Staff Writer
The largest record label in the world, Universal Music Group NV, is in discussions with music streaming provider SoundCloud Ltd. about changing the way artists are compensated, which might help well-known musicians make more money through streaming services.
According to persons familiar with the discussions, the corporations are debating modifications to the typical industry royalty structure and would like to come to a decision before the end of the year. Both SoundCloud and Universal Music Group declined to comment. There are still some details to iron out.
The largest record label in the world, Universal Music Group NV, is in discussions with music streaming provider SoundCloud Ltd. about changing the way artists are compensated, which might help well-known musicians make more money through streaming services.
According to persons familiar with the discussions, the corporations are debating modifications to the typical industry royalty structure and would like to come to a decision before the end of the year. Both SoundCloud and Universal Music Group declined to comment. There are still some details to iron out.
In an internal memo to the company earlier this year, Grainge argued in favor of a new compensation plan that “values all subscribers and rewards the music they love.” He hasn’t provided much details about how this would operate thus far.
According to Mark Mulligan, managing director and music analyst at Midia Research, potential changes to the streaming model could involve rewarding artists that listeners actively seek out rather than paying the same level of royalties when a performer’s song is consumed more passively via a playlist. Additionally, Universal Music considered setting up a bonus fund for musicians that bring in streams from new customers.
Currently, streaming providers pay the majority of their revenues to the owners of the music rights, depositing the funds in a pool that is dispersed according
Grainge has railed against “irrelevant” content, which has the potential to amass many hours of listening time and generate a sizeable portion of royalty income, taking money away from labels and artists.
SoundCloud has long pushed the concept of “Fan-Powered Royalties.” Instead of adding each user’s earnings to a single pot, the company splits each customer’s subscription and advertising revenue among the artists whose songs they click on and listen to. The goal is to reward artists who have devoted followings rather than those who frequently reach large audiences through playlists. In 2021, SoundCloud first revealed its FPR concept and signed agreements with independent label representatives Merlin and Warner Music Group Corp.
When it comes to discovering specialized communities and genres, SoundCloud has set itself apart from Spotify and Apple Music. These submissions are often made by unsigned musicians. These types of artists benefited most from fan-powered royalties, according to a 2022 study from Midia Research, which SoundCloud had commissioned.
According to the research, “Superstars tend to have more passive fanbases, not necessarily because they want to, but because it is what the pro-rata streaming model incentivizes.” Operating under the FPR model liberates artists from this reliance on inactive fans regardless of the size of the artist, rewarding them for putting more effort into cultivating deeper support.
Executives at Universal Music don’t like SoundCloud’s business model because they think it does nothing to combat fraud and disadvantages some sorts of performers, according to the people who asked to remain anonymous while discussing the negotiations. With its focus on superstars like Drake, The Weeknd, and Taylor Swift, Universal Music might be less likely to fully embrace FPR.
But Universal Music has started promoting its own variant—a strategy it calls “artist-centric”—in place of the others. According to the sources, Bain & Co. is consulting the business and assisting make predictions about how the potential new rewards may operate. While music services have been reluctant to provide Grainge with information about his rivals, they have been more open to participating in and influencing the research of an outside party like Bain.
With other streaming services, such as Block Inc.’s Tidal and Deezer SA, Universal has discussed a similar business model. No agreements have been made public as of yet.
