Universal Music Chief Lucian Grainge Slams Streaming Economy: ‘We Need an Updated Model’

In his annual letter to the company’s staff, Universal Music Group Chairman/CEO Lucian Grainge has taken aim at the existing model for the music-streaming economy, saying it has become outdated as the format has grown and “needs to evolve.”

Amid many other updates in the letter, dated Jan. 11 and obtained by Variety, he writes, “What’s become clear to us and to so many artists and songwriters — developing and established ones alike — is that the economic model for streaming needs to evolve. As technology advances and platforms evolve, it’s not surprising that there’s also a need for business model innovation to keep pace with change… Under the current model, the critical contributions of too many artists, as well as the engagement of too many fans, are undervalued.”

He is addressing in no uncertain terms the model by which creators are paid in streaming, whereby a service places all of the music streams into one big pile and pays creators based on their percentage of that pile, which is why streaming pays millions to top creators like Taylor Swift and Drake and much less to non-superstars. It is also a major reason why songwriters are getting the short end of the stick in the streaming economy: Publishers are paid on average 25% of streaming revenue while recorded music receives 75%, and considering the large number of songwriters credited on hit songs these days, that’s a very small slice of the pie for the people who actually create the songs.

Grainge also says that the “user-centric” model, whereby each user’s subscription money goes only to the songs that they have played (as opposed to the percentage-of-the-whole model described above) isn’t the answer either, as it creates a different set of imbalances.

While he doesn’t propose a solution in the letter, he promises that Universal — the world’s largest music company — “will be working on the innovation that is absolutely essential to promote a healthier, more competitive music ecosystem.

“We need an updated model,” he writes. “Not one that pits artists of one genre against artists of another or major label artists against indie or DIY artists. We need a model that supports all artists — DIY, indie and major. An innovative, ‘artist-centric’ model that values all subscribers and rewards the music they love. A model that will be a win for artists, fans, and labels alike, and, at the same time, also enhances the value proposition of the platforms themselves, accelerating subscriber growth, and better monetizing fandom.”

In the letter, he also slams the algorithms that streaming platforms use to direct users to music, sometimes with less-than-artistic motives. He also reiterated his alarm at the vast amount of music being uploaded to platforms, which can exceed 100,000 songs per day.

“Consumers are often guided by algorithms to generic music that lacks a meaningful artistic context, is less expensive for the platform to license or, in some cases, has been commissioned directly by the platform,” he writes. “For example, just witness the thousands and thousands of 31-second track uploads of sound files whose sole purpose is to game the system and divert royalties. The result? A less fulfilling experience for the consumer, diminished compensation flowing to artists that are driving the business models of the platforms, and fewer cultural moments that fans can collectively share, all of which undermines the creativity and development of artists and their music that the platforms were, in part, designed to foster… consumers are increasingly being guided by algorithms to lower-quality functional content that in some cases can barely pass for ‘music.’”

He concludes, “Achieving such a profound change will present challenges as well as opportunities. I’m confident, however, that our long and deep involvement with music and artists will enable us to safely and profitably navigate our way forward through the industry’s next big shift.”

Read his letter in full below.

Dear Colleagues,

Happy New Year! I wanted to write to you to welcome you back and as promised, give you my thoughts about the year ahead. It’s hard to believe that just a little more than a year ago, UMG became a freestanding public company. It was a watershed moment in our history. And yet, in some ways, when it comes to what we do every day, we just kept doing what we’ve always done: bring great artists and their music to the world; break performance records of all kinds everywhere; and drive the industry forward though creativity, strategic investments and innovation.

And that’s exactly what we plan to do this year.

Now, with 2022 in the rearview mirror, I’d like to share with you a few thoughts about what was an extraordinary year for UMG and also express my gratitude to all of you for making the year so remarkable. I’ll have something to say as well about the very real challenges and opportunities that lie ahead for us in 2023, but first let’s take a brief victory lap to reflect on what we achieved last year.

Beginning with some accomplishments I’m particularly proud of, here are just a few examples of how, once again, you and our artists showed up big time to make our communities stronger and help those in need:

— Serving more than 20,000 meals around the world;

— Building community gardens throughout the US, Europe and Australasia;
— Working on vital education campaigns with organizations such as Mental Health Coalition; and

— Extending our programs to benefit our artists past and present including assisting hundreds of artists in saving millions of dollars in healthcare costs through our partnership with Music Health Alliance in the U.S.

And our company’s Task Force for Meaningful Change continued its groundbreaking work in a variety of ways: funding programs to mentor the next generation of Black artists and Black music industry executives; fighting for criminal justice reforms; investing in community violence intervention programs and policy organizations; partnering with HBCU medical schools to widen the Black practitioner pipeline; and helping turn out the vote in the U.S. elections by providing more than 13,000 rides to and from the polls. Between the TFMC, our All Together Now Foundation, and our Employee Matching Program, we have contributed to more than 500 organizations in 2022 alone.

On the charts, the performance of our artists and songwriters remained stellar. So many artists from around the world contributed to 2022’s success, with standout performances from: Taylor Swift; Olivia Rodrigo; The Weeknd; The Beatles, Kendrick Lamar; Drake; BTS; Karol G; Luciano; Angèle; Glass Animals; Imagine Dragons; Rammstein; Helene Fischer; ABBA; Ado; Elton John; Eminem; Justin Bieber; King & Prince; Lil Baby; Billie Eilish; among many many others. Here are some examples:

— On Spotify: UMG had four of the Top 5 Artists globally; four of the Top 5 in the U.S.; 7 of the Top 10 in Germany and Italy, including No. 1s in both countries; and the top female artist in France;

— On Apple Music: Universal Music Publishing Group had writer-interests in 9 of the Top 10 most-streamed songs globally;

— On YouTube: UMG had 7 of the Top 10 Songs in the U.S.;

— On Billboard: We had the No. 1 Song on the Hot 100 year-end chart and 7 of the Top 10 Albums;

— On Deezer: UMG had the Top 2 Artists globally, and 5 of the Top 10;

— In Germany: The Top 4 Albums and the Top 3 Singles;

— In the U.K.: 6 of the Top 10 artists including No. 1;— In Japan: The No. 1 Artist on Billboard’s Year-end Chart;

— On Vevo: The No. 1 Global Artist

— And finally, in China: Eason Chan’s “Gu Yong Zhe” (“The Lone Warrior”), became the most-streamed song in UMG China’s history after topping the charts on all major streaming platforms.

All that — and so much more — didn’t just “happen.” To achieve such astonishing success for both developing and established artists, and to do so year after year, in every conceivable genre, often in regions beyond their home countries, is no accident. UMG’s unique artist-centric culture accounts for that repeated success and is at the heart of our company’s two-fold mission.

Our first, simplest, and yet most difficult imperative is to discover and break new artists and then sustain their careers over the long run. Unlike so many other players in the music world, especially the newer ones, UMG can never be regarded as merely a “checkbook and distribution” company. Nor are we some convoluted financial instrument that seeks to exploit the recent growth in our industry. No, we are different. Very different. Because for all of us at UMG, music and the artists who create that music comprise our very raison d’être. It’s what gets us up in the morning.

The second part of our mission is to promote a healthy, sustainable and exciting music ecosystem in which our artists can thrive for years and decades to come. We fulfill that goal by using our ingenuity to drive the music industry forward as technology and the world around us keep changing. That is why, even as we diligently work, day-in and day-out, to break our artists and songwriters, we’re also pursuing unexplored avenues of creative and commercial possibilities and, whenever appropriate, taking the necessary steps to turn those possibilities into reality.

One powerful example of one of those possibilities becoming reality: immersive or ‘spatial’ audio. Seven years ago, we embarked on a journey to evolve the music listening experience. We approached Dolby with a proposal: if our two companies worked together, we could develop a new format that envelops the listener into a 360-degree immersive environment that provides artists with a broader creative palette on which to express themselves. We believed that this could be one of the most important developments in the recorded music listening experience in decades.

An advance as significant as immersive audio was no easy feat. It required years of investment and innovation. Much more. We built state-of-the-art recording suites within our network of iconic studios — Capitol Studios in L.A. and Abbey Road Studios in London, to name just two. We trained some of the world’s top engineers in how to make the best use of the format. And we conducted an extensive campaign to educate artists and artist estates about the limitless creative opportunities that immersive audio provides.

We’re already seeing the results. Nearly half of UMG’s streaming consumption and 80% of our top-50 streaming artists’ music are available in immersive (or Atmos) versions.

Who benefits from this landmark innovation? For starters, artists, of course. And by “artists,” I mean all artists, not just UMG’s. Thanks to our efforts, the entire industry has been releasing more and more music in immersive audio. And many platforms — including Apple Music, Tidal and Amazon Music — are offering this far superior experience to the other beneficiaries of immersive audio: music fans. Millions and millions of them around the world. And they simply can’t get enough.

This year fans will get even more. I am confident that we will see significant global growth in the availability of immersive audio as more and more automobile and device manufacturers introduce new products designed to deliver this greatly enhanced musical experience.

Looking beyond the expansion of immersive audio, our determination to drive change will only accelerate this year. Just as we’ve done so successfully in the past, we’re putting in place the strategies and resources to lead through every significant technological advance on the horizon. And each such advance — from web3 and the metaverse, to new applications for health and wellness and medical music delivery — will enable us to connect directly to consumers in ways that were unimaginable just a few years ago and deliver significant long-term value to those fans, as well as to our artists, our employees and our shareholders.

That’s exactly the pioneering approach we took at the advent of streaming. Early on, we saw the potential inherent in streaming and subscription and jumped right in. Though it seems like only yesterday that we were working with Spotify to enable their U.S. launch, that “yesterday” was way back in 2011. While other companies were trying to hold their ground even as that ground was shifting beneath their feet, UMG leaned into what was the most profound business model shift the industry had ever seen, redesigning our global organization, becoming the first to adapt to and then thrive in the streaming era.

But if history teaches us anything, it is this: every blazingly transformative technological development inevitably creates new challenges for us to confront. So, it’s no surprise that after almost a dozen years of fundamentally transforming the music business, the manner in which music is presented and consumed on streaming platforms has itself evolved. And while that evolution has created enormous opportunities and benefits for artists and consumers — reflected in increased listening diversity that initially comes with adoption of subscription — it has also created byproducts that are increasingly confusing and unfulfilling for them as the volume of noise in the marketplace has increased. Today, some platforms are adding 100,000 tracks per day. And with such a vast and unnavigable number of tracks flooding the platforms, consumers are increasingly being guided by algorithms to lower-quality functional content that in some cases can barely pass for “music.”

Let me explain. In order to entice consumers to subscribe, platforms naturally exploit the music of those artists who have large and passionate fan bases. But then, once those fans have subscribed, consumers are often guided by algorithms to generic music that lacks a meaningful artistic context, is less expensive for the platform to license or, in some cases, has been commissioned directly by the platform. For example, just witness the thousands and thousands of 31-second track uploads of sound files whose sole purpose is to game the system and divert royalties. The result? A less fulfilling experience for the consumer, diminished compensation flowing to artists that are driving the business models of the platforms, and fewer cultural moments that fans can collectively share, all of which undermines the creativity and development of artists and their music that the platforms were, in part, designed to foster.

While this unsatisfying situation is discouraging, it’s not surprising. Now that the industry is growing again — in large part as a result of UMG’s strategy, investments and innovation — new players as well as some bad actors who do not share our commitment to artists and artistry have been swooping into the reinvigorated industry.

In the past, music industry conflict was often focused on ‘the majors versus the indies.’ Today, however, the real divide is between those committed to investing in artists and artist development versus those committed to gaming the system through quantity over quality. The current environment has attracted players who see an economic opportunity in flooding platforms with all sorts of irrelevant content that deprives both artists and labels from the compensation they deserve.

What’s become clear to us and to so many artists and songwriters — developing and established ones alike — is that the economic model for streaming needs to evolve. As technology advances and platforms evolve, it’s not surprising that there’s also a need for business model innovation to keep pace with change. There is a growing disconnect between, on the one hand, the devotion to those artists whom fans value and seek to support and, on the other, the way subscription fees are paid by the platforms. Under the current model, the critical contributions of too many artists, as well as the engagement of too many fans, are undervalued.

Therefore, to correct this imbalance, we need an updated model. Not one that pits artists of one genre against artists of another or major label artists against indie or DIY artists. We need a model that supports all artists — DIY, indie and major. An innovative, “artist-centric” model that values all subscribers and rewards the music they love. A model that will be a win for artists, fans and labels alike, and, at the same time, also enhances the value proposition of the platforms themselves, accelerating subscriber growth, and better monetizing fandom.

Along with many others in the music world, we share deeply held principles about the value of artistry and the artist-fan relationship. This year, we will be working on the innovation that is absolutely essential to promote a healthier, more competitive music ecosystem, one in which great music, no matter where it’s from, is easily and clearly accessible for fans to discover and enjoy. An environment where great music is not drowned in an ocean of noise. And one where the creators of all music content, whether in the form of audio or short-form video are fairly compensated.

Achieving such a profound change will present challenges as well as opportunities. I’m confident, however, that our long and deep involvement with music and artists will enable us to safely and profitably navigate our way forward through the industry’s next big shift.

I’m looking forward to being on this journey with all of you!

Our past is prologue to a future where the solutions we find and the steps we take to implement them will contribute to another era of growth for UMG and the industry at large. I believe there is no better team anywhere than the one we have right here at UMG.

Thank you once again for incredible 2022 in which our artists and our company achieved remarkable things.

Source: Jem Aswad – variety.com