Spotify is embracing elements of Universal Music Group’s ‘artist-centric’ royalties model – following a new multi-year licensing deal between UMG and Daniel Ek’s platform

Sir Lucian Grainge

It’s the story that got the whole music industry nattering.

Yesterday, via sources close to the situation, Music Business Worldwide broke the news that major changes to Spotify’s royalty model are coming to the service in Q1 2024.

In summary, those changes are:

  1. The introduction of a threshold of minimum annual streams before a track starts generating royalties on Spotify. This move is expected to de-monetize a portion of tracks that previously absorbed 0.5% of Spotify’s royalty pool – ad benefit the other 99.5%;
  2. Financial penalties for distributors of music – labels included – when flagrant artificial streaming fraud is detected on tracks they’ve uploaded to Spotify;
  3. The introduction of a minimum length of play-time that each non-music ‘noise’ track must reach in order to generate royalties.

As we reported yesterday (October 24), there are obviously some similarities here between the new model that Spotify is planning to adopt, and the “artist-centric” model that Universal Music Group has been advocating for since the beginning of 2023.

Thanks to a slightly under-reported fact, MBW believes it’s fair to assume that Universal, as the world’s biggest music rightsholder (a) bore at least some influence over Spotify’s newly-planned model and (b) broadly supports Spotify’s initiatives.

That slightly-under-reported fact? On July 26, on a Q2 earnings call with analysts, UMG boss, Sir Lucian Grainge, reveaed that UMG had just signed a “newly expanded agreement” with Spotify.

Said agreement, MBW has since learned, amounted to a fresh multi-year (believed to be 3-year) global licensing deal for UMG’s content.

‘Better aligning the relationship between artists and fans’

On that July earnings call, Sir Lucian Grainge spelled out what Spotify had committed to, “artist-centric”-wise, as part of UMG’s re-up with the streamer.

Grainge outlined what UMG saw as the three prongs of his company’s “artist-centric” ambitions:

  1. “[E]nsuring that real artists with real fan bases are fairly rewarded for the platform engagement they drive.”
  2. That “platforms need to apply stricter fraud detection and enforcement systems removing incentives for bad actors and protecting streaming royalties for legitimate artists”. This includes ensuring that “real artists don’t have their royalties diluted by noise and other content that has no meaningful engagement whatsoever from music fans,” added Grainge;
  3. “Better aligning the relationship between artists and fans by promoting greater discovery and promotion of real artists.”

Grainge said that Spotify “shares these concerns”.

He also said that, as part of Universal’s new multi-year deal with Spotify, the streaming firm had “committed to continue to work to address them”.

Later in that same Q2 call, Michael Nash, EVP of Universal Music Group and its Chief Digital Officer, reiterated that “as part of our newly expanded agreement, Spotify has committed to work to address [the] concerns that we’ve highlighted in our push towards artist-centric solutions”.

Nash further revealed that, having inked its new deal with Universal, Spotify was “collaborating with us [on] data analysis” that would see SPOT “formally taking part in this foundational piece of our expanding artist-centric initiative”.

One would assume this “data analysis” process had an impact on Spotify’s plans as revealed yesterday – although sources close to Spotify point out that the company’s plans emerged following talks with a range of rightsholders, including all three major music companies as well as indie labels and distributors.

The Deezer difference

Following that July call with analysts, of course, Universal Music Group announced in September that a UMG-approved “artist-centric” royalty model was launching on Deezer.

Like Spotify’s plans, Deezer’s “artist-centric” model – which launches in France this month for UMG artists – boasted three main points of action.

In summary, Deezer’s three changes were:

  1. Artists who attract over 1,000 listens a month (from over 500 unique listeners) on Deezer would get a “double boost” in their streams on the service;
  2. This ‘double boost’ would then double again if a play of said artist’s music has been actively searched for by listeners vs. being algorithmically served to them;
  3. Deezer said it planned to “replace non-artist noise content” on its platform with its own Deezer-made “content in the functional music space”. Deezer would then completely de-monetize all “noise” content

However, there were significant differences to Spotify’s newly-revealed blueprint.

It’s fair to say that Deezer’s trio of changes, generally speaking, might have gone further than Spotify’s new plans in terms of following Universal’s wishes.

The most obvious example of that is Deezer’s complete de-monetization of “noise” content vs. Spotify’s move to lessen the monetization of this content.

Both Deezer and Spotify’s, though, attempt to ensure that a higher tier of artists are paid more than a less-popular tier of artists on each platform.

There’s one big difference: Only Spotify’s plans outright de-monetize artists in the less-popular tier.

As mentioned, MBW was told by our sources yesterday that Spotify’s move will see tracks that currently make up a tiny fraction of SPOT’s royalty pool – around 1/200th – demonetized.

Our own calculations based on information provided by solid sources suggest tracks that fall into this 0.5% group typically only gather low-hundreds of streams per year.

Most serious artists – and most serious music industry rightsholders – will probably be happy to see the money generated by these hundreds-of-annual-streams-per-artists re-allocated to the other 99.5% of participants in the royalty pool.

Those serious music industry rightsholders will include Universal, but also Sony Music Group, Warner Music Group, HYBE, and more.

Others, though, might question the precedent that’s been set, with two defined tiers of licensed tracks soon to be operating on Spotify: monetized and non-monetized.

These voices would also no doubt question whether Spotify might eventually ‘tweak the dial’ on its current formula in future – so that artists with thousands, or even tens of thousands, of annual streams find themselves unable to trigger a payment from the service.Music Business Worldwide