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Universal Music Group has unveiled a groundbreaking deal that aims to revolutionize the economics of music streaming. This deal, reached with French streaming service Deezer, is expected to increase payouts to professional artists by 10%, marking the first significant shift in the music streaming business model since Spotify’s launch in 2008.
Under this new model, royalty payments for streams of songs by professional artists – defined as those generating at least 1,000 listens per month – will be weighted twice as much as streams from non-professionals. Furthermore, if a listener actively searches for a song or artist, those streams will be counted as four streams for royalty calculations.
This move aims to reduce the flow of money towards amateur content and improve the revenue distribution for professional musicians. Last year, it was estimated that such content generated approximately $900 million in royalties.
Universal’s Chief Digital Officer, Michael Nash, stated that these changes will have a positive impact on revenue for the company, which represents artists like Taylor Swift, Elton John, and Drake.
If implemented by other streaming services such as Spotify, Apple Music, and Deezer, these changes would significantly impact the music industry. While these services have witnessed a revival in the industry, increasing sales for nearly a decade, the current structure of royalty payments has been a source of frustration for music companies and musicians who feel undervalued.
Currently, listeners’ monthly subscription fees are pooled into a single royalty pot, which is then divided among copyright holders based on their share of listening. Royalties are paid uniformly, regardless of the creator of the song or the method of listening. However, with this new model, the aim is to differentiate between passive and active listening, ensuring that artists are fairly compensated for their work.
Goldman Sachs predicts that the total revenue of the music streaming market will reach $38 billion this year, with streaming services paying approximately two-thirds of their collections to music rights holders. On average, streamers pay about $0.005 per stream, or $5 for every 1,000 streams.
Concerns have been raised by music industry executives over the proliferation of fraud and clutter on streaming services, diverting royalty money away from artists. The number of tracks uploaded to Spotify daily has drastically increased, from 20,000 in 2018 to over 120,000 in 2023.
Deezer plans to implement this new payment model initially in France in October and then expand globally starting January. Only “human artists,” not AI-generated songs, will qualify for the weighted royalty share, while songs identified as “noise” will not receive any royalty payments.
Universal is currently engaged in discussions with other streaming platforms, including Spotify, Tidal, and SoundCloud, to potentially redefine their royalty payment structures as well.
According to critics, this push for change in the streaming business model is primarily driven by major labels like Universal, Sony, and Warner, who aim to maintain revenue growth amidst concerns of a slowdown in the streaming industry. Deezer’s CEO, Jeronimo Folgueira, claims that these changes are intended to benefit artists looking to make a living from their music and discourage the uploading of low-value content.
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