Deezer
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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.”
Last week, French music streaming service Deezer joined with the Universal Music Group to roll out what they called an artist-centric music streaming model, which they said was “designed to better reward the artists and the music that fans value the most.” It’s the result of a six-month partnership announced in March that promised to examine the current “pro-rata” streaming royalties model, in which artists and labels are paid according to their share of streams out of the available pool of revenue generated by streaming services. They aim to identify a new way of paying out that revenue, at a time when streaming service catalogs have exploded to north of 200 million tracks and fraud and streaming manipulation have proliferated on platforms.
The artist-centric model, which Deezer says will begin rolling out Oct. 1 in France for UMG artists with plans to expand it to more content owners and additional territories, relies on a “boost” model that rewards artists who are actively searched for by users, as well as those who maintain a level of 1,000 streams per month from at least 500 unique accounts — what Deezer/UMG are terming “professional artists.” And it has generated plenty of scrutiny from many corners of the industry, despite its initial limited scope.
Here’s how it works: Under the “old” pro-rata model — or the one still in effect at every major streaming service — one stream equals one play, and the total number of plays is divided up by artists and labels according to how many they accrue. Under this “artist-centric” model, if an artist qualifies as a “professional artist,” one stream would get “boosted” to count as two plays; and if a user actively searches for or clicks on an artist’s song, that stream would get “boosted” to count as two plays. If a user actively searches for or clicks on a song by a “professional artist,” that stream counts as four plays when the pool of revenue gets divided up. As part of this, “non-artist noise” content — essentially, things like the sound of rain or a washer/dryer that contains no music — will be removed from eligibility from the royalty pool, and eventually deleted from the service altogether, to be replaced by in-house noise uploaded by Deezer that will not generate revenue.
That’s the headline change, but there are many other elements to this switch as well, some designed to root out streaming fraud or bad actors gaming the system, and others that are designed to promote human artists at the expense of general audio. Deezer also released some statistics to support the changes, including that “non-artist noise” content accounts for 2% of all streams; that in 2022, 7% of all streams on its platform were fraudulent; and that, contributing to the clutter on the platform, 97% of all uploaders to Deezer generated just 2% of total streams. All told, Deezer eventually expects the changes to increase artist royalties by as much as 10%.
Still, there is work to be done for the service to implement this more widely. Deezer CEO Jeronimo Folgueira says the company is actively looking to bring more partners aboard, and expects to have more content providers on the system by the time of the Oct. 1 launch, with a full rollout with all providers across all territories intended by next year. In the meantime, “the royalty structure of labels and artists that are not signed on yet will not be affected during the transition period,” he says. The model will also initially only cover recorded music royalties, though he says “our goal is to include publishing royalties as well and will begin discussions with publishers in the near future.”
Folgueira spoke to Billboard to explain how it all works and break down how the companies created the thresholds and distinctions that underpin the new system.
Billboard: Can you walk me through the last six months of how you guys got to this point?
Jeronimo Folgueira: Deezer has been promoting a change in the model for more than four years, advocating for UCPS [User-Centric Payment System]. UCPS is much better than the old model that we had, but we figured that there’s a better way of implementing this, which is artist-centric. Artist-centric is better than UCPS, which is why we were able to get this one over the finish line, whereas with UCPS there was a lot more resistance.
Basically, given our background, it was obvious that we would engage in reviewing the system. And Universal has, in the last few months — since Lucian Grainge took on this topic personally very strongly — supported changing the model to artist-centric, so we announced a collaboration with them where we looked into the data with a consultant that they hired to see, basically, what would be the right way of moving the model.
It started from different parts. We came from a UCPS base, Universal came from an artist-centric point of view that was different from where we ended up, and we tried to find something that would make sense and would be fair for the whole industry and achieve the benefits of what we wanted while minimizing the negative impact. Because with UCPS, there were some really good artists who got negatively affected. But with the artist-centric model we’ve created now, basically all professional artists creating valuable content will get a benefit. Some get a huge benefit, and some get a small benefit, but creators making high-value content all benefit. With UCPS, there was more shuffling for artists.
That’s why in this first version of artist-centric, we’re focusing mostly on eliminating noise from the royalty pool and giving a boost to professional artists that create valuable content that users love and want. We’ve been working on this for months, working on different versions of the model, running data to make sure that we eliminated the wrong incentive and created the right reward for the right content and behavior.
What do you expect the effect to be?
Overall, the pool doesn’t really change, it changes the distribution of the pool. But effectively what we’re doing is reducing the economic incentive for fraud and gaming the system. We’re eliminating the payouts to pure noise, and we’re boasting the payouts to real artists. So effectively there will be a shift of money from low-quality content — or not even real music — back to real, professional artists. So what we see is that producers of valuable content will get an uplift, on average, of around 10%.
What does a “boost” mean?
The boost is for a professional artist — and we consider that to be if you have more than 500 listeners a month and more than 1,000 streams. The threshold is very low, and any small, independent artist will reach those levels, so as long as you have a minimum amount of a following and fans, you’ll get to that boost. And if people search for your song, or add it to favorites or have it in a playlist, it gets another boost. So it basically means a stream of a song from one of those artists will count four times for the pool system. So it’s still a pool system, but those streams will count four times. Whereas rain, for example, will count zero, and functional music will count once. So they get boosted 4x for producing content that people actually love.
And where does the extra money come from?
The pool is the same, but the way that pool gets distributed is based on the share of streams. But that’s where the boost comes from. Noise will not get paid at all, so that’s where some of the money comes from; functional music, or music from artists that do not qualify for the threshold, will get paid less; and then artists that create valuable content will get the boost, therefore they’ll get paid more.
How did you come to the “professional artists” distinction?
We looked at different thresholds. We wanted to create a threshold that was transparent and fair, so that a small, up-and-coming artist could get there, because we want to support new up-and-coming artists and independent artists. So it was very important that this was something that was good for all artists, not just artists that were signed to a major record label. With that threshold, even though a lot of the artists on the platform will not qualify to get that boost, the majority of the streams actually do. If an artist doesn’t get to 1,000 streams and 500 listeners a month, they cannot make a living [through streaming] regardless of what the payout of the model is. So you’re not technically a professional. And any up-and-coming artist that is rising up gets to those levels pretty quickly. You don’t need big marketing budgets or promotions behind that. We’re talking about levels that are relatively easy to achieve once you are a professional and do this seriously.
But wouldn’t those smallest artists need that money the most?
Yeah, but we’re talking about people that are making €3 or €5 euros per month; it doesn’t make any real difference. It will not change anything at all. That’s why the threshold is so low — that economically it makes no impact whatsoever.
What effect would this have on playlisting? If you click on an artist’s song, they qualify for the boost — is that just if you’re looking at an artist’s page and seeking out their music? Or if you click on their song that’s first on a playlist?
If a song is on a playlist, it will always get the active boost. You would not get it if it’s algorithmically pushed to you. So if you’re listening to [algorithmic playlist] Flow, for example, and you discover new songs on Flow, you haven’t really chosen them, so those would not get the boost. If you come across a song [on an algorithmic playlist] and favorite it, that would get the boost.
What do you define as “non-artist noise”? Is there a threshold there?
We wanted to be very fair and transparent and start in a very simple way, which is noise that has no music at all. Right now what we are going to stop paying, and eventually deleting, will be pure white noise — the sound of a washing machine, or rain, but without any music or anything else. That is the first stage, because it’s very easy to detect and very fair.
Then, there are different layers. Once it has music, then obviously it will not have the artist boost, most likely, and will probably not get to the active boost, but it will still be paid and still be there. So it won’t qualify for the boost, but it will still be paid and be available. Later on we’ll look into how that evolves and make sure that people aren’t abusing it, and if it becomes an issue then we will address it. It has to be a model that gets reviewed regularly, the same way that the Google search algorithm gets reviewed regularly to make sure that it’s always giving you the most relevant results, to make sure that there’s no gaming of the system, that it’s actually helping real artists.
What we’re trying to do here is support the creation of high-value content from real artists. And therefore we will continue to monitor it. Initially, it’s a very simple execution: pure noise gets kicked out, but anything with music will stay for the time being.
Where do you draw that line between what is “functional music” and what is artistry?
Right now, we don’t, because it’s a very difficult line to draw. If we find a way to draw that line then we will, but it has to be fair and it has to be very transparent. It cannot be subjective. We haven’t found a rule that is fair and transparent to define what is functional music and what is not, so that’s why we decided not to go there and went for the boost instead. Because what we see is, if it’s functional music, people don’t really add it to a playlist or follow it or search it or put it in favorites. So usually, things that are functional music, by nature, will not qualify for the boost. So the boost is basically a smart way of letting the behavior of the users boost what is real, high-value content, versus what is purely functional music.
Is this also about AI protection? Protecting “real” artists vs. AI artists?
Initially, we’re not taking any steps against AI. The model is not designed against it. However, it is a model that is built in a flexible way that can protect real artists from AI in the future, and what we said is that the real artist boost should be applied to real, human artists, so if it’s a machine it should not qualify for the active boost.
Your press release also mentioned a “stricter provider policy” that you guys are implementing. What does that entail?
Basically right now, like every other DSP, we allow people to upload music through these do-it-yourself [distribution] platforms; there’s plenty of them. And there’s a lot of content being uploaded. What we want to do is make sure that we get content that is valuable. We don’t want more noise getting uploaded to the platform and we want to be very strict with fraud and gaming [the system]. There are certain providers where more than 50% of what they uploaded we had to take down because of fraud. So we’re going to potentially block those providers altogether. We do not want to be used to game the system. Until now we had been allowing everything, and only when something gets detected as fraud did we deal with it. Now we want to be a lot more strict with what we allow to be uploaded.
But as you were saying, so much gets uploaded every day. How do you screen that?
AI. There will be clear rules, and then the machine will be screening all content that gets uploaded, and once you get to certain thresholds where they’re providing too much content that is detected as fraudulent or gaming the system, then we will just block them, the same way that Google will penalize anyone that is gaming their SEO and will remove them from search results for at least six months. There are penalties for bad behavior. Right now in streaming there are no penalties for bad behavior, and we’re trying to introduce them, the same way that Google and many other platforms do.
What other practices are you instituting to combat this fraud?
One really important aspect of eliminating the fraud element is we’re going to put a cap on the impact of a single user on the pool of streams: only 1,000 streams per user per month will count. So if you listen to 2,000 streams, then your streams will count half. That way, you cannot have one account racking up 10,000 streams and stealing money from the pool. A normal human will consume anywhere between 400 and 600 tracks per month, so we’ve set the threshold at 1,000. At 1,000, more than 90% of the behavior is captured and then only the outliers go beyond that. Some of it is not fraudulent — it’s usually young kids listening to K-pop or rock day and night. But the behavior of the fraudulent accounts, or gaming the system, happens by hacking accounts and generating huge amounts of streams to steal money from the pool. So by putting a cap of 1,000 streams per user, we are eliminating the economic incentive. You’d have to fake or hack a lot of accounts to have an economic impact, whereas right now with only a handful of accounts you can have a massive impact on the pool.
That 400-600 tracks, that was a result of your research?
Yes, our data. We have 10 million monthly subscribers, and over the last 15 years it’s pretty statistically significant that a normal human will listen to something in the range of 500 tracks. It really depends on age; the younger you are, the more tracks you listen to. But generally speaking, in normal human behavior, everything will be captured below 1,000 streams. If you’re above 1,000 streams you’re an outlier, and we don’t want those outliers or gamers of the system to have an impact on the pool.
What other tweaks are possible as you guys start to roll this out?
One thing we left out that we looked at was potentially adding another layer, which was streaming time. So instead of calculating it by stream, calculating it by the time you spend streaming a song. But what we saw is that with the current boost, the impact is already captured. So if you added listening time on top of the current layers that we created, the impact is minimal, because if you love a song, you usually listen to the whole song. We explored it, looked at the data and decided it wasn’t needed, and we wanted to keep it as simple as possible. But we haven’t completely ruled out listening time.
The other thing we haven’t completely ruled out is moving more and more towards a user-centric approach. Right now we cap things at 1,000 streams. But that can come down eventually to make it closer and closer to a UCPS approach. So that’s another variable that we’ll want to keep an eye on. And the other one is the threshold for a “professional artist.” We need to make sure that the 1,000 streams and 500 listeners a month is the right level and that it doesn’t have negative consequences. Because we really care about new, independent up-and-coming artists. We want to support them. So we will be reviewing that and its impact on new artists as well.
What might make you lower that threshold?
We have looked at so much data, which is why I feel like the level is in the right place. But feedback from the community and if there were any unintended consequences that we couldn’t see in the data that we already have.
When you roll this out, does this only apply to UMG artists?
Yes and no. Right now, the agreement is with Universal, however we’re in discussions with all content providers. The majority of content providers are very happy with the artist-centric model, because everyone who produces high-quality content gets a boost, whether you’re a major record label, an independent record label or a small indie artist distributing yourself. As long as you create content that people value, you will benefit from the model. I expect a big chunk, if not more than half, of our content will be on the new model by the time we launch this on the first of October. And our intention is to roll this out to all providers in all countries in 2024.
What would be a mark of success for this program? Six months from now, what would tell you that this is working?
I think it’s if real artists really get the boost, if they see an uplift in royalties, that’s where we would say that this model is working and helping good artists create valuable content. That’s ultimately what we want to do. The pool of money is the pool of money. Obviously we’re working to raise the ARPU [average revenue per user] and grow the pie, but that’s a different discussion. But from the pie that we have, more of the money has to go to artists who create valuable content, to implore them to continue to create valuable content. If those boosts work as intended and the real artists creating valuable content see an uplift in royalties, this model will have succeeded.
As the music streaming business matures, the way people listen to music could determine how artists get paid. Sitting back and letting a streaming service choose a song will result in a lower royalty than choosing the song yourself, if this week’s news of a new streaming model is any indication.
It’s not a phobia toward algorithms that’s driving the change. Rather, the approach rewards those artists who create the most active engagement. Songs that play in the background are deemed to be less valuable.
On Tuesday, French music streamer Deezer and Universal Music Group announced a partnership to reinvent how Deezer calculates UMG’s streaming royalties. The partnership will “[reduce] the economic influence of algorithmic programming” and reward “engaging content” with greater royalties, according to the companies’ press releases.
When they say, “algorithmic programming,” they mean the streaming service’s personalized recommendations about what song will play next. That’s a more passive, lean-back approach to listening than hunting and pecking on the app’s user interface to choose a song.
At some point between the launch of internet radio platforms and the present battle for better royalties, passive listening got a bad rap. What has the world come to, some people fret, when dreaded algorithms are deciding what music gets heard? What gives an algorithm such an important role in determining how royalties will be paid?
But algorithms are a common way to stream music. When given an on-demand streaming service, people often let an algorithm do the hard work of picking the next song. A 2021 MusicWatch survey found Spotify Premium users spent 25% of their time in “lean-back” listening rather than “lean-in” listening. That figure rose to 31% for Apple Music users and 32% for Amazon Prime Music users. In all, 48% of time spent listening to music was “lean back” listening on streaming services, broadcast radio and satellite radio.
Algorithms also drive helpful products such as Spotify’s Discover Mode, a promotional tool that allows artists and labels to find new listeners in return for a lower royalty rate. It works by increasing the likelihood a song will be recommended to a listener. It’s popular, too. From the first quarter of 2021 to the first quarter of 2022, Discovery Mode had a 98% customer retention rate, Charlie Hellman, Spotify’s vp/global head of music product said during the company’s 2022 investor day presentation.
When a streaming service does personalization well, it adds great value to a listening experience. Pandora was revolutionary when it launched in 2005 because it had a spooky sense of what people wanted to hear. Its Music Genome Project, a proprietary technology that classifies recordings’ various musical traits, gave it the ability to pick the right songs based on a history of giving other songs a “thumb up” or “thumb down” vote. Pandora took away the effort in digging for songs and provided a much broader catalog than broadcast or satellite radio.
Today’s music streaming services are superior to their predecessors — and their own previous iterations — specifically because they have mastered passive listening. Consider how far Spotify has come since it was launched. Spotify used to recommend songs based on a user’s social network — kind of an “if your friend likes it, you’ll like it” approach to song-picking. But it wasn’t a good listening experience. Spotify’s decision to acquire music intelligence startup The Echo Nest in 2014 was the cornerstone for a new approach to providing a personalized listening experience.
The proliferation of smart speakers only adds to the need for algorithmic listening. About two-thirds of U.S. smart speaker owners wanted to own the devices to discover new songs, according to a 2022 Edison Research survey, and their share of time spent listening to audio through a smart speaker increased 400% over the previous five years. The joy of owning a smart speaker is allowing the device and streaming service to do all the work — it’s passive listening at its best.
Most Americans use their favorite streaming service when doing things around the home such as cleaning, relaxing, cooking, eating and entertaining guests, according to the same MusicWatch study. Most people stream music when exercising. More than half of people also use their favorite streaming service when driving, although satellite and broadcast radio were preferred in the car over streaming. Streaming service Songza, acquired by Google in 2014, was built on the premise that people chose music for moods and activities. That approach to curation has since been adopted by most — if not all — streaming services.
The UMG-Deezer partnership is evidence that background listening is on its way to getting a demotion. Deezer will remove tracks of white noise, which account for 2% of its streams, from the royalty pool. That leaves more royalties for professional artists who depend on streaming to earn a living. Throughout the year, UMG has been calling out “functional music” — a term that has come to mean low-cost or generic music built for moods or activities — and drawing a distinction between artists who draw people to streaming services and sounds that people play in the background.
Taylor Swift and Drake may rule the charts, but functional music is mainstream, too. Of U.S. music streamers who listen to playlists, many of them listen to playlists for white noise (36%), rain sounds (45%) and relaxation (61%), according to a 2023 MIDiA Research survey. In recent years, streaming services have broadened their playlists and radio stations to address the fact that consumers want a variety of sounds.
Artists with small followings will get less, too. Deezer will “boost” the royalties of “professional” artists with at least 1,000 streams per month by a minimum of 500 unique listeners. That will relegate hobbyists and artists early in their career development to a different tier. Exactly how many artists will be affected isn’t clear, but Deezer says just 2% of artists on the platform have more than 1,000 monthly unique listeners.
UMG and Deezer aren’t exactly taking an innovative stance, however. The music industry — at least in the United States — has already determined that active, on-demand listening is more valuable than passive, non-interactive listening. The Deezer-UMG partnership merely codifies for an on-demand service what is standard at internet radio. In the United States, non-interactive internet radio streams from the likes of Pandora pay 0.24 cents per ad-supported stream (and 0.3 cents per subscription streams). That’s less than any on-demand stream from a premium streaming service such as Spotify, Apple Music and YouTube Music.
In effect, a streaming service pays less for non-interactive streams because it gives the listener less value than on-demand services. To qualify for the lower royalty rate, a non-interactive streaming service cannot have the same robust features as an interactive one. At Deezer, a listener can stream any song from any artist any number of times. They can listen to playlists and build playlists, too. They can listen to songs shared by friends through SMS or social media. That’s all lean-in listening, and it’s more valuable because people will pay $11 a month to do it.
Until now, on-demand services’ standard pro-rata model hasn’t separated passive from active listening. When labels negotiated licensing deals with streaming services, they have always treated one stream the same as any other stream. A stream from a user-curated playlist is treated the same as a stream from an algorithmically created radio station. Whether the listener actively hits the play button to listen to a particular track isn’t taken into account. Right or wrong, that’s how the pie has been divvied up.
A couple of decades into the life of the pro-rata system, Deezer shows there is a greater willingness to treat active listening differently than passive listening. MIDiA Research’s Mark Mulligan called this demotion “a very welcome and long overdue move” that will “disincentivis[e] the commodification of consumption by rewarding active listening.” There’s certainly a logical argument to be made here: The artists people actively seek out arguably provide the most value — give the streaming service the most foot traffic, so to speak — while less popular artists play the important but less financially valuable role of giving breadth and depth to music catalogs.
Time will tell if and how other streaming services follow Deezer’s lead. An alternative already exists: In 2022, Warner Music Group adopted the user-centric model that SoundCloud rolled out to independent artists the prior year. That system pays royalties based on an individual subscriber’s listening rather than pooling all subscribers’ fees into a larger pool. So, a subscriber who listens to out-of-the-mainstream or independent artists is assured their money is not going to popular artists.
Over the next few years, labels and services are likely to experiment with different approaches to calculating streaming royalties. But regardless of how the dust settles, streaming services and rights holders should respect what passive listening brings to their listeners.
Deezer plans to implement a new streaming model with Universal Music Group later this year — a step that Deezer CEO Jeronimo Folgueira called “the most ambitious change to the economic model since the creation of music streaming and a change that will support the creation of high-quality content in the years to come.”
In an announcement on Wednesday (September 6), Deezer said it would roll out this “artist-centric” system in the French market starting in the fourth quarter of 2023. The new model aims to reward artists and songs that are driving listener engagement while also de-prioritizing white noise and other “functional” audio. “The sound of rain or a washing machine is not as valuable as a song from your favorite artist streamed in HiFi,” Folgueira declared.
As part of the new model, plays racked up by “professional artists” — which Deezer defines as acts with more than 1,000 streams per month spread across 500 unique listeners — with a “double boost.” (The announcement did not define what that “double boost” entails.) Similarly, songs that are driving listener engagement — the metrics for measuring this were also undefined — will receive the same bump.
In addition, Deezer plans to replace “non-artist noise content” — the sounds of whales or washing machines — with its own functional music, while also excluding this audio from the royalty pool so that payouts to raindrop recordings don’t come at the expense of payouts to singer-songwriters. “We are now embracing a necessary change, to better reflect the value of each piece of content and eliminate all wrong incentives,” Folgueira said in a statement. “There is no other industry where all content is valued the same.”
“With this multi-faceted approach, music by artists that attracts and engages fans will receive weighting that better recognizes its value, and the fraud and gaming, which serves only to deprive artists their due compensation, will be aggressively addressed,” added Michael Nash, UMG’s evp and chief digital officer. He also noted that the model may change in the future: “As the ever-evolving music landscape continues its rapid transformation, UMG and Deezer will rigorously address the impact of these changes as we incorporate new insights from data analysis and fine-tune the model, as appropriate.”
UMG’s quest for a new streaming ecosystem has been a major talking point for the company since January. That month, in a letter to staff, UMG chairman/CEO Lucian Grainge called for the development of “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 [streaming] platforms themselves, accelerating subscriber growth, and better monetizing fandom.”
Since then, UMG announced partnerships with both Tidal and Deezer to try to determine what that model might look like. Streamers can do “a better job of monetizing these high integrity, high intense artist-fan relationships,” Nash told financial analysts in March. “We’ve been speaking with platforms… about the enhancement of offers to the consumer that reflect the engagement with artists that are really driving the economic models of the platform.”
Spotify CEO Daniel Ek, however, appeared less enthusiastic about implementing a major change to the streaming model during an earnings call in July. “Most studies we’ve done on this [show] that even if you change it to a user-centric or an artist-centric approach, it seldom leads to these gigantic differences that most people perceive it to do,” he said.
“But we’re always open to hearing how we can make the system [fairer] to more artists,” he added.
Spotify led a group of high-flying streaming stocks this week by gaining 14.8% to $157.54 per share, increasing its market capitalization by nearly $4 billion to $30.7 billion. The world’s largest streaming company, which boasted 220 million subscribers as of June 30, has clawed back nearly all its losses since its share price dropped 14% […]
Beats marketplace BeatStars signed a partnership deal with AI music startup Lemonaide that will make “ethically-sourced AI” available to music creators to help them write and produce new works. Lemonaide’s AI technology “purposefully generates short musical ideas to spark inspiration, push creative boundaries, and pull artists out of their creative slump,” according to a press release. The companies claim the AI is “trained exclusively on voluntarily contributed data from producers” to ensure proper compensation for and active participation by those whose musical works are used.
Music festival and live events promoter Insomniac and music and lifestyle brand Emo Nite announced a partnership that will encompass projects ranging from events to music to apparel. First up is the launch of Grave Rave, a new event series coming to Los Angeles in December that will feature “both legendary and emerging bands and DJs…fusing the sounds of electronic music with the melodies of the emo, pop-punk, and rock genres,” according to a press release. A preview party for the series will be held on August 26 at Insomniac’s Academy LA venue with a surprise lineup of DJs who “built their careers on pop-punk/alternative/emo influences,” the press release adds. The two companies have also teamed for the launch of a new record label, Graveboy Records, with forthcoming single releases by We The Kings, Say Anything and Noelle Sucks. The first collection of Insomniac x Emo Nite merch will also debut at HARD Summer 2023.
Atlanta-based record label and management company Love Renaissance (LVRN) will utilize music streaming and discovery platform Audiomack‘s proprietary ArtistRank system to discover and develop emerging musicians under a new partnership. According to a press release, ArtistRank “allows partners to identify better when an artist is building a lasting fanbase, differentiating itself from other analytical tools by emphasizing engagement metrics rather than solely through play growth.” It provides detailed analytics on fan demographics as well as predictive data that analyzes an artist’s potential growth trajectory.
NetEase Cloud Music formed a partnership with leading Chinese music and entertainment company RYCE Entertainment that will see the companies extend their previous agreement while also giving NetEase access to an expanded portfolio of RYCE’s music catalog in China, with 30-day initial launch rights to distribute new additions to the catalog. The companies will additionally team up to promote RYCE artists and music in China. RYCE’s catalog includes works by Jackson Wang, Amber Liu and Tablo, among many others.
NLess Entertainment co-founders Zach “Z-Bo” Randolph (a former NBA star) and Marcus “Head” Howell are leading a funding found for Connect Music Group, a Black-owned Memphis music company that offers tools and resources to help independent musicians build successful careers while retaining ownership of their masters. Along with fellow investor Richard W. Smith, CEO of airline and international at FedEx, Howell recently hosted an investor event to raise capital for Connect. The amount of the funding round is unknown.
MNRK partnered with New York industry workshop Steel Sessions — based in downtown recording studio The Engine Room — along with its producers Francis “Buda Da Future” Ubiera, Dan “Grandz Muzik” Garcia and Michael “Mike Kuz” Kuzoian. Under the deal, Ubiera, Garcia and Kuzoian will develop artists in the studio to eventually sign them to MNRK while also providing production services for MNRK Urban’s frontline releases, lo-fi instrumental albums, brand partnerships, soundtracks and artist synchs.
Deezer renewed its partnership with French telecoms provider Orange which was first struck in 2010. Under the deal, Orange customers will continue to have access to the Deezer streaming service. In celebration of the renewal, Deezer and Orange will offer six months of Deezer Premium for free to new customers who subscribe to a “Plus que forfait” plan.
Don McLennon, formerly of Brockhampton, has partnered with Nashville-based music tech company Artiphon to release his new track, “Halcyon,” exclusively via the company’s handheld smart instruments, Orba 2 and Chorda. Utilizing stems, Artiphon and McLennon will offer fans the ability to remix the track without any prior musical skill.
Shares of SiriusXM soared 49.1% this week due to a “short squeeze” related to a trading strategy involving its parent company, Liberty Media. The stock rose 49.1% to $7.08, turning an 18.7% year-to-date loss into a 21.2% year-to-date gain.
On Thursday (July 22), SiriusXM shares increased 42.3% as 128 million shares were traded — about 6.7 times the average daily trading volume. The price fell 9.3% on Friday to close at $7.08 as trading volume reached 132.9 million shares.
As an article at Barron’s explained, SiriusXM, a heavily shorted stock, has benefitted from investors taking a long position in Liberty SiriusXM Group — a tracking that includes SiriusXM — and a short position in SiriusXM. (A short position is a bet that a stock price will decline. A long position is a bet the stock price will increase.) Those positions would benefit if Liberty SiriusXM Group, viewed as an inexpensive alternative to SiriusXM, was able to narrow the gap to SiriusXM. But SiriusXM shares have risen in recent months, turning the short into a losing bet.
Investors who short a stock must buy back borrowed shares to cover their short position. When a stock has a small public float — as SiriusXM does — demand for a limited number of available shares can drive up the price. This isn’t happening just with SiriusXM: Heavily shorted stocks helped the stock market rally in the first half of the year. “As expected, shorts are getting squeezed in these losing trades and we are seeing short covering in these stocks — helping drive stock prices even higher alongside the momentum long buying we are seeing in these stocks,” Ihor Dusaniwsky, managing director of S3 Partners, told Yahoo Finance last week.
SiriusXM was — by far — the best-performing music stock this week, as the Billboard Global Music Index rose 6.8% to 1,447.32, bringing the year-to-date gain to 23.9%. Eight of the index’s 21 stocks were in negative territory, one was unchanged and 12 stocks posted gains this week.
French music streamer Deezer boasted the week’s second-biggest improvement after gaining 10.3% to 2.58 euros ($2.87). On Thursday, the company announced it had renewed its partnership with telecom company Orange, which will continue to drive customer acquisition in its home market. Under the new partnership, Deezer and Orange will offer new customers six free months of Deezer Premium.
Live music companies also had a good week. Shares of Sphere Entertainment Co. gained another 8.9%. German concert promoter CTS Eventim improved 6.9%. And Live Nation shares rose 2.5% after Oppenheimer initiated coverage of the company with a $110 price target, suggesting the stock has a 14% upside from its $96.84 closing price on Friday.
Shares of Cumulus Media gained 9.7% this week, the leading stock in the Billboard Global Music Index and one of only four stocks in the 21-company index to end in positive territory Friday (June 23).
Overall, the Billboard Global Music Index declined 3.5% to 1,287.41 — more than double the 1.4% declines of the S&P 500 and Nasdaq. Music stocks were more in line with the Nasdaq when the overpowering effects of a small number of tech companies are removed, however. That’s because a few powerhouses — such as Microsoft, Apple, Alphabet and Amazon — often account for a large fraction of the Nasdaq’s gains. To that point, QQQE, an exchange-traded fund that gives equal weight to 100 Nasdaq stocks, declined 2.9% this week.
In the United Kingdom, the FTSE 100 declined 2.4%. South Korea’s KOSPI index fell 2.1%. Central banks in England, Turkey and Norway raised interest rates this week. Investors can reasonably expect more rates hikes in the United States, too. Federal Reserve chairman Jerome Powell said on Wednesday the central bank may continue to raise rates — there have been 10 since March 2022 — but “to do so at a more moderate pace.” When central banks raise interest rates, stocks tend to fall because businesses and consumers are expected to cut back on spending and higher rates make bonds relatively more attractive to stock returns.
Cumulus Media improved to $3.40 a week and a half after the company announced it will sell about 1.75 million Class A common shares — nearly 10% of outstanding shares — at $3.25 per share in a modified Dutch auction that closed on June 9. While the sale will gross about $5.7 million, not including fees and expenses, the final result was well below the company’s goal to sell up to $10 million of shares as part of a previously announced $50 million share repurchase plan.
Shares of French music streaming company Deezer gained 3.6% to 2.32 euros ($2.54), bringing the stock’s year-to-date loss to 20.5%. U.S. streaming company LiveOne gained 3.3% to $1.58. Year-to-date, LiveOne has gained 145.3%. The only other company with a week-over-week improvement was South Korea’s HYBE, which improved 1.2% to 301,000 KRW ($236.91).
The other three Korean music companies declined this week: SM Entertainment and YG Entertainment each fell 5.6% and JYP Entertainment dropped 3.5%. Still, K-pop has been a resounding success for investors in 2023. Led by JYP Entertainment’s 93.7% year-to-date gain, the four Korean companies’ stocks have risen an average of TK% in 2023.
One company, Anghami, was unchanged and the index’s other 16 stocks were in negative territory this week. MSG Entertainment had the Billboard Global Music Index’s largest decline after dropping 17.1%. Sphere Entertainment Co., which spun off MSG Entertainment in April, intends to sell part of its 33% stake in MSG Entertainment. The news dropped the live entertainment company’s share price 12.1% on Wednesday. At Friday’s closing price, Sphere Entertainment’s sale of 5.25 million shares would gross about $170 million that could help fund the state-of-the-art Sphere at The Venetian Resort in Las Vegas that’s set to open in September.