What Will the Future of Streaming Royalties Look Like? Tidal and UMG Want to Find Out

The music business, historically speaking, has not been great at consensus. But there does seem to be growing agreement from many quarters now that the existing payment structure for streaming royalties isn’t working for everyone and that a different approach is required.

This isn’t a new idea, but it’s one that’s quickly gathering steam in the wake of Universal Music Group chairman/CEO Lucian Grainge’s internal staff memo/open letter to the industry earlier this month, in which he called for an “updated model” for the music industry — one that will be “an innovative, ‘artist-centric’ model that values all subscribers and rewards the music they love.”

It wasn’t clear what, exactly, Grainge meant in the letter. And on Tuesday (Jan. 31), it became a little bit clearer that, as of yet, there isn’t much clarity on what it will mean — though UMG is hoping to find it. To that end, Universal has announced a partnership with TIDAL to “research how, by harnessing fan engagement, digital music services and platforms can generate greater commercial value for every type of artist,” according to a press release. Essentially, there are a lot of unknowns here other than that something needs to change.

That was more or less what UMG’s executive vp/chief digital officer Michael Nash said in a statement accompanying the release. “As the digital landscape continues to evolve, it’s become increasingly clear that music streaming’s economic model needs innovation to ensure a vibrant and sustainable future,” he said. “Tidal’s embrace of this transformational opportunity is especially exciting because the music ecosystem can work better — for every type of artist and fan — but only through dedicated, thoughtful collaboration. Built on deeply held, shared principles about the value of artistry and the importance of the artist-fan relationship, this strategic initiative will explore how to enhance and advance the model in keeping with our collective objectives.”

This is not TIDAL’s first attempt at stepping out of the traditional streaming royalties model, in which streaming income is collected and divvied up among rights holders according to their share of total streams. In November 2021, the streamer announced a new three-tier membership structure and a step into a user-centric royalty model for its premium tier, which endeavored to pay rights holders based on the streaming activity of each individual user — with the additional element that 10% of each user’s subscription fee would go directly to their most-streamed artist.

That, in itself, is a twist on the “fan-powered royalties” that SoundCloud first rolled out in March 2021, which allocated streaming revenue to artists based on which acts a given user listened to, and which Warner Music Group opted into last year. (Deezer has also publicly supported a user-centric model.) SoundCloud says that artists using FPR generate 60% more streaming revenue than those who use the more traditional model, though it’s currently only being offered to indie artists and WMG artists on the SoundCloud platform; a MiDiA study said that 56% of artists were better off with FPR. Access to the data on who the fans are who are streaming that music the most, SoundCloud has said, is the true game-changer for the model.

There has, however, been some hesitance around that user-centric idea, mainly due to studies conducted in the last few years surrounding who would benefit, and at the expense of whom, by the switch. One study found that for 99.4% of artists, the switch would equate to less than a 5% bump in royalties — for many, effectively just a few euros per year — which could be offset by the administrative costs of the switch itself for the platform. That could disproportionately affect R&B/hip-hop artists, given that the genres have thrived in the streaming era, to the benefit of other, smaller or more niche genres. And it would definitely take away from top earners’ revenue — i.e., artists who wield an outsized voice in the business. A general view became that the switch would equate to moving money from one bucket to another, without really moving the needle for most artists at all.

TIDAL, in today’s announcement, effectively conceded the point and said they are stepping away from the user-centric model they were pursuing in order to take a step back and join in this new research project with UMG. “We are setting aside our current fan-centered royalties investigation to focus on this opportunity for more impact,” TIDAL’s Jesse Dorogusker said in a statement. “This partnership will enable us to rethink how we can sustainably improve royalties’ distribution for the breadth of artists on our platform.”

What they’re saying is, essentially, it’s time for a new study to see if there are better, perhaps more nuanced, ways to change up a model that pretty much everyone is beginning to agree is no longer functioning the way it was originally intended. “At TIDAL, we learned from [fan-centered royalties] there is an opportunity to build a royalties distribution model that could be better at compensating the breadth of genres and artists that contribute to streaming catalogs,” TIDAL’s global head of communications Sade Ayodele tells Billboard. “Many of the alternative models explored, however well intended that they are, unfortunately create a new set of winners and losers. With this partnership, we’re hoping to find a fairer and more equitable distribution approach that benefits a broader set of genres and artists contributing to the culture of music.”

Which brings us, again, to the original question: What will that look like? The answer could be varied, and it could be different for each streaming service. There have been some conversations in some sectors of the industry about weighting music streams higher than background sounds, for instance, or more heavily weighting intentional listening (searching for or clicking on a song or artist) over background listening (a playlist, or an algorithmically-chosen next song). There are already different models around ad-supported vs. paid subscription payouts, and there is a conversation to be had about how fan engagement should or could influence where money is directed. What UMG and TIDAL are trying to say with Tuesday’s announcement is, let’s go try some things and see what works, and let everyone else know what we’re doing so that maybe they can try to find an innovative answer, too.

Consensus is a hard thing to come by. There likely won’t be a consensus around what the end solution is, and several options could eventually emerge. But streaming has been around for more than a decade now, and if there’s any consensus at all, it’s that something needs to change.