TIDAL’s CEO thinks music is ‘undervalued and underpriced.’ Here’s what he’s doing to try change that.

TIDAL and Universal Music Group got the entire music business talking in January when they struck a deal to explore a new economic model for music streaming.

The announcement came three weeks after Sir Lucian Grainge shared his own thoughts on potential alternative streaming payout models in a memo sent to UMG staff.

UMG’s Chairman and CEO referenced the music company’s preference for a switch to an “artist-centric” model to transform the way that artists and rightsholders are paid by streaming services.

In his memo to staff that month, Grainge wrote that “[To] correct [the streaming payout] imbalance, we need an updated model.

He added: “Not one that pits artists of one genre against artists of another or major label artists against indie or DIY artists. We need a model that supports all artists — DIY, indie and major.”

TIDAL and UMG’s plans, according to the announcement at the time, will include research around how music services can “generate greater commercial value for every type of artist” by “harnessing fan engagement”.

They added that they would explore how different economic models “could accelerate subscriber growth, deepen retention, and better monetize fandom to the benefit of artists and the broader music community”.

The announcement didn’t go into much detail about what these potential new payout models might look like, but this wasn’t the first time that TIDAL had set out to explore a non-pro-rata streaming model itself.

The UMG partnership arrived around a year after TIDAL launched a user-centric royalties system for a premium $19.99 HiFi Plus membership tier.

Under that ‘Fan-centered royalties’ model, royalties attributed to HiFi Plus subscribers were paid based on their individual streaming activity. TIDAL told MBW at the time that “up to 10%” of the amount of the HiFi Plus subscription fee would be paid to artists directly.

The industry-standard pro-rata “one big pot” streaming model, adopted by services such as Spotify, sees services pool all of the distributable revenues they generate each month, then divide this cash based on the popularity of individual tracks.

TIDAL has now set aside what it says was its “fan-centered royalties investigation” to focus on the new research with UMG.

Speaking with MBW about what TIDAL learned from the Fan-centered ‘experiment’ to bring into the new research, TIDAL CEO Jesse Dorogusker explains that “we all gathered an appreciation for how complicated it is”.

He adds: “We’re willing to change course. We found a good partner in Universal; a little bit of underdog plus a behemoth to have a real conversation about it.”

Dorogusker, a long-time Block (formerly Square) executive, has led TIDAL since the latter company was acquired by Jack Dorsey’s fintech firm in early 2021 in a $300 million-plus deal with Jay-Z (who paid €50 million to acquire TIDAL in 2015).

(At the time, the two parties said that following Square’s acquisition, TIDAL’s artist co-owners would make up its remaining stakeholders. Those artist co-owners include the likes of Alicia Keys, Arcade Fire, Beyoncé, Calvin Harris, Chris Martin, Daft Punk, Damian Marley, deadmau5, J. Cole, Jack White, Jason Aldean, Kanye West, Lil Wayne, Madonna, Nicki Minaj, Rihanna, T.I. and Usher.)

Dorogusker also leads Bitcoin hardware product development at Block. Prior to Block, he was the Director of Engineering for Apple’s iPhone, iPad, and iPod Accessories business.

“At Square and now Block, we figured out that our purpose is to build things that provide economic empowerment,” he explains.

“For Square, it was for small businesses, for Cash App, it’s for individuals excluded from the banking system. And in the early conversations about TIDAL, it was really about artists and all of the things they don’t have – all the things in the industry they’re excluded from.”

Adds Dorogusker: “The TIDAL-plus-Block story was born out of that. And while music streaming is the primary product, the thing that people see; the thing that was launched in 2015 when Jay-Z got up on stage, it’s building things for artists.”

“Artists are thirsty for their own data, for information about the industry and for information about their fans, and for tools to continue to do their work as a musician.”

Jesse Dorogusker

Forming part of TIDAL’s artist-led business strategy is the launch of the ‘TIDAL Artist Home‘ – a new platform for artists to manage their presence on the streaming service.

TIDAL says that it fits in with its “long-term vision of giving artists more control over their careers”. It was developed alongside a panel of artists, and the design process was informed by artist interviews during a private beta.

“Artists are thirsty for their own data, for information about the industry and for information about their fans, and for tools to continue to do their work as a musician,” says Dorogusker.

“But for us, it’s a very profound first step, which is that it’s a direct connection to artists to provide them agency and access to information and tools and services that we think that they have been starved of in the industry.”

MBW sat down with Jesse Dorogusker to talk about TIDAL’s new artist portal, the company’s business direction, the economics of streaming, the rise of generative AI, and the platform’s partnership with Universal Music Group…

will artists have access to what they’re earning per stream on the new artist home platform?

They will eventually. Although what’s more interesting, is that they want to know what actions are affecting what outcomes. [For example], how did the tour affect the merch sales, or affect the streaming and did the streaming predict it?

Or was the streaming a lagging indicator of it? It’s all the business metrics that tech companies are used to having on televisions all over the office from day one at a start-up.

That’s not how artists run their businesses, typically, because they don’t have access to that information. So you know, pennies per stream is an interesting piece of data that they should be entitled to.

But it can go way, way deeper than that. What does it mean that I put an ad on Instagram and it did or didn’t move the song, or that my number one song is actually my number two song, but only in the western half of the US?

So if you can start to stitch together the data, you can just be a smarter business owner, which is what these artists are.

taking a broader view of the streaming landscape, How do you want TIDAL to be positioned in the streaming economy in years to come?

The positioning in years to come will be in the artist ecosystem. And streaming will be one part of that. It’s an amazing asset. There aren’t that many companies in the world that have the license to stream 100 million songs. I don’t take that lightly.

“There aren’t that many companies in the world that have the license to stream 100 million songs. I don’t take that lightly.”

I think it’s really valuable and important for artists, but isn’t all by itself a product of business and a distribution channel for artists.

It’s a relatively small part of their life. And since artists are our primary customer, TIDAL eventually needs to be aligned with what that is. So we will be an artist platform with music streaming assets.

looking out at the wider music streaming landscape, what do you think are the key things that need fixing?

The streaming business is part of an artist’s existence. It’s great for distribution and reach. It can be very good for discovery. It’s a very high quality experience for consumers to have 100 million songs in their pocket, all over the world on their mobile device.

TIDAL has always focused on high-quality audio. So making sure that’s delivered the way that artists intended has been really valuable to us and valuable to artists.

But the economics of streaming are not sufficient for an artist to do that all by themselves and let [streaming] be their only thing. I think music is relatively undervalued and underpriced. But here we are.

We are doing some research with Universal [Music Group] because we want to get a better understanding of the people and the behaviors that are really driving streaming’s richness and growth and acquisition.

That has to do with fan behavior and artist connection. And music streaming today just counts up the number of 30-second streams and [calculates] accordingly and pays out, which is calculable and maybe even fair, but it doesn’t capture what’s really happening and what’s important to artists and fans.

you’re doing this research with Universal to explore a new economic model for streaming. What does that alternative look like versus the traditional pro rata streaming model used by services like Spotify for example?

What I’m most interested in is identifying fan behavior and artist connection, that when we look at the data and we look at the outcomes and we look at an artist going from small to big and a fan going from new to streaming, to highly engaged; what is it about all of that, that we can understand and reward.

To me, to understand, is priority number one, because I can do lots of other stuff with that. But then reward is maybe a proposal for how you would change the economics of streaming.

So someone that listens passively is different from someone that shares a lot. Someone that gets added to a playlist has been recognized in a certain way.

Someone who creates a playlist that gets listened to by a lot of people and other artists get brought along. That’s valuable.

An artist that brings someone to streaming for the first time is like another gold star, right? So there are all these things that a layperson could identify as special, but there’s no way to reward it currently. I think that’s because it’s not very well understood. So we’re going for understanding first.

Do you envision a day when the pro rata model is abandoned by all players in the streaming business for alternative models?

It’s likely that there’ll be layers, so there is something about a 30-second stream that is true and valuable and undeniable and objective and fair.

But it doesn’t tell the whole story. I think much more likely is a layer of level one participation; level two and these gold stars I’m talking about will ladder up to a reward system.

That makes more sense. But there is something objective and fair about play time, which I get. So no, I don’t think [the pro rata model] vanishes entirely.

speaking about different layers, back in 2021, TIDAL launched the fan-centred royalties model for Hi Fi plus members. In January, you mentioned that you’d be setting that experiment aside to focus on the new research with Universal. What did you learn from that experiment that you’ve been able to bring into this new round of research with Universal?

We all gathered an appreciation for how complicated it is. If you’re going to reallocate royalties, of course some people will get rewarded more and some people will get rewarded less. You want to have some understanding of that. It’s kind of like tax reform. It has to be principled, something you can stand by realizing that the mix will shift.

It’s an extremely diverse population in artistry and in size of artists’ reach, of demographics of artists, but also of their fans.

You end up making some surprisingly big moves by changing the math a little bit.  I don’t think the fan-centred piece was sufficiently principled to stand up against all those changes.

“If you’re going to reallocate royalties, of course some people will get rewarded more and some people will get rewarded less.”

It had some advantages. It certainly made a direct connection between a fan and what they thought they were listening to. So that was the emotional underpinning that was the most powerful. A fan who discovers a band or just grinds on one kind of music, or one artist in particular, feels like their subscription dollars are going to a person.

So that’s a connection to learn from, because fans don’t love being anonymous, especially when they’re super active.

But the math of it wasn’t as compelling as the emotional connection I just described.

At the time of the fan-centred royalties experiment announcement, TIDAL said that the vast majority of its record label and distributor partners were supportive of it. So you’ve announced this new research and this partnership with Universal but are you working with or are you planning to work with other label and distributor partners as part of this research going forward?

Absolutely. It won’t be exclusive. To do this kind of work, you really do have to get a small number of people around a small table and have honest and brisk chats about the data and what you think and what you believe.

But nothing can scale unless it’s shared, and transparent and there are principles that we can come up with. Those gold stars can be communicated in a way that everyone can adopt and accept.

TIDAL and UMg say their research will extend to how alternative economic models can accelerate subscriber growth and deepen retention. Growing subscribers and retaining them is clearly a priority for subscription services and for rightsholders. what are your ambitions in this regard for how an alternative model can boost subscriber growth and then lead to retention of those subscribers?

Well, it has to do with recognizing and rewarding the fans and behaviors that are making streaming awesome. If superfans, super sharers, super discoverers, the people that are the viral loops of music are anonymous, unrecognized and unrewarded, it’s a good baseline, but there’s a lot of room to grow.

There are superfans all over the music industry. They don’t always show up in music streaming because there is no way to show up in music streaming other than having a high string count. But you know who these people are, you’ve probably seen them out in the world.

They’re amazing and powerful and influential. And if we could find a way in music streaming to engage those people. Well, then music streaming is just getting started. The baseline is probably low compared to where it could be.

How do you envision that reward system for fans? Is that economic rewards or is that discounts or merch, or early access to shows?

You listed a bunch of things that already exist and already gather a lot of attention, but they’re rarely distributed. Some of them are through credit card offers. Some of them are by standing in line. Some of them are by just mashing on a website at midnight.

All behaviors that emerged because they’re amazing and important and fans care about them. But none of that is extremely tech-enabled or gathered.

There’s a problem of anonymity in the industry, that artists don’t know who their fans are. I joke that I’ve gone to see Ben Folds probably a dozen times in San Francisco and he has no idea, because he doesn’t see the guestlist on his ticket purchases. There’s no way to keep track of who his fans are.

There’s just so much room to grow and develop to make that make more sense and be more tech-enabled. You already see those behaviors, you already have a good sense of what fandom is, it’s just not harnessed in it in a tech-focused way.

At the beginning of the conversation, you said music is undervalued. What are your views on the current pricing dynamic in the industry across the board and where will price adjustments fit into alternative models that you’re researching?

I do think generally that having unlimited access to 100 million songs is very inexpensive. It’s accessible. It’s awesome. But it’s very inexpensive.

And I think we’ve asked music fans to pay less for music than they used to. So I think that’s an opportunity for artists to capture some of what’s lost.

I think that’s an opportunity for streaming to raise prices. But really just to focus on where fans want to spend their money on their favorite artists. I mean, one of those places is vinyl. Half of people who buy records don’t have a record player.  That tells you something.

Would you say you’re trying to fix streaming?

No, I don’t think I’d say that. If you’re a consumer streaming is amazing. And if you’re an artist, it’s one of many tools you have and use at your disposal.

Like I said, we’re well past the days of recording studios, and radio stations being the only channels of creation and distribution.

And music streaming is a piece of that, that is glorious in some moments for both the artists and the fan. What I’m trying to fix is the artist experience of being an artist. Despite being able to record a Grammy-winning album in your dining room, and being able to distribute on social media and music streaming platforms in nanoseconds to the whole planet, artists still struggle to make a living. [They struggle] to focus full time on their art, to not have side hustles, to get access to capital, to understand their own data, and to know who their fans are.

It’s shocking and it’s unacceptable. These are the kinds of problems that Block has tackled in financial services. And there are some similarities between banking and the music business, which aren’t great ones, but we’re familiar with it and we know how to break through that. It’s really about democratizing the tools.

The democratization of music creation and distribution and the widening of the distribution landscape has not only made it easier for artists in their bedrooms making music, but also to release their music as you say in nanoseconds, but alongside that, the rise of generative AI music apps has proliferated the supply of content to these platforms. Is generative AI a concern for you? What impact will it have on what artists earn and the relationship between artists, streaming platforms and fans?

It’s a very big deal. And I think it’s going to be important for us to focus on who our primary customer is and that’s the artist. So what does AI mean for artists? Is it a threat, is it a tool, is it an asset? Is it a revenue-generating opportunity?

And will we have to build our tools to answer those questions for artists? If their work is in a training set, if their work is sampled, if they want to submit it to a pool of training data to create something, they have no awesome way to do that unless you’re a superstar, you can raise your hand and say, hey, I want to do this.

But if you’re a working artist, there’s really no way to participate in this properly. Just like there’s no way for artists to participate in lots of things that exist properly, like sync for TV shows and movies.

It’s an arcane process of music selection and most rising artists are excluded from even that. They don’t know how to get that done. So to me, it tells the same story, which is that artists are not armed with the tools they need to be successful and that has to be our position. But yeah, it’s going to be a wild ride.Music Business Worldwide

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