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Streaming’s problems will not be fixed by royalties alone

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by Mark Mulligan

UMG and Deezer’s artist-centric royalty proposal got the amount of attention both parties probably wanted, if not necessarily the type of attention they were after. However, the intent was to kick start an industry debate, and that objective was clearly achieved. Yet, while the discussion has understandably focused on royalties (as, after all, it is a royalty system), these are more symptom than cause. Streaming royalties are not adding up because streaming is not adding up. Fixing royalties is only part of the solution.

In the early days of streaming, DSPs provided platforms for listening to music. Over time they have become places for consuming audio. As streaming mainstreamed, its role as successor to retail became subsumed by its role as music radio’s replacement. Passive playlists, lean-back listening, functional music and ‘noise’ are a series of inevitable second-order consequences, as streaming chases the needs of consumers, following the behavioural data. All in stark contrast to when radio programmers and digital store managers chose what consumers got. In those days, it was a case of the public wants what the public gets, now the public gets what the public wants. The problem is that what the public wants creates a system that neither creators nor rightsholders want. Consumers have, at least in part, chosen this path.

Perhaps, as Steve Jobs was fond of saying, it’s not the customer’s job to know what they want” or as Henry Ford (may or may not have) said if I had asked my customers what they wanted they would have said a faster horse". But whether you believe consumer choice should shape product strategy or not, consumer-led innovation is the defining characteristic of today’s digital world. This means that any innovation that looks to push against prevailing behaviour risks can alienate the very customer base that the system depends upon. So how do we square the proverbial circle?

Solutions must understand the audience’s needs

Many years ago, my former employer, Forrester Research, devised the fantastic POST framework for defining product strategy:

People: First, understand your customers and their needs

Objectives: Next, identify what you want to achieveStrategy: Then, shape your strategy

Technology: Finally, decide what technology fits the bill

Too often, this framework is done in reverse. Just think of the endless succession of ‘new tech’ start-ups that try to superimpose ill-fitting use cases onto their products. Technology desperately searching for a use case is one of the main reasons new tech, like the metaverse, VR and NFTs, follow the boom-bust-rebuild arc of the hype cycle. The risk with trying to superimpose new royalty structures on today’s streaming world (whether that be user centric, fan centric, artist centric, or whatever else) is that they look to solve supply-side needs (i.e., those of creators and rightsholders) first and demand-side (i.e., consumer) issues either last or not at all. Art may fuel the streaming machine, but consumers drive it (even if that means they benefit from self-driving much of the time).


At its heart, the streaming economy is shaped by diverse and often competing needs. Any successful system with diverse stakeholder needs operates by striking a pragmatic balance of meeting those needs. But a truly good compromise means that neither party is truly happy. This is the challenge that streaming faces today.

A brutal assessment of streaming would be that no one is happy. Every stakeholder, except perhaps, the consumer, has beef with how streaming operates. All of which means that any fixes (at least those that will succeed) will need to deliver some form of benefit to all stakeholders, big and small. And that means tackling the underlying behavioural dynamics of streaming, from which today’s royalty issues come.

Streaming has two main problems

A common refrain is that there is simply too much music. But the issue is dealing with quantity, rather than quantity itself being the problem. No one complains that there are too many search results on Google. The reasons quantity is seen as streaming’s problem are twofold:

1.     With so many releases, it is hard to cut through

2.     In a zero sum royalty system, more (content) means less (royalties) per stakeholder

Factors like ‘noise’, functional music, and generative AI are not problems in themselves, they are problems because they accentuate both of these issues.

Introducing the algorithm multiplier

Adopting a two-tier royalty system will not solve either problem in itself. The long tail will still be there. Listening will still be fragmented. Royalties are a supply-side issue, not a demand-side one. And it is the demand side that is causing the ‘problem’ by spending time listening to an ever more diverse volume of music. If you want to change behaviour, you need to pull the behaviour levers, not the remuneration levers. One way this could be done is by implementing an algorithm multiplier that applies a higher weight to successful artists. Thus ensuring success breeds success. But (and this part is crucial), this algorithm multiplier should be geared for all tiers of success. So, just as a superstar artist’s hit would get amplified, so would a <1,000-stream artist’s song that is doing exceptionally well when measured against other <1,000-stream artists. How does Google deal with a vast volume of search results? It prioritises the good ones. The algorithm multiplier would surface the best of every tier of artist. Quantity stops being a problem, because quality will be pushed to the surface, regardless of scale. 

The consumer wins (better music), the DSPs win (better user satisfaction), creators and rightsholders win (quality cuts through the clutter and gets a larger share of royalties).

The algorithm multiplier would fix much of today’s problems, but it would not be enough on its own. More needs to be put into the system to give all stakeholders more income and consumers more chances to be fans. MIDiA believes that $2 artist subscription streaming bolt-ons is one such way of achieving this, putting more value (both monetary and experience) into the system. Segmenting artist development and marketing across the platform landscape is another.

Streaming royalties clearly need an overhaul, but they must be done in concert with a reboot of the underlying behavioural architecture. Unless this happens, the artist and fan economies may end up decoupling from the streaming economy. Perhaps that will be a good thing. Perhaps not. But what it will not be is a predictable, low-risk future.

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Bob Bellin
The real issue is your #2. Labels won't cut better deals with artists because they have no incentive to, except possibly with big stars. Taylor Swift proved that if you're big enough, you can just rerecord everything and render your catalogue almost worthless. The issue is the DMCA, which was cut and pasted into law from an email from the RIAA in 1998. No law dealing with anything digital written in 1998 should exist in that form. Again, the problem is math - to much money to the labels, not nearly enough to artists or streamers. Changing the structure without changing the metrics won't change anything.
If labels really want to push through a two-tier royalty system for (short-term) profit growth, they are going to make the same mistake as in the past. Perfect is the enemy of good. The consumer needs will prevail. And the consumer clearly wants: 1. Diversity and ultra-personalization (ever expanding genres) 2. Perceived fairness in compensation, rooting for their favorite artists (voted by attention/streams) Neither can be achieved with a label-centric system. Spotify and other DSPs should be careful to cater to labels wants too much. Otherwise, they risk disruption.
jim mcguirk
"Better Music"? In whose opinion - and who will be the gatekeepers of this system? Back to the old days when moneygrubbers controlled what music was fed to the masses and talented people who refused to bend over were refused access to the world of music. "Amplified streams?" This means the people who can afford to buy lots of streams gain an even bigger advantage - the megarich continue to use their money to manipulate what we are allowed to listen to.
Mark Mulligan
As I have written previously, I share the opinion that as soon as we get into discussions about what is 'better' we tread into a cultural minefield. For example, if a retired marine biologist uploaded an album of whale noises, that represented her life time's work, would that be 'better' or 'worse' that Taylor Swift rerecording one of her old albums? Under current prevailing thought, it would be 'worse'. That is why we proposed a system that does not get dragged into that un-winnable debate, but instead use the data listeners generate to determine what is standing out. Looking at metrics that measure engagement (eg average listens per person, add to collections, shares, likes, follows etc), metrics that show how much the music is connecting, rather than the reductive volume of streams. Engagement is much harder to mimic and game than consumption is.
Bob Bellin
I think this is dead wrong. The major labels are very happy with the current system, as they're getting more money than ever before and no longer have to deal with supply chain/distribution/vendor issues. Spotify has zillions in subscribers and revenue, but gives most of their money to the major labels, so they lose money almost every quarter. So Spotify doesn't need an overhaul or a two tiered royalty system - it needs to 1) Keep more of its revenue so it can turn a reliable profit and 2) pay a bigger share of $ to the artists. Both should come out of the music industry's hide, not Spotify's. The problem is the old joke about losing $5 on every sale but making it up in volume. That doesn't work - the problem is math, not structure.
Mark Mulligan
The fact it is the world's biggest major label that is leading the charge for royalty reform suggests that they are not happy with the system. Otherwise, why try to change it? Do bigger labels with bigger marketing budgets benefit better in today's system? Yes. But that does not mean they do not want more from it. Should a greater share of royalties be shared with the artists? Yes. But there are really only two ways to fix this: 1) labels change their deals with artists, 2) equitable remuneration (which requires legislation)