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A Reply: Sir Lucian Grainge & The Need For An Evolution Of The Streaming Model Part 1

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A Reply: Sir Lucian Grange & The Need For An Evolution Of The Streaming Model – Part 2

So, we last examined Lucian’s statements around lower quality...

Sir Lucian recently sent his annual start of the year message to all Universal Music employees. To my mind some of his thinking is a little deranged, so let me explain…

Initially, Grainge states consumers are being guided by algorithms to what he calls “lower quality functional content that can barely pass for music”. Let’s examine the first aspect -algorithms are what have driven the business models of these streaming platforms since Spotify launched in 2007. In fact, it was their key differentiator to other players at the time including Apple Music. Going further, it could be argued music is a very personal thing to music consumers, so to arrogantly write off some of the 100,000 tracks per day being ingested into these platforms as ‘barely being able to pass for music’ is quite frankly wrong and certainly subjective.

Lucian goes on to blame the streaming platforms for exploiting the music of large successful artists to entice new subscribers to the streaming platforms. The question is, how else do you suggest these platforms entice new subscribers? He then derides the use of the algorithms because they essentially help people discover new music. Surfacing of the longtail of music available was a key selling point of these streaming platforms in the early days. It could be argued streaming platforms have been successful in achieving this, yet even that is also debatable.

He laments that streaming platforms then via their algorithms drive consumers to “generic music that…is less expensive for the platform to licence and in some case has been commissioned directly by the platform”. Let me ask a question here, why have these platforms driven people to less expensive music? Could it be the outrageous licensing advances labels demand from streaming services that these same labels then push through into black box income with bugger all making its way to the catalogue of artists that they used to justify the licensing advance in the first place?

Let’s take this further; why has there been so little innovation in music streaming since its inception? Could it be the fact the costs of entry are so unviable from an investor and business profitability perspective? Exorbitant licensing costs, demands from labels for equity in the new digital music business and the list goes on.

One thing we do agree on is that the masses of 31 second track uploads that just game the system and divert royalties is criminal and needs further examination. In my mind it leads to so many other questions – and so let’s examine two of these questions in more depth…

Who is enabling this gaming of the royalty system?
Gaming of the royalty system at such scale requires collaborators. Due to the value chain dynamics of the music business such systematic abuse could not occur without assistance from at least one or more of these three value chain participants:

• Labels/Publishers
• Streaming services
• Performing rights societies

So, examining labels and music publishers first; what are their motivations to scam the royalty system? I would state legitimate labels and publishers have very little reason to be scamming their own artists and associated companies in such a manner. However, clearly there is no doubt that labels and/or publishing companies set up to undertake such black hat activities.

Moving onto streaming services; what could be their motivations for such activities? Whilst reputational damage would no doubt destroy such a streaming service if it was uncovered that they had been engaging in such activity. There is motivation to conduct such scamming due to the high licensing costs and lack of profitability in running streaming services.

Now moving onto performing rights societies who actually make the payouts to these scamming companies there is the same reputational damage risk as with streaming businesses. One could argue they have very limited motivations for such a scam as an organisation. However, for individuals working within performing rights societies, there is the insider knowledge on how to game the system and potential to avoid scrutiny.

What are all participants in the value chain doing to prevent such abuse?
So, examining labels first; what have they done to prevent such dubious activity? Take Universal Music, which, by being the largest label in the world, also makes it the largest label shareholder in Spotify. I ask Lucian what has Universal music done to leverage its shareholding to help prevent this scamming? Has it demanded these streaming services track and take down what are clearly scam tracks? Is it getting daily weekly reporting detailing what action has been taken? If not, why not?

Secondly, what exactly are these streaming services doing to prevent such scam activity on their platforms? These platforms are the ones making payments to performing rights societies for the tracks streamed on their services. So, they have legal records of payment for these 31 second tracks and the associated metadata. If you follow the money, there would be a clear trail to follow.

Finally, performing rights societies have direct access to all registered tracks as royalty payments go through them. They also make payments to the entities that own the rights to such tracks. As such, performing rights societies are the key segment of the value chain that can step in to cut payments to entities identified as being involved in such scam activity.

A key question that arises from all of this is: are there any internal efforts to share information and track down these scammers between these three key segments of the music business value chain? If not, why not? Going further, these same algorithms Lucian rails against could be utilised by the streaming platforms to uncover, track, take down and report on such scam activity. Similar action could and should be delivered by performing rights societies when it comes to making payments to royalty scammers.

The Music Void is of the view that there are plenty of opportunities for collaboration between all players across the music business value chain to root out and close down these black hat players. Such activity steals from rights holders and most importantly artists who receive less income. However, to be successful in such endeavours requires collaboration and will power from all players to realistically prevent such activity…

Finally, Sir Lucian Grainge also focused on the need for an evolution of the streaming model, and we believe this requires a whole article focused on that issue alone. As such, part two of our reply will be published following our publishing of this article.

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