This article is about the music industry’s new model for streaming and its impact on Universal Music Group. Lucian Grainge, the CEO of Universal Music Group, sent out his annual New Year’s memo to the staff in early January. The memo, which is seen as a “state of the union” for the music industry, usually highlights the success of Universal Music Group in dominating the music charts. However, this year’s message took a different tone. Grainge warned of “bad actors” who were taking advantage of streaming innovations and flooding the platforms with low-quality content. He called for an updated model that would prioritize professional artists and reward songs that audiences actively seek out.
This week, Universal Music Group introduced the first significant changes to the royalty system since the launch of Spotify in 2008. The deal with French streaming service Deezer will allocate more royalty money to professional artists and away from bots and low-quality soundtracks. The new system will pay more for songs and artists that receive a significant number of streams per month. Industry experts believe that this is a major shift that will influence other major labels and platforms in the streaming industry.
While the music industry has gone through its fair share of disruptions, such as illegal file-sharing, it has reached a more mature phase with streaming. However, executives now feel that the current royalty agreements, which were established during a time of desperation, are outdated. They argue that all streams should not be valued equally, as music quality varies. They believe that a 30-second YouTube video should not be valued the same as an episode of a popular TV show.
As technology advances and artificial intelligence becomes capable of creating music, there are concerns that streaming platforms could be flooded with AI-generated content. To combat this, Universal Music Group’s new model aims to dissolve the financial incentives for AI tracks and direct more money towards musicians. JPMorgan predicts that this new model could boost UMG’s revenue significantly if AI-generated content becomes prevalent.
The music industry is eager to press its advantage and build on recent gains. The streaming boom has slowed down, and major labels like Universal Music and Warner Music are under pressure to maintain momentum. In 2022, major labels’ streaming revenue was only up 5% from the previous year, a considerable drop from the previous growth rates. Universal Music executives see the problems they are addressing as existential and want to act early to avoid a repeat of the piracy era.
Universal Music Group has had a significant role in shaping the music industry. Its acquisition of EMI in 2012 gave it a dominant market share and established CEO Lucian Grainge as a key figure in the industry. The introduction of streaming services, particularly Spotify, has changed the landscape of the industry. Universal Music was one of the first major labels to strike a licensing deal with Spotify, a move that proved successful for both parties. The financial model of streaming, where subscribers pay a monthly fee for access to music, has been widely adopted in the industry.
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