Deezer
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Jeronimo Folgueira is resigning from his position as CEO of the streaming service Deezer, the company announced Wednesday (Feb. 28). Folgueira previously held the role of CEO and director of the board at Spark Networks — an online dating company — before he joined Deezer in 2021. ”I am extremely proud of what we have […]
Deezer shares fell 6.4% this week after France’s National Assembly approved a 1.2% tax on streaming revenue on Tuesday (Dec. 19). The new tax, which is meant to support local cultural programs, taxes effect in January and will be owed on top of existing tax obligations.
Deezer CEO Jeronimo Folgueira called the tax “the worst possible outcome of all the different scenarios” the company faced from the French government. “Adding taxes is the worst way of trying to support the industry,” he told Billboard. France is Deezer’s home and largest market, accounting for roughly 60% of its revenue in the first nine months of 2023, according to the company’s latest earnings report.
Spotify immediately pulled sponsorship support for two local music festivals to help offset the additional tax burden. France is not as important to Spotify as to Deezer, however, and the new tax was probably not a factor in the 1.3% decline in Spotify’s share price this week. Spotify would be far more affected if other countries followed France’s lead — a possibility raised by Deezer’s Folgueira. “It sets a very dangerous precedent for other markets,” he warned.
SiriusXM investors were unfazed by the news that the New York attorney general’s office had sued the company for allegedly making customers go through a “burdensome” cancellation process. The satellite radio company’s stock finished the week up 1.3% to $5.47 despite a lawsuit that alleges SiriusXM “deliberately wastes its subscribers’ time even though it has the ability to process cancellations with the click of a button.” The company said it will “vigorously defend against these baseless allegations” that “grossly mischaracterize” its practices.
The Billboard Global Music Index fell 0.3% to 1,517.98, lowering its year-to-date gain to 30.0%. Nine of the index’s 20 stocks posted gains this week; 11 stocks ended the week in negative territory.
Shares of streaming company LiveOne gained 10% to $2.21 after the company on Tuesday (Dec. 19) raised its guidance for revenue for its fiscal year ended March 31, 2024, to a range of $118 million to $120 million, up from $105 million to $110 million. The company also said that it’s finalizing a restructuring of its merchandising business, first announced on Dec. 14, that will reduce headcount by 75 to 100 staffers and result in $5 million to $10 million of cost savings.
Three other companies in the Billboard Global Music Index posted gains of 5% or more this week. Sphere Entertainment Co. rose 5.4% to $34.32. Warner Music Group improved 5.1% to $35.29. And K-pop company SM Entertainment gained 5% to 90,100 won ($69.32).
Major indexes fared better than music stocks as investors reacted positively to Friday’s announcement by the Federal Reserve that U.S. prices rose less than expected in November. In the United States, the Nasdaq composite gained 1.2% to 14,992.97 and the S&P 500 improved 0.8% to 4,754.63. In the United Kingdom, the FTSE 100 rose 1.6% to 7,697.51, while South Korea’s KOSPI composite index climbed 1.4% to 2,599.51.
The French government’s decision to impose a new tax on music streaming platforms will be highly damaging for the country’s music industry and sets a “dangerous precedent” for other markets, warn streaming executives opposing the levy.
France’s National Assembly officially approved the tax charges on Tuesday (Dec. 19) as part of the country’s 2024 finance bill.
It specifies that streaming services such as Spotify, Deezer and Apple Music earning above 20 million euros ($22 million) in annual turnover will have to pay a new tax charge of 1.2% on all streaming revenue generated in France in addition to their existing tax duties. Social media platforms like Facebook and TikTok which license and feature music will also be subject to the tax charges.
The money will be used to help fund a national body to support the French music sector, The Centre National de la Musique (CNM), which was created in 2020 and is already partly financed by the live music industry.
The new levy comes into effect from Jan. 1, although music streaming services are still waiting for confirmation of when the first payment will be due to the French authorities.
‘A REAL BLOW’
Deezer CEO Jeronimo Folgueira says the tax on streaming platforms’ earnings will have “negative consequences for the entire music industry in France.”
“It is the worst possible outcome of all the different scenarios that we could have ended up with,” Folgueira tells Billboard. “Adding taxes is the worst way of trying to support the industry. It sets a very dangerous precedent for other markets.”
In a statement, a spokesperson for Spotify France called the tax “a real blow to innovation, and to the growth prospects of recorded music in France.”
The company said it is “assessing the implications of such a tax” and “strongly remain opposed to this unfair, unjust and disproportionate measure.”
On Wednesday (Dec. 20), Spotify France announced that it was pulling financial support for two local music festivals, the Francofolies de la Rochelle and the Printemps de Bourges, to help offset the extra tax burden.
Plans to tax music streaming platforms’ earnings in France have long been mooted by authorities and were first proposed in April by then-senator Julien Bargeton, who initially suggested a tax rate of 1.75% for services like Spotify, Deezer, Apple Music, Amazon Music and YouTube Music to support the French music industry.
In response, streaming executives and stakeholders from across the country’s music industry put forward a number of alternative funding solutions, including making a voluntary annual contribution of 14 million euros ($15 million) towards The Centre National de la Musique.
Executives closely involved in those talks tell Billboard that the voluntary contribution proposal — which involved the participation of collecting societies and music producers and was tiered depending on a company’s business and turnover — received “near unanimous” backing from across the sector, apart from Amazon, which refused to commit. (Amazon Music, Apple Music and YouTube Music all declined or didn’t respond to requests to comment when contacted by Billboard).
With the music industry unable to agree on an alternative offer, the French Senate voted in November to approve the new tax measures, which were formally ratified earlier this week.
TAX BURDEN
President Emmanuel Macron’s decision to tax music streaming companies to fund cultural programs follows the same principles the country already applies to the film industry. For many decades, the French government has imposed a tax levy on cinema ticket sales (currently amounting to 10.7% of the ticket price) to fund public body The French National Centre of Cinema (CNC).
Since 2010, publishers and distributors of television services, including streaming platforms like Netflix and ad-funded videos platforms such as YouTube, as well as DVD and Blu-Ray retailers, have paid a similar mandatory contribution set at 5.15% of turnover.
Like its cinema counterpart, funding for The Centre National de la Musique will come from across the French music industry, but executives at Spotify and Deezer believe it places an unfair burden on streaming companies who already pay out around 70% of their revenues to rights holders alongside their existing tax commitments in France. They include sales tax (VAT) at 20% and a 3% tax on digital services.
At present, the French live music industry pays a higher rate of tax contribution (3.5% on concert tickets) towards the CNM, but ticketing companies pay a lower rate of VAT sales tax (around 5%) compared to digital music platforms.
Physical music retailers, recording studios, radio services and labels are exempt from paying the new 1.2% levy.
“We’re not questioning the need to finance The Centre National de la Musique or be taxed. What we’re questioning is the decision to only target one distribution format – DSPs,” says one France-based music executive, speaking to Billboard anonymously.
Folgueira says the tax unfairly impacts on European streaming platforms like Deezer and Spotify, which have heavily invested in developing the local market, and disproportionately advantages American tech giants like Google, Apple and Amazon who have a smaller on-the-ground presence and “can easily absorb the costs.”
Paris-based Deezer is the market leading subscription streaming service in France and generates around 60% of its 451 million euros ($478 million) yearly revenue in the country. A tax rate of 1.2% on domestic turnover works out at around 3.2 million euros ($3.5 million), according to Billboard’s calculations.
CUTS COMING?
Folgueira says the new tax burden could possibly mean that Deezer is forced to pass on the extra costs “along the value chain,” which could include reviewing agreements with labels and rights holders.
The CEO says that it’s likely to mean Deezer cutting spend on domestic music projects and marketing, while price rises for subscribers is another possible outcome. “None of which is a good outcome for boosting the French market,” cautions Folgueira.
France is the world’s sixth largest recorded music market with €920 million in revenue in 2022, up 6.4% on the previous year, according to IFPI’s Global Music Report.
Folgueira’s concerns are shared by executives at Spotify. Speaking last week to local news network France Info, Antoine Monin, director general of Spotify France said that the company will reduce its investment in the market as a result of the taxes and said “France will no longer be a priority for Spotify.”
Billboard understands that Spotify France will be making further cost saving announcements in the coming weeks with subscription price rises among the options on the table.
Confirmation of a new tax charge for streaming companies in France comes at a pivotal time for Spotify, which posted an operating profit of 32 million euros ($35 million) in the third quarter of 2023 but has also undergone three rounds of job cuts this year.
Earlier this month, Spotify co-founder and chief executive Daniel Ek announced that the company was to close more than 1,500 posts internationally, representing around 17% of its global workforce.
“For many months now, we have been denouncing the risks underlying the creation of such a tax, particularly in terms of the loss of attractiveness for platform investments in France,” says Alexandre Lasch, managing director of French labels body SNEP. “It is precisely the artists produced in France who will be the victims.”
Despite streaming companies’ opposition to the levy, other sectors of France’s music business have welcomed the increased funding towards domestic culture.
Guilhem Cottet, managing director of the French association of independent music companies UPFI, says the establishment of a mandatory contribution to the CNM from streaming companies will help drive diversity and innovation in the sector.
“The current remuneration model is unjust towards a lot of musical genres which are not heavily listened to by young people — mostly rap and electronica — in France. And if there’s no decent remuneration, labels will cease producing these genres,” says Cottet.
“The tax is a regulation tool to ensure the CNM is able to finance them and make sure diversity prevails.”
While Spotify is planning to start penalizing labels and distributors for egregious instances of streaming fraud, Apple Music quietly rolled out its own strengthened fraud protections — including hitting repeat offenders with “financial adjustments” — more than a year ago, according to an email obtained by Billboard that the platform sent to music industry partners in March. Apple Music’s internal metrics indicate that the policy has already led to a 30% drop in streaming manipulation.
In the March email, the streamer defines manipulation as “the deliberate, artificial creation of plays for royalty, chart, and popularity purposes” as well as “the delivery of deceptive or manipulative content, like an album of 31-second songs.” “In October [2022], we launched new tools and policies designed to prevent stream manipulation on Apple Music,” the email explains. “Since we launched the new tools, manipulated streams have accounted for only 0.3 percent of all streams.”
That 0.3 percent figure is lower than the stats cited by some of Apple Music’s rivals. A Spotify spokesperson told a Swedish newspaper earlier this year that “less than one percent of all streams on Spotify have been determined to be tampered with,” while Deezer has said that it finds 7% of plays to be fraudulent. (This comparison only goes so far, though, because each service might define fraud differently, and not all of them have ad-supported tiers.)
In a statement, an Apple Music spokesperson said the platform “takes stream manipulation very seriously. Apple Music has a team of people dedicated to tracking and investigating any instances where manipulation is suspected. Penalties include cancellation of user accounts, removal of content, termination of distributor agreements, and financial adjustments.”
When Apple Music emailed industry partners in March, the streaming service noted that “despite the low percentage [of fraud], manipulation remains a widespread and persistent problem: That 0.3% of streams came from more than 85,000 albums across hundreds of record labels.”
As a result, the email indicates the company outlined a sharper anti-fraud policy in October 2022, promising to take “remedial actions against content providers with repeated and significant stream manipulation.” This means of incentivizing reform has worked for some — half the distributors that were flagged for fake streaming have reduced manipulation on their content by over 45%, the company said.
To help labels and distributors figure out where fraud is occurring, Apple Music’s email says the platform started sending daily reports detailing “a content provider’s albums with streams held in review.” “After each review,” the email goes on, “we remove manipulated streams and release legitimate plays. At the end of each month, content providers also receive a report with all excluded streams.” (Spotify has now also ramped up the reporting it provides to labels and distributors, according to one executive at a distribution company, “adding a new dimension of seeing repeat offenders.”)
“This all happens before Apple Music pays royalties and tabulates charts,” the email noted. “We block wrongdoers from the primary advantages of stream manipulation and redirect royalties to valid plays of content.”
The last six months have seen a flurry of companies committing publicly to fraud mitigation. More than half a dozen distributors formed “a global task force aimed at eradicating streaming fraud” in June. And when Deezer announced a new partnership with Universal Music Group in September, Michael Nash, UMG’s executive vp and chief digital officer, promised that “fraud and gaming, which serves only to deprive artists their due compensation, will be aggressively addressed.”
The Warner Music Group has signed on to Deezer’s new royalty payment structure in France, which was developed in partnership with Universal Music Group and announced in September, the president of the major label’s French operations confirmed today (Nov. 13). The move, which was first confirmed in a story with French outlet Les Echos, has been in place since Oct. 1, and only covers streams in France, where Deezer is based.
In September, Deezer and UMG announced their new model, which they referred to as an “artist-centric” royalty model aimed at combatting fraud, reducing the royalty pool for so-called “non-artist noise” like white noise and nature sounds, and boosting payouts for what the companies referred to as “professional artists,” or artists who were accumulating 1,000 streams per month from 500 unique listeners. The model replaces the existing pro-rata model, in which rights holders were paid by share of streams, regardless of their stature or content, which is still in place globally.
“We are delighted to partner with Deezer on this artist-centric model which rewards engaging music and demonetizes non-artist noise,” Warner Music France president Alain Veille told the outlet. “Our new deal will benefit creative talent at all stages of their careers and support our ability to invest in the next generation.”
In opting in to Deezer’s new structure, WMG joins UMG and a handful of small indies, while the third major, Sony Music, has so far not signed on. The move comes amid a year’s worth of conversation in the music industry about how to tweak the streaming royalty structure as the amount of tracks being uploaded each day to major services surpasses 100,000, and fraud on services is becoming an increasingly big topic. Universal also announced a royalty review with SoundCloud and TIDAL, while Spotify released its own tweaked model, which has far lower thresholds for artists than Deezer’s and is more narrowly aimed at fraud, rather than at determining the level of streams that constitutes an artist’s professional status.
When Deezer and UMG first announced the new model, it was met with pushback from several corners of the music business, particularly the indie sector, which was concerned about those seemingly-arbitrary levels to qualify as a “professional” and about the one-label study that led to its adoption. And while there is broad consensus in the industry that the model needs to change — including public statements from UMG chairman/CEO Lucian Grainge and WMG CEO Robert Kyncl — there is not universal agreement in how to do so, and there is a possibility that each digital service provider could adopt its own model moving forward.
In initially announcing the model in September, Deezer CEO Jeronimo Folgueira told Billboard that he expected more rights holders than UMG to sign on, and planned on rolling out the new structure globally in the coming year. For now, the model is limited to France.
French music streaming company Deezer added 500,000 subscribers in the third quarter, helping its revenues improve by 4.8% (5.5% at constant currency) to 120.7 million euros ($131.4 million), the company announced Thursday (Oct. 26).
“We are back to meaningful subscriber growth and secured top line acceleration starting in Q4 thanks to the implementation of a new wave of price increases, as well as the ongoing growth of new partnerships,” said CEO Jeronimo Folgueira in a statement.
A relatively small music subscription service, Deezer has recently taken an outsized position of influence with its partnership with Universal Music Group to revamp how it calculates artist royalties and addresses fraud. The “artist-centric” system was announced in September and will be implemented in France in the current quarter, to be followed by additional markets. Around half of Deezer’s streams are already running on the new model, the company said Thursday.
While direct subscriptions remained flat at 5.6 million, subscribers from partnerships grew from 3.8 million to 4.3 million. Deezer said it had “very strong initial subscriber growth” in Brazil and Mexico stemming from its partnership with Uruguay-based e-commerce giant Mercado Libre. The third quarter was also the first full quarter for which Deezer managed the Sonos Radio service. Deezer also powers the music streaming in RTL+, a multimedia platform launched by RTL Germany that has 4.5 million subscribers, according to RTL’s website.
Revenue from direct subscribers grew 3.3% to 71.7 million euros ($78 million). Revenue from partnerships increased 11.9% to 34.2 million euros ($37.2 million). Other revenue (advertising and ancillary revenue) decreased 16% to 4.1 million euros ($4.5 million).
France accounted for 59% of Deezer’s revenue in the quarter compared to 60% in the prior-year period. Direct subscribers in France increased by 200,000 while subscribers elsewhere decreased by an equal amount.
Direct subscribers are more lucrative than partnerships on a per-subscriber basis. Direct subscriber ARPU (average revenue per user) rose 3.4% to 4.9 euros ($5.33) while partnerships ARPU improved 10.6% to 2.9 euros ($3.16). Direct subscriber ARPU will get a further boost from a price increase instituted on Sept. 21 for all new subscribers in France, the United Kingdom, Spain and the Netherlands. For all current direct subscribers, the increase will progressively roll out starting on Oct. 24.
Deezer reiterated its previous guidance of 7% to 10% revenue growth for the full year and a “significant reduction” in adjusted earnings before interest, taxes, depreciation and amortization in the second half of the year.
Q3 2023 financial metrics:
Revenue grew 4.8% (5.5% at constant currency) to 120.7 million euros ($131.4 million).
Total subscribers grew 4.9% to 9.9 million.
Direct subscribers were flat at 5.6 million. Subscribers from partnerships grew by 500,000 to 4.3 million.
ARPU from direct subscribers grew 3.4% to 4.9 euros ($5.33).
ARPU from partnerships grew 10.6% to 2.9 euros ($3.16).
Deezer is partnering with French collective management society SACEM to explore the potential impact that “artist-centric” streaming royalty payment models will have on remuneration for songwriters and publishers.
In a joint announcement on Wednesday (Oct. 25), Deezer and SACEM said they were carrying out an “in depth” study that will analyze streaming data to evaluate the viability of different economic models “aimed at remunerating songwriters, composers and publishing rights owners more fairly.”
A representative for Deezer tells Billboard that the first stage of the study commenced earlier this month using data from paid subscription accounts in France in the first quarter of 2023.
The next stage of the project, which is expected to last several months and focuses purely on the French digital music market, will see Deezer and SACEM specifically evaluate the impact that an artist-centric streaming model would have on the society’s 210,000-plus members and international partners, which include Universal Music Publishing Group and Wixen Music Publishing, as well as collective management organizations (CMOs) SOCAN and ASCAP.
“Songwriters, composers and publishers play a crucial role in the music industry as the creative driving force behind the songs we love, and it’s time to evolve how we reward these efforts,” said Deezer CEO Jeronimo Folgueira in a statement.
The joint initiative comes less than two months after Deezer announced it was partnering with Universal Music Group (UMG) on what it calls an “artist-centric music streaming model” for recorded music.
The new artist-centric model for recorded music replaces the traditional pro-rata model whereby one stream equals one play and the total number of plays is divided up by artists and labels according to how many they each accrue.
Since launching Oct. 1, the model has been exclusively limited to France, Deezer’s home market, and, so far, only applies to artists signed to UMG and French independent label Wagram Music. However, a spokesperson for Deezer says discussions are ongoing with all labels and content providers and that the company plans to have achieved “a full rollout with all providers and countries” in 2024.
The new model promises royalty “boosts” for “professional” artists whose music is actively searched for by users, as well as boosts for artists who maintain a level of 1,000 streams per month from at least 500 unique accounts.
It also includes a monetization cap of 1,000 streams for each user, meaning that every single user’s contribution to the royalty pool is counted as 1,000 plays no matter what the actual amount is. (If a subscriber listens to 2,000 streams, for example, then their streams will count half.) Deezer says the cap will help tackle fraud and ensure that royalties are shared more fairly between artists and rights holders.
Following in Deezer’s footsteps, Spotify is understood to be planning similar changes to its streaming royalty model that will come into effect in 2024. These are reported to include introducing minimum annual stream thresholds and financial penalties for music distributors and labels committing fraudulent acts, as well as a minimum play-time length for non-music tracks, such as bird sounds or white noise, before they can generate royalties.
Over the past two years, several other streaming services, including Soundcloud and Tidal, have either introduced or announced that they are exploring different economic models to the standard pro rata streaming model following criticism from creators over low royalty payouts.
In a statement, SACEM CEO Cécile Rap-Veber said the launch of the study into how alternative remuneration models will impact publishers, authors and composers was an “essential” development, “which we hope will make it possible to increase the value of streaming for our members.”
SiriusXM shares rose 11.1% to $4.52 this week following an offer from Liberty Media on Tuesday (Sept. 26) to combine its tracking stock, The Liberty SiriusXM Group, with SiriusXM’s stock to form a new public company.
Liberty Media, which owns 83% of SiriusXM’s outstanding shares, proposed a complicated transaction that would “provide value to all shareholders with a more flexible and attractive currency” in the newly formed SiriusXM stock, Liberty Media president/CEO Greg Maffei said in a statement. SiriusXM said in a statement that a special committee of its board of directors is evaluating the proposal and provided no assurance a deal would eventually happen.
The effect appeared to be a short squeeze — albeit one smaller than the instance that inflated SiriusXM’s share price by 49% in one week in July. Because SiriusXM shares are heavily shorted and have a small float, sudden demand for the stock can create large price fluctuations. SiriusXM shares rose 15% on Thursday (Sept. 28) alone, while shares of The Liberty SiriusXM Group tracking stock finished the week up 13.4%.
While overall stocks were mixed this week, music stocks performed well. The 21-stock Billboard Global Music Index improved 1.1% to 1,344.99, better than the 0.1% gain eked out by the tech-heavy Nasdaq composite and easily besting the S&P 500’s 1.3% loss. In the United Kingdom, the FTSE 100 fell 1%, while South Korea’s KOSPI composite index dropped 1.7%. Eleven of the Billboard Global Music Index’s 21 stocks finished the week in positive territory, eight lost ground and two were unchanged.
Helped by Deezer’s double-digit improvement, streaming stocks had an average gain of 3.1%. Chinese music streamers Cloud Music and Tencent Music Entertainment gained 6.5% and 1.3%, respectively. Spotify shares dropped 2.1% to $154.63 but have gained 95.9% year to date. LiveOne shares fell 8.6% to $0.96, marking its third successive weekly loss since spinning off its PodcastOne division. This week, Billboard reported that LiveOne took out a high-interest loan to lure UFC fighter-turned-podcaster Brendan Schaub after Kast Media failed to pay him advertising money. LiveOne agreed to acquire Kast Media in May and offered Schaub and other podcasters settlements that included a mix of cash, promissory notes and PodcastOne stock.
Music’s greatest gainer this week was French streaming company Deezer. Despite there being no news — neither a press release nor a regulatory filing — that normally leads to such a substantial change, Deezer shares rose 21.8% to 2.735 euros ($2.90), including a 14.8% gain on Thursday with one of the highest trading volumes since the company went public in September 2022. Nothing indicated the company has substantially improved its earnings outlook in recent days, but Deezer had been in the news prior to this week. Three weeks ago, Deezer announced a partnership with Universal Music Group to create a new system for calculating artist royalties; and last week, the company revealed plans to increase subscription prices for new individual and family plans in the United Kingdom, Spain, Italy, the Netherlands and its largest market, France.
Live Nation shares rose 4.1% to $83.05 following news the company will help developing artists by providing a financial stipend and eliminating fees charged on merchandise sales at a number of its owned and operated clubs in the United States. Although the move will cost Live Nation money, it also comes with some strategic advantages, according to LightShed Partners analyst Brandon Ross. The decision is “great for Live Nation because it actually throws up another barrier to entry,” Ross said in the Friday (Sept. 29) episode of the LightShed podcast. “Artists are going to want to play your venue where the economics for them are better rather than somebody else’s venue.”
Earlier this month, Deezer announced a new “artist-centric” royalty model with Universal Music Group, under which the streaming service will distribute royalties under what amounts to a weighted system, rather than simply pro rata. The weighted system will attribute a doubled value to streams of “professional” artists, defined as those with 1,000 or more streams per month by 500 or more users, and would double that value again for tracks that fans searched for as opposed to those served up by the platform.
Assigning more value to music that subscribers deliberately choose to hear is clearly a good idea. In some ways, algorithmically served songs might be more akin to non-interactive radio, which under U.S. law has always generated significantly lower royalty payments.
Giving additional weight to music from more successful artists simply because they are successful is a less obvious move. Some have said that this new system sounds like a cynical reverse-Robin-Hood move that essentially takes money from the long tail of unsuccessful artists and hands it to the likes of Taylor Swift and Jay-Z simply because big artists are powerful enough to demand it. In fact, however, the proposed cutoff for defining “professional” artist status is pretty low – 1,000 streams per month from at least 500 monthly users. Long tail “noise” would be ineligible for the bonus, though, while even mildly successful developing artists would be treated the same as superstars.
What will all of this mean in practice?
Thomas Hesse
Deezer says in its press release that “97% of all uploaders on the Deezer platform generated only 2% of the total streams. Whereas only 2% of all uploaders—those artists attracting a consistent fanbase—had more than 1,000 monthly unique listeners.” It’s not clear what percentage of uploaders constitute UMG’s group of professional”artists with more than 1,000 streams from at least 500 monthly users, or what share of total streams they command. But if 2% account for more than 1,000 monthly streams and 3% make up 98% of all streams, then under any reasonable assumption those having at least 1,000 streams from at least 500 monthly users must make up at least 99% of the streams.
If 99% of streams were weighted three-fold under this artist centric policy – all would get doubled, but presumably many tracks would still be served up algorithmically – then, mathematically, that would increase their share to 99.66% (3×99 divided by (3×99+1)). So, the bottom, “noise”, uploaders would see their share of streams and revenues diminished by 0.66% from 1% to 0.34%.
And what does it mean in real money?
Applying this calculated reduction to IFPI’s published wholesale audio streaming market number of $12.7 billion for 2022 would imply a squeeze on the “noise producers” of $84m (assuming that all labels would eventually follow the UMG model). That’s hardly a large number, but as UMG EVP Digital Strategy Michael Nash says, “we’re fixing the roof while the sun still shines” – the industry leaders want to quash the value of the long tail while it’s still relatively small. Assume that the streaming market grows at 10% a year to over $20 billion within the next 5 years, then assume that, left to the status quo, the revenue take of long tail noise would grow to 5%. If that’s true, UMG’s artist-centric system would cut the noise producer share from 5% to 1.70%, a squeeze of 3.3%, and the professional artist share would go from 95% to 95×3 divided over 95×3+5, or 98.3%. That would amount to a redistribution of $660 million to professional artists, an amount of money that would certainly register.
That means artist-centric royalties do make sense, although they feel like more of a tweak to the existing system than a fundamental change.
As has been often noted, the current pro-rata model essentially takes subscription money from users who spend less time on a platform (lower intensity users) and passes it to the artists favored by those who spend more time there (high intensity users, or super fans). This redistribution of subscriber revenue does not reflect the proportional tastes of all fans in the market, so it disadvantages deep catalog artists and creators in genres favored by less active users, who tend to be older, such as classic rock, jazz and classical music. Besides being perceived as unfair it also reduces the funds that support a more diverse music landscape and contributes to more streamlined and monolithic business driven by megastars and TikTok. The artist-centric royalty system doesn’t even address this.
It also doesn’t do anything about the fact that heavy users still pay the same low monthly price for access to essentially all the music ever recorded as those who stream far less. Combining a higher monthly price for heavy users with a fan-centric royalty model could represent the leap forward that the industry needs, increasing average revenue per user (ARPU) from heavy users, who would be the least price-sensitive, while distributing the resulting royalties to better reflect the music preferences of everyone who pays for a service. Such a change would grow the overall business and at the same time fund the creative development of a more diverse music landscape.
Thomas Hesse is the former president of global digital business & US distribution at Sony Music Entertainment, and the president and chief digital officer of Bertelsmann. He currently builds and supports the next generation of media companies.
European independent labels trade group IMPALA says it has concerns that the new “artist-centric” streaming model being rolled out by Deezer and Universal Music Group (UMG) later this year could create a “two-tier” music market that unfairly disadvantages indie artists and labels.
In an announcement on Friday (Sept. 15), Brussels-based IMPALA says that Deezer’s plans to introduce a new methodology for paying out streaming royalties for UMG artists from October 1 — at first only in France, Deezer’s biggest market — risks impacting independent and micro labels, which provide 80% of all new releases in Europe.
Among those whom IMPALA warns could be affected by the new streaming model announced by Deezer and UMG last week are new artists yet to be discovered, acts that deliberately cater to niche audiences and musicians from smaller markets.
The European trade body, which represents nearly 6,000 independent companies and labels, including Beggars Group, Cooking Vinyl, Epitaph and PIAS Music Group, says “the fact that the Deezer proposal has been developed in a vacuum” with UMG, the world’s biggest music company, “instead of the sector generally is also a concern.”
In response to its members’ worries, IMPALA says it is seeking “more clarity” from Deezer about its new streaming royalties model, which replaces the existing pro-rata setup — whereby one stream equals one play, with the total number of plays proportionally divided up by artists and labels — with a new system that prioritizes active listening, meaning users who intentionally search for or click on an artist’s song.
Under the new “artist-centric” model, “professional artists,” which Deezer and UMG categorize as artists who have accumulated at least 1,000 monthly streams from at least 500 unique users, will receive a higher share of streaming royalties, while Deezer will remove “non-artist noise” — essentially, white noise and nature sounds, which the company says accounts for 2% of streams — from the available royalty pool. As part of its reforms, Deezer has also vowed to crack down on streaming fraud and malicious actors exploiting the system.
At present, Universal is the only label signed up to the new streaming royalty allocation model, although in an interview with Billboard, Deezer CEO Jeronimo Folgueira said the Paris-based company is in discussions “with all content providers” and anticipates that more than 50% of its repertoire will be on the new model come its launch in October. He said the company also plans to expand the offer beyond France, where it will be piloted this fall, to “all providers in all countries” in 2024.
Responding to the UMG-Deezer plan, IMPALA’s executive chair Helen Smith said she welcomes Deezer’s “commitment to improve the streaming market” but cautions that “more debate is needed on this vital question… and its potential impact on the music ecosystem.”
In April, IMPALA published an updated version of its own 10-point plan to reform streaming, which proposed various changes to how digital royalties are allocated, including attaching a premium value to tracks that the listener has sought out as well as a so-called “Fan Participation Model,” whereby artists and rights holders could generate incremental revenue within digital services through offering special features and extra tracks.
The trade group says it has discussed its proposals with multiple digital services and will continue to push for “meaningful streaming reform.”
“It’s a common thread through the history of recorded music that the great artistic advances and changes have come from, and through, the independent sector. I don’t expect Goldman Sachs to know that but Deezer and UMG certainly do,” said Mark Kitcatt, chair of IMPALA’s streaming reform group.
Kitcatt added, “We hope that services will join with us to reform the streaming world in a way that increases opportunity and reward for all dedicated music creators, and enhances and enriches the experience for fans, rather than just diverting more royalties towards the biggest artists.”