The Developing “Crisis” of Music Streaming

Hello, hello, hello. Quick introduction this week. I wanted to mention that newsletter reader Matthew Whiteside is fundraising for a book on how classical musicians can self-release their works. What’s cool is also each donation will be matched by Creative Scotland. So give that a look. If you enjoy the newsletter, spread the good word. Now, let’s look into the current struggle playing out publicly over music streaming revenue.


In 2022, the American music industry saw its seventh year of growth. Unfortunately according to the Recording Industry Association of America (RIAA) that increase was a tepid 6% compared to the booming 23% of 2021. The coronavirus pandemic forced societal shutdowns and supply chain disruptions impacted various sectors in unique ways, and the aftershocks for the music industry are becoming easier to put into view. 2020 experienced an initial dip that recovered, 2021 saw a massive revenue spike, and 2022 appears to be returning to the 2019, not 2021, trajectory. The weakness of advertising-based streaming and the plateauing of premium streaming revenue is why I’ve cited numerous times the industry latching itself onto NFTs, the metaverse, social media, and I’m sure soon AI to help offset looming revenue stagnation. Before seeing how the world’s largest record label is reacting to these ominous signs, let's reexamine the current foundation of the music industry in 2023: streaming platforms.

During the first three months of the year, I covered the major streaming platforms to try and really understand how these products are doing right now. Amazon and Apple Music both haven’t released user numbers in years; their parent companies have either implemented layoffs or other budget-tightening measures, and there appears to be little extensive investment into these products. (Last month, Apple finally released its standalone classical music app.) YouTube saw advertising declines and appears now more interested in trying to promote Shorts, as it tries to fend off TikTok. That just leaves Spotify, which announced layoffs and braced on its last investor call for uneven advertising revenue. That leaves in the United States fledgling platforms like Pandora and Tidal that are declining into cultural irrelevance. The lack of accelerating streaming growth may explain why record labels aren’t waiting for the next crisis to arrive at their doorstep. Instead, a proactive campaign is underway to get ahead of the issue.  

Lucian Grainge’s Gambit

In January, Lucian Grainge, the CEO of Universal Music Group, sent a letter to the employees of UMG that conveniently leaked and became the talk of town across the music industry. The most remarked upon part of the statement was around his frustration with streaming fraud, the flood of content hitting streaming platforms, and a call for an ‘artist-centric’ model. Concern around streaming fraud isn’t new but this accelerated the conversation since I wrote about it last year, along with increased coverage for the likes of Billboard. An irony I observed was that streaming “fraud” isn’t limited to no-name artists but numerous major artists have been accused of such tactics. That under-discussed fact may help fuel Graige’s frustration. The proliferation of self-releasing platforms that flood streaming platforms with more content is allegedly hurting bigger artists that previously benefited the most from the pro-rata model.

The impact on major label catalogs is likely dependent on each platform but it’s true this is an increasing burden for streaming platforms themselves. (Music Business Worldwide’s close eye on Spotify’s cloud computing costs scratches at this story.) The common trend here is that major labels are starting to lose out with the pro-rata, winner-take-all model that helped legitimize the initial rollout of legal streaming platforms. Yet, that concern about the shrinking market, or better yet mind, shrinking share isn’t limited to streaming.

The paranoia over contracting market share is central to the ongoing fights with TikTok. The short-form video app is piloting in Australia, a removal of major label works, certainly a bold way to handle ongoing label negotiations. However, the less quantifiable concern over TikTok expressed by marketers, managers, and artists themselves is app usage cutting music consumption full stop. This is best heard in the weariness of seemingly every decision needing approval via TikTok before fuller energy is placed into it. That’s why labels clamor for revenue share agreements with the company, rather than large lump sum payments. If TikTok is here to stay, then labels cannot miss out on collecting in on the new pot of gold that arrived at its doorstep. Even in the early stages, this is certainly a bit of the anxiety around AI. The concern again isn’t in the tools but rather in both unauthorized uses of copyrighted material and the further fragmentation of music consumption without any clear gatekeepers to build and steer audiences. This sets up what could become a rather zero-sum fight in the coming years.

Early bets on NFTs, the metaverse, and social media platforms appear to be more miss than hit compared to the euphoria that was buzzing only eighteen months ago. This may only further cause major rights holders to dig in their heels around the industry’s main revenue generator of streaming. Except as mentioned earlier even that’s starting to falter. Ironically in the calls for streaming platforms to pay out better, and I’ll count myself in this camp, there’s been a lack of acknowledging just how shaky the streaming business is right now.

The advertising side of music streaming is just a loss leader to try and convert people into paid users. However, each successive quarter where music streaming platforms cannot turn a sustainable profit makes it harder to justify subsidizing users that haven’t budgeted to pay. It’s hard to find any rights holder be it a label, publisher, or collection society that likes free streaming, and most would like to see price increases yesterday, if not today. While I dismiss the concern of piracy even if prices did rise, what’s clear is that keeping prices so low and increasing the number of hands taking money from an unsustainable business model isn’t a viable long-term strategy.

The solution proposed by Grainge is still unknown. UMG announced they’re working with Deezer and Tidal to craft a more “artist-centric” model. What that’ll look like is still unknown but I wouldn’t quickly assume folks might not become curious. The label boss might be looking out for his top artists but the pure market share model isn’t beloved by many. Spotify and self-releasing platforms, like the Spotify-invested Distrokid, do benefit through cheaper music to liscense and by skimming from aspiring musicians that desire for their music on popular music platforms. However that's not a large segment of the music industry, so a reshape of the current paradigm may face less coordinaed pushback in the end. This could create an interesting dynamic but it's still too early to speculate further. However, it would appear that the record industry's biggest player is ready to be proactive in what should be done next, as the pandemic-era distractions fade away.

Unheard Labor

Compassionate corporate speak is running amok in public justifications for layoffs. Warner Music Group prodded a correction from Billboard saying its 270 job cuts were not “a cost-saving measure” but rather a “reinvestment in the company”. Meanwhile, Downtown Music in another round of cuts said it was for “reorganization” rather than the previous reason of “economic conditions” cited in November. Also, Disney and Microsoft both made big cuts to their metaverse divisions. Hopefully, folks find new roles but also: No Metaverse, No Masters.  

Bloomberg reported that Spotify only spent 10% of its creator equity fund, which was said to be $100 million. Given the layoffs and those pesky “economic conditions”, I'd just guess that this received a significant downgrade in internal relevancy over the last 12 months. Last month, the Security and Exchange Commission (SEC) charged a number of celebrities including Soulja Boy, Lil Yachty, Ne-Yo, Akon, and Austin Mahone for promoting unregistered securities, and all but Soulja Boy and Mahone have paid a fine. Again, who could’ve seen that much of the hype around crypto was around projects that were actually breaking the law and saw artists deceiving their fans?

A Note of Financialization

Deals, so many deals this week. Let’s start with the familiar faces. Hipgnosis Songs Capital, the Blackstone-backed fund run by Hipgnosis, bought the publishing and songwriter rights of Erika Ender, a prominent Latin pop songwriter. Primary Wave, fresh with a couple billion from Brookfield, bought the “artist royalties” of Bob Burns from Lynyrd Skynyrd and Canadian singer Sarah McLachlan. The uniquely named Multimedia Music bought the catalog of the composer Sean Callery and also raised $100 million from Metropolitan Partners Group, Bardin Hill, Pinnacle Bank, and Regions Bank. Then in a list of poorly named companies spending millions of dollars on song rights: AMR Songs got an undisclosed amount of songwriter interest from John Sebastian (The Lovin’ Spoonful); Cutting Edge Media Music bought the catalog of First Score Music Ltd.; Peermusic wrangled the catalog of Canadian songwriter Corey Hart; and last MusicBird picked up the catalog of the Scottish artist Midge Ure.

Gamma, Downtown, Utopia, and the Rise of the ‘Inside-Out Majors’ - Music Business Worldwide

Former Penny Fractions advertiser Hunter Giles, founder of Infinite Catalog, wrote an op-ed on the crop of companies that eschew owning catalogs but otherwise mirror the offerings of traditional major labels. The fact Utopia is self-immolating as I type (their new CEO of 62 days just stepped away) and Downtown remains in a constant state of reorganization makes me doubt the potential of these ventures. Still, this is an interesting outgrowth of pandemic-era froth.

38 Million Tracks on Music Streaming Services Were Played Zero Times in 2022. (Or: Why Spotify Should Take a Leaf Out of Elon Musk’s Book.) - Music Business Worldwide

No one likes to say it but: Streaming platforms aren’t obliged to host all music. The little story certain folks in the industry tell about wanting to help aspiring artists and providing access to tools and services doesn’t matter if the core business cannot sustain itself. And right now as I discussed above reaching a breaking point in being able to metabolize, properly monetize, and support all of the content flowing through its pipes.

The Score: Mapping Epic Games’ Future Music Strategy - Water and Music

The phrase “strategy” around Epic Games' acquisition of Bandcamp does too much work for my liking. Ultimately the company doesn’t want to be squeezed by major rightsholders and Bandcamp offers a way to do that. The benefit for artists ultimately feels marginal unless your audience matches that of Epic Games properties. Yet, my bias aside, the interconnectedness of video games and music exists well below the corporate level: the Fortnite-inspired USB I got last weekend at a show certainly shows that.

Is TikTok Actually Creating More One-Hit Wonders? - Billboard

The data says no, but the anxiety driving the question speaks to ongoing industry concerns around sustainable artist development.

Fans Are Using Artificial Intelligence to Turn Rap Snippets Into Full Songs - Complex

A fascinating look at how young fans are creating “finished” versions of “unfinished” songs by their favorite rappers. There are a number of concerns sprinkled throughout the piece but I find the self-imposed moral framework of these creators quite interesting. The songs are intended to be within the spirit of the original artist, they aren’t interested in money, nor do these creators don’t want this to replace their favorite acts. It reminds me of fans who’ve collected bootleg leaks over the decades. Businesses could be made off of the bootlegs but many simply wanted works the label system wasn’t ready to monetize. I imagine that the AI Lil Uzi song might be for fans now but WMG will be ready for a proper release sooner than later.

Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion - Hindenburger Research

Rappers allegedly use CashApp for hit jobs. Block “allegedly” inflated user metrics. And the company was reportedly used in a suspiciously high amount of fraudulent government pandemic loans. Don’t skip this extensive report, it's well worth the read.