Talking ‘garbage’: How can Spotify and co sort the dregs of the music business from the hidden treasures?

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“I have a reputation for being blunt, so I’ll be blunt. Those groups who have expressed a concern about ‘artist-centric’ [streaming royalties] are unsurprisingly those whose business model is based on being merchants of garbage. Sorry, I can’t really think of another word for content that no one actually wants to listen to.”

Within hours of him speaking them, Sir Lucian Grainge‘s words on Universal Music Group‘s earnings call last week were ricocheting around the music business like a tartrazine-addled kid in a soft play.

On the same call, UMG boss Grainge was careful to clarify his comment about those “Merchants of Garbage” (which, in and of itself, sounds like a fantastic name for a Spotify ‘fake artist’, doesn’t it? Maybe some kind of Cowboy Junkies rip-off, bashed out in a Swedish basement studio somewhere).

Explained Grainge: “If you are committing [streaming] fraud or flooding the platforms with content that has absolutely no engagement with fans, that doesn’t help churn, that doesn’t merchandise great music and professional artists… then I suppose you are not going to be in favor of artist-centric.”

“If you are committing [streaming] fraud or flooding the platforms with content that has absolutely no engagement with fans… then I suppose you are not going to be in favor of artist-centric.”

Sir Lucian Grainge, Universal Music Group

It wasn’t difficult to understand where Grainge was primarily directing his ire over companies who “flood platforms with content”: so-called ‘DIY’ distribution services including the likes of DistroKid, CD Baby, and TuneCore.

TuneCore’s parent, France-headquartered Believe, was surely Grainge’s most pointed target – it had publicly “expressed a concern” over ‘artist-centric’ in the very same week.

Just two days before Grainge unveiled UMG’s Q3 2023 results last Thursday (October 26), Believe’s boss, Denis Ladegaillerie had been vocally negative about the UMG-sponsored ‘artist-centric’ model and its adoption by French streamer Deezer in France.

Citigroup analyst Thomas Singlehurst – who also drew the “merchants of garbage” comment from Grainge on UMG’s earnings call – asked Ladegaillerie his thoughts on the UMG-Deezer model.

“We think that [Deezer’s artist-centric proposal] is not the right model and we understand… that at least one of the other major record [companies] thinks the same we as we do.”

Denis Ladegaillerie, Believe

“[We] have told Deezer that we would not move to the new model because we think that it’s not been well thought-out,” said Ladegaillerie, who explained that Deezer had modeled out for Believe how his company would perform on the platform if it agreed to adopt ‘artist-centric’ royalties.

“Based on that modeling, [Believe] would gain.. a very significant double-digit growth in terms of market share gain on [Deezer]. It would actually be very favorable to us as a business.”

“Nonetheless”, continued Ladegaillerie, “we think that this is not the right model and we understand… that at least one of the other major record [companies] thinks the same we as we do, [as do] a number of other independents.”

(MBW’s sources suggest that the “other major record company” Ladegaillerie was referring to – as a fellow skeptic of ‘artist-centric’ – was likely Sony Music).

Highlighting the faultline running through the music industry’s diverging incentives on ‘artist-centric’?

Ladegaillerie’s argument against Deezer’s ‘artist-centric’ model is primarily a moral one, in defense of independent artists who release music through platforms like Believe-owned TuneCore.

Yet independent labels releasing via Believe today might hear Ladegaillerie talk of “a very significant double-digital growth in market share”… aka free additional income from streaming…. and encourage him to reconsider his rejection of the model.

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A minimum threshold on Spotify – but who decides ‘minimum’?

Here’s a quirk of timing.

As Sir Lucian Grainge made his comments on Universal Music Group’s earnings call last Thursday, Believe’s wider business was busy proving that it’s capable of something far bigger and better than “garbage”.

Last week, Believe secured its first-ever No.1 on the Spotify global Top 50 with Spanish artist Iñigo Quintero’s Si No Estás (distributed by Believe via Quintero’s signing to indie company Acqustic).

To be clear, it wasn’t artists like Quintero – i.e. artists releasing music via the top-end of so-called ‘services’ businesses like Believe – that Grainge was swiping at.

As mentioned, the UMG exec specifically aimed his crosshairs at those either committing streaming fraud and/or shoveling content onto streaming services that “has absolutely no engagement with fans”.

Tellingly, on the same earnings call, Grainge also talked of his support for “professional artists” compared to “vacuum cleaner sounds or rain on a pane of glass, gaming the system”.

Within Grainge’s words, perhaps, we can see the grains of influence that Universal’s ‘artist-centric’ advocation has had on the world’s largest music streaming subscription service.

Last week, MBW broke the news that Spotify will, in Q1 2024, put in place a new royalty system under which not every stream on its service will be monetized. Instead, tracks will have to surpass an – as-yet-unconfirmed – minimum annual threshold of plays before they start to get paid.

MBW’s calculations based on information we’ve obtained suggest that this threshold will, at least for the near future, be in the hundreds of streams per year, perhaps as high as 1,000.

MBW’s insider industry sources have told us that Spotify is expecting just 0.5% of those tracks currently earning money from its royalty pool to be affected by this move. Money previously paid out to this tiny segment of the market will instead be distributed to artists behind the 99.5% of other (more popular) tracks on the service.

As MBW wrote here, the timing of Spotify’s new model is interesting – considering the clear ‘artist-centric’ influence on its constituent parts… and the fact Universal Music Group recently inked a fresh multi-year licensing agreement with SPOT.

As a result of Spotify’s changes, tracks that have barely any “engagement with fans” will soon be as commercially worthless on the service as tracks that have none.

Where this debate heats up: If tracks with barely any engagement are deemed not worthy to generate any money on Spotify… when do the rules change over what constitutes “barely”?

Will the minimum threshold of de-monetization be raised over time – to the commercial advantage of Spotify’s biggest licensing partners (i.e. the major music companies)?

Worthless – or tomorrow’s superstars?

The counter-argument to Spotify treating barely-any-engagement tracks as if they were completely worthless?

The next Taylor Swift might just be amongst the commercially ignored.

As Denis Ladegaillerie recently argued on a podcast with MBW: “Why would you not pay such an artist [for getting less than 1,000 streams]? It doesn’t make any sense. What signal as a music industry do you send to aspiring artists if you go in that direction?”

Take Iñigo Quintero, as a prime example.

His big Spanish-language hit currently has more than 180 million streams on Spotify, and another 48 million on YouTube.

Yet according to Luminate data seen by MBW, this time last year – in the chart week ending November 3, 2022 – Quintero’s entire catalog was streamed… wait for it… 220 times. Across the whole of the United States. On every on-demand streaming service available.

A month before that? It wasn’t even streaming enough to register with Luminate.

Had Quintero been monetarily discouraged via a Spotify-style system during this period, might he have been downhearted enough to give up?

If we’re only talking about a minimum payout threshold of up to 1,000 streams a year? Probably not.

But if that threshold does indeed move upwards in the future, to, say 10,000 streams – or 20,000 streams? Who knows.

Stories like this highlight the importance of the music industry’s leading streaming platforms – especially Spotify – striking the right balance between punishing “garbage” while leaving the early green shoots of tomorrow’s “professional artists” unharmed.

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There’s garbage… and then there’s garbage

All of that being so, the data doesn’t lie: The vast majority of artists behind the ~120,000 tracks being uploaded to services like Spotify today show no real hope of ever becoming “professional artists”.

Not from streaming, anyway.

Luminate has provided MBW with exclusive new data regarding the total US-based on-demand audio streams in Q3 (i.e. the three months to end of September).

In that month, across all services in the States, the Top 100k artists generated a whopping 95.6% of streams.

Those 100k artists made up just 1.1% of all artists monitored across services.

This, in turn, suggests that the music of around 9.1 million artists was monitored in total – and that around 9 million of those artists shared just 4.4% of all streams.

Here are two other stunning stats, courtesy of Luminate, about the popularity of the minority – and the relative unpopularity of the majority – of artists on streaming services in the US in Q3:

  1. 95.8% of all artists had 10,000 on-demand audio streams or fewer in Q3 2022 in the US. That’s an average of fewer than 3,333 streams per month;
  2. 14.3% of artists had zero streams in the US during the same period.

Another way of putting point No.2?

One in seven artists had zero streams – not a single play – in the US in the three months to end of September.

We’re talking about 1.3 million artists.

Zero plays.

MBW has covered before how cloud computing costs are an increasing drain on Spotify’s resources (and its search for consistent profitability).

According to MBW’s calculations based on information contained in SPOT’s annual reports, the company spent a minimum of EUR €150 million – and likely multiples of that figure –  “usage of cloud computing services and additional software license fees” in 2022.

It’s enough to make you wonder.

As Spotify ushers in the first signs of a ‘two-tier’ licensing system for music – albeit a conservatively-constructed one – could we yet see a ‘third tier’ emerging on its platform?

Might music that no one plays, seemingly music that no one wants, soon be flushed entirely from Daniel Ek‘s service?

In front of investors, Spotify might describe such a move as an example of efficient cost savings.

Sir Lucian Grainge?

He’d probably sum it up, bluntly, in two words: garbage disposal.

JKBX (pronounced "Jukebox") unlocks shared value from things people love by offering consumers access to music as an asset class — it calls them Royalty Shares. In short: JKBX makes it possible for you to invest in music the same way you invest in stocks and other securities.Music Business Worldwide

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