Deezer & Universal’s New ‘Artist-Centric’ Royalty Model Is Stirring Debate in the Music Industry

In January, Universal Music Group chairman/CEO Lucian Grainge wrote in an internal memo to staff that the music business needed “an updated model” for how streaming royalties are paid out. This past week, the industry has seen for the first time what the market-leading music company’s vision for that could look like.

On Sept. 6, UMG announced, in collaboration with French streaming service Deezer, an “artist-centric” streaming royalties model that would be implemented on the platform — one which prioritized active listening (users who intentionally search for or click on an artist’s song) and “professional artists” (artists who have accumulated 1,000 monthly streams from at least 500 unique users), while removing “non-artist noise” (essentially, white noise and nature sounds) from the available royalty pool and cracking down on fraud and malicious actors who attempt to game the system. Rather than the existing pro-rata model, where each stream is essentially worth the same, under this new model certain streams will now count more than others.

The plan is the result of a six-month partnership between Deezer and UMG, but also the result of a much longer analysis that Universal had been running in trying to figure out how to tweak a system that is badly in need of an update. (Read more about how the UMG-Deezer plan, which affects recorded royalties but not publishing, works here.) “We have been reflecting on the underlying model for subscription streaming for a while,” says Michael Nash, UMG’s executive vp and chief digital officer. “We all understand there are issues under the current model where there’s been no innovation in the economic structure for almost two decades, since the earliest versions launched just after the turn of the century. This is the first comprehensive model that’s emerged from that process developed with a platform that has clearly articulated changes in the royalty allocation formula.”

Most record label and distribution executives agree that the streaming royalty model needs to change, but not on how to do it. Over the past couple years, companies like SoundCloud and Deezer have proposed “user-centric” models that divide a user’s subscription fee among the artists they listened to, rather than feeding it into a general royalty pool that’s then divided out per stream. That, however, has not gained much traction beyond a partnership between SoundCloud and Warner Music Group announced last year to switch to that model on its platform. While not advocating for any particular plan specifically, WMG CEO Robert Kyncl said on an earnings call in May that “it’s time to re-evaluate how we’re licensing to DSPs,” arguing that “it can’t be that an Ed Sheeran stream is worth exactly the same as a stream of rain falling on the roof.”

Universal is positioning this new model — which will begin rolling out for UMG artists in October and at first only in France, Deezer’s biggest market — as one that will benefit artists to the tune of a possible 10% boost in royalties, while addressing the increasingly-cluttered streaming ecosystem in which more than 100,000 audio tracks are uploaded each day. In doing so, it would disincentivize fraud by removing the economic incentive to game the system, making it more difficult to generate money from the royalty pool by advantaging “professional artists” and disadvantaging “functional music” and “non-artist noise.” Eventually, Deezer plans to remove those noise tracks — which the company says accounts for 2% of streams — from the platform and replace them with Deezer’s own in-house noise content that would not generate royalties. Meanwhile, stricter crackdowns on fraud would begin to help tackle the “oversupply” issue that exists on streaming services, which currently host some 150 million to 200 million audio tracks; Deezer says 97% of those tracks account for just 2% of all streams, while just 2% of uploaders to the platform generate 1,000 streams per month.

“There’s a clear problem associated with this flood of content, most of which is hardly being consumed at all,” Nash says. “We’re talking about content that is simply there that is occupying space on a server that is posted by somebody who is not trying to create culture and attract a fan base.”

The new model, however, has its detractors — particularly within the indie community. Several sources who spoke with Billboard for this story expressed concern about the definition of a “professional artist” and that the UMG/Deezer model would take money away from smaller, independent artists who might need it most and move it towards already-successful artists — and their record labels — who would see an increase in revenue and market share.

Independent music company Believe, which owns DIY distribution platform TuneCore, said in a statement provided to Billboard that it supported stricter fraud protections and exploring new proposals around “value-sharing,” but stressed that the latter should be a conversation had with the broader music industry, rather than the result of one company negotiating with service providers. “As a company working with artists and labels at all levels, Believe considers that all artists shall be compensated equally by streaming services regardless of their stage of development,” the statement reads. “We strongly oppose an unfair ‘reverse Robin Hood’ system that is centered around taking compensation from rising artists to allocate it to top and established artists. Further, it is our belief, based on data, that such a system would reduce diversity and discourage creativity.”

“Right now, the debate about ‘value-sharing’ does not exist,” added Believe founder/CEO Denis Ladegaillerie in a statement to Billboard. “Instead, we are experiencing commercial negotiations to lower the market share of all independent artists. We do not think it is right to trade less diversity for better economics, nor for top artists to take away revenue from emerging acts.”

Deezer and UMG, of course, do not see it that way; Deezer CEO Jeronimo Folgueira tells Billboard that the “professional artists” threshold was designed to be one where “any up-and-coming artist that is rising up gets to those levels pretty quickly.” He says, “We’re talking about people that are making three or five euros per month; it doesn’t make any real difference.”

If it’s such small amounts at play, two sources wondered what the point of the reallocation is at all. But others suggested that treating the smallest artists differently could make a material difference for those just beginning. “Everybody in the industry starts out with less than 1,000 monthly streams and 500 listeners,” says Richard James Burgess, CEO of indie trade group A2IM. “I understand the argument that if you’re not even hitting the threshold, if you’re getting paid like $10 a year, then it’s not really helping you in any material sense. But at the same time, if you can see that you’re making some progress, that helps. You’ve got to have an ability to get a foothold, or a fingerhold even — and that’s what I worry about.”

It wouldn’t be the first time online platforms implemented guardrails and barriers to entry. Deezer and Universal point to Google’s search algorithm or the YouTube Creator Program as comparable examples. YouTube, TikTok, X (formerly Twitter), Facebook and Snapchat all have follower and view/impression benchmarks that creators need to reach in order to be eligible for benefits like advertising revenue sharing, many of which are higher than the threshold Deezer has set. 

“In the abstract, any line of determination that you draw you could say that somebody is going to be disadvantaged,” says Nash. “But nobody looking at it objectively, looking at the actual data and who is impacted by it, reaches the conclusion that it’s penalizing an artist who is developing a following. The thing to keep in mind is, all those uploaders will still get paid. It’s just that the qualifying artist whose content is being consumed actively on-demand will get rewarded with a boost. Any developing artist is going to quickly pass that threshold if they’re on any kind of trajectory at all, and then they’re going to be rewarded for passing that threshold.”

Setting aside the existential questions that these kinds of points of distinction raise — questions like, What is an artist? What constitutes music vs. noise? What should we as a society value and reward monetarily? — multiple sources expressed concern that this UMG/Deezer plan is just the beginning and that the goalposts to qualify as a “professional artist” could move higher, and make it much harder for independent artists to make any significant amount of money.

“They are saying this is about the long tail, that the majority of songs don’t get played, and there’s a level of truth to that,” says a source in the indie community. “But the biggest issue in the music industry about allocation right now is not about the long tail, it has to do with people gaming the system, with sped-up tracks, with this ‘non-music content.’ That is the area that should be the focus.”

That aspect of the model, then, has been well received: just about everyone agrees that streaming fraud is a serious issue that needs to be more aggressively addressed. Deezer says that in 2022, 7% of streams on its platform were identified as fraudulent; other sources put the industry-wide number as high as 10% or more; either figure would equate to well over $1 billion that is being redirected away from artists and labels. One indie source says that of the 10% increase in royalties that UMG and Deezer are touting, the vast majority of that would be achieved by eliminating fraud, suggesting that the “boost” system is largely irrelevant.

While there is some skepticism that this new model, and Deezer’s attempts to step up moderation on its platform, will address the fraud issue, removing white-noise content from the royalty pool is one aspect that everyone who spoke for this story agreed was a good step forward. Several sources also note that the reallocation of the existing royalty pool is less of an issue than growing the available pool with new revenue opportunities. Universal says it will be exploring additional opportunities to monetize around fan engagement, streaming activity and “super fans” on platforms down the road.

Ultimately, this model is a phase-one test, with a smaller-scale streaming service (Deezer says it has 10 million subscribers; Spotify has 220 million) implementing it in one country, with one content provider on board. (Deezer says it is negotiating with all stakeholders to get more of their content onto the new system, though several sources disputed that.) Already there is speculation that this is a system that Universal could try to expand across other streaming services with which it has announced partnerships to explore new royalty models, including TIDAL, SoundCloud and Spotify.

Nash says that isn’t necessarily the case, and that while there are common objectives in each of the partnerships, there could be different models for different platforms. “Each of the platforms drive engagement differently and manage customer retention differently, and those variations are meaningful,” he says. “Different platforms are looking at it in different ways, in terms of how you deal with the issue of oversupply of content, the content itself, the monetization of that content. The market often learns from innovation that occurs in a pocket of activity in the market, so we do think that there is some significant influence that could extend from the leadership of Deezer here.”

And the Deezer tests are not done: Folgueira stresses that this is a model that will be subject to tweaks as it rolls out, depending on the data and feedback from the artist and creator community. And in the future, UMG intends to find additional ways to monetize fan engagement.

“We’re doing this for artists and we hope that their assessment is consistent with our vision and our objectives,” Nash says. “It’s critical that we are advancing the interests of the artist community, and that that is the conclusion that they’re reaching.”