have bigger, larger platforms that bring a lot more to the table,” New Constructs CEO David Trainer told Yahoo Finance Live, referring to recent price hikes from both Apple Music (AAPL) and YouTube Premium (GOOGL)….
Spotify stock, which lost more than two-thirds of its value in 2022, surged more than 12% on Tuesday following the company’s report. The stock is down more than 65% compared to its February 2021 record high.
“There’s a disconnect here between valuation and the underlying economics and fundamentals of the business,” Trainer said. “[Spotify] is an unprofitable business that’s been burning through a lot of cash.”
Press Release: @UMG and @TIDAL Partner to Work on Artist-Centric Royalties
New York, January 31, 2023 – TIDAL, the global music and entertainment platform, and Universal Music Group (UMG), the world leader in music-based entertainment, today announced that the two companies will work together to explore an innovative new economic model for music streaming that might better reward the value provided by artists and more closely reflect the engagement of TIDAL subscribers with those artists and music they love.
Streaming has revolutionized music, catalyzed industry growth, transformed the entertainment experience and provided incredible opportunities for engagement, to the benefit of artists and fans alike. As it has gained mass adoption over the past decade, there is more desire from all parties to look at how to best economically align fans’ interests with those of their favorite artists.
TIDAL and UMG will research 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 monetize fandom to the benefit of artists and the broader music community.
“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-centered royalties to see if there are fairer and more equitable ways to get artists paid,” said TIDAL Lead Jesse Dorogusker. “We are setting aside our current fan-centered royalties investigation to focus on this opportunity for more impact. 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,” said Michael Nash, UMG’s Executive Vice President, Chief Digital Officer. “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. 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.”
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For more information contact:
TIDAL: Sade Ayodele, Head of Communications – sayodele@tidal.com
Universal Music Group, Global Communications: James Murtagh-Hopkins james.murtagh-hopkins@umusic.com
@warnermusic Adopts SoundCloud’s Ground Breaking User Centric “Fan Powered Royalties” Model
We will continue to drill down on what this actually means, but it’s a huge step in the right direction. It’s another fairness making step by a major label along the path of recoupment improvements and most of all the frozen mechanical increase which was real money for all.
Also big thanks to SoundCloud for sticking to their beliefs and ignoring the critics and naysayers and, of course, the lobbyists.
It must be said that this development gives the lie to Spotify’s position that adopting user centric requires renegotiating every license in the known universe before the topic can be broached. Fortunately for the artists concerned, SoundCloud was willing–even lacking Spotify’s extra $300 million to satisfy Daniel Ek’s edifice complex in Barcelona–to invest the resources in constructing a user-centric royalty payment system in anticipation of widespread adoption.
Artist Rights Watch--News for the Artist Rights Advocacy Community 