The Payment Model Debate Isn’t Over
8 min read

The Payment Model Debate Isn’t Over

Hello, hello. We’ll keep the intro brief today. I’m still on the lookout for work with a particular eye for city or union work based in New York City, though down to look at smaller music opportunities that make sense. Otherwise, if you enjoy the newsletter, share it with a friend or colleague, or subscribe here if you’d like to support. Now let’s chat about the ever-thrilling topic of payment models.

Last month, Universal Music Group revealed during its Q2 earnings call that Spotify was joining the likes of SoundCloud, Deezer, and Tidal in partnering with UMG to work on a new “artist-centric” payment model. Does this mean anything beyond swapping emails with Bain, the anointed consultant for this work according to Bloomberg, towards some undefined goal? Who could say, but Spotify agreeing to work together is another sign that at least on the recording side there appears to be a consensus in adjusting how musicians are compensated by streaming. This could be met with excitement since I’ve written about this topic numerous times and got to work on SoundCloud’s ‘fan-powered royalties’ model. Yet, instead what’s becoming ever clearer to me is how this process is beginning to mirror a different, but instructive, chapter of recent music industry history.

The Music Modernization Act came and went by this newsletter. I didn’t devote much time towards it, truthfully because it was too in the weeds of policy fights I wasn’t well versed enough to cover with any real depth in 2018. Another day I may devote more time towards that history, though Sam Backer’s excellent piece in The Baffler on the MMA is for all intents and purposes the Penny Fractions party line on the topic. Instead, I want to pull apart a couple of broader themes I’ve noticed with the Mechanical Licensing Collective (MLC) that’s arrived from the MMA and other industry grips with the current methodologies of paying artists. Now before getting into the legislative weeds, let’s look back at an ongoing industry debate.

The Pro Rata Question

I began skeptical of the user-centric model but eventually warmed up to the model over time. The core reason is that it both simplifies the economic relationship between artists and fans (your money goes to what you stream) and reduces the incentive fraud and streaming manipulation. The issue of the latter being extremely prevalent because the pro rata model works on a market share system, where increasing one’s overall slice of the pie by whatever means can be justified. (Don’t worry we’ll come back to this system again.) These two reasons alone in my head would’ve made people ready to abandon the ship of pro rata, which rewards passive consumption and inherently favors major label artists with easy connections to promotional channels and playlists. That’s not been the case.

Instead, while SoundCloud continued to move forward with user-centric, most recently getting Merlin onboard; Deezer and Tidal effectively gave up such ambitions in partnering with UMG towards their “artist-centric” model. Now how much Deezer and Tidal were putting into pushing for the model the last few years is up for debate without more explicit public reporting. However, what’s emerged rather quickly is now a vacuum where labels are the ones speaking against the current pro rata model and streaming platforms are being led by the nose towards new proposals. The voice clearly lacking here are musicians, or better put rights holders, getting a say in how they may be paid for their work. (Shawn Reynaldo, of the wonderful newsletter First Floor, recently looked at a study that I did work on at SoundCloud about user-centric, so the convo is still progressing.)

Last issue, I tracked numerous global legislative efforts around streaming. A theme I wanted to highlight was that there wasn’t much on the table about the actual model for how artists get paid, and in fact, Canada and France appear content to just tax and let the market figure out the rest. This is producing a vacuum, where executives can pontificate about half-baked ideas like Robert Kyncl the CEO of Warner Music Group suggesting multipliers for certain artists, like an arcade video game. Lucian Grainge, the CEO of Universal Music Group, keeps talking about an “artist-centric” approach that would address fraud and DSPs flooded with cheap content, which is all fine. Yet, the speed and aggressiveness of the shift from “everything is fine” to “everything must change” would, based on recent history, make matters more, not less, opaque to average musicians.

A Government Approved Blackbox

Now, the creation of the Mechanical Licensing Collective should be put in some context. The organization birthed by the Music Modernization Act back in 2018 was given a year and a government-set mandate to be up and operating by early 2021, which was before anyone was aware of COVID and the massive disruption it would cause the world. Even still in a relatively short time, they built up the organization and distributed over a billion dollars to songwriters. This is great and considering the relatively young age of the body this can be something that hopefully over time will improve; however, despite the good work of folks who are at the MLC, there is a structural issue with the organization that’s hard to overlook. Sam Backer in the Baffler clearly lays it out: “The bill organizes such payouts according to market-share, which means that the largest publishers (who just so happen to control the MLC) will receive a proportionally greater slice of the unclaimed royalties. This is despite the fact that it is smaller firms and songwriters—like Lowery himself—who are most likely to have their compositions fall into the black box.”

Unfortunately, the law is written almost explicitly in a manner that benefits major publishers by splitting those unclaimed royalties via market share. It’s easy to see how streaming platforms and major publishers enjoy an arrangement where the former is shielded from potential lawsuits, and the latter gets to skim off a few extra dollars due to the messiness of a 19th-century business still adjusting to 21st-century changes. This again lies at the hands of the original crafters of the legislation that was looking to basically put an end to what could’ve just been an escalating arms race of lawsuits. The intention appears less to find an outcome best for working artists, but the extra check arriving potentially their way is nice.

This absurdity may be why it was notable that the United Kingdom announced a massive coalition to endorse streaming metadata standards. Even if the parliamentary inquiry didn’t result in massive legislative change in the country, organizations like the Music Managers Forum were arguing for some level of increased transparency and consistency around metadata explicitly so there aren’t large sums of unallocated cash pilling up. That’s why it was easy to see why Chris Castle, a long-time advocate for songwriters, made sure to mention what was going on in the UK, as a sign that one mustn't throw up your arms about the status of this money, especially in the case of the MLC.

The levels of governmental weeds to follow this stuff is pretty intense, and Castle is more full-throated arguing that there should be a rethink of the compulsory license around this mechanical royalty. I’m less enamored with trying to create an idealized market for songwriters, because without there being a real equivalent of a songwriters union that can properly bargain amongst streaming platforms and publishers this can all feel a bit moot. Yet, arcane antitrust laws make that neigh impossible for songwriters and Castle is right to point out the absurdity of how much of much is outside of the hands of those most impacted. The obtuse and removed nature of these decisions makes even the small gains in recent Copyright Royalty Board rulings like Phonorecords III / IV hard to appreciate.

What connects the two dots around the continued discussion of streaming models and the enshrined in law via the MMA and creation of the MLC is again who was at the table setting these policies. The MLC emerged to address a growing number of lawsuits that might’ve unwound much of the legitimation work done towards affirming streaming to be the industry’s preferred mode of consumption. The continued discussions of streaming models with UMG leading the charge appear slated for a similar trajectory. Where potential alternatives like user-centric are cast aside for what major labels see as benefiting their artists first and foremost. Numerous groups continue to fight and poke at this question, but it’s becoming clearer what the terrain of a post-pro rata world may look like, and it’s not looking much better than where we stand today.

Unheard Labor

The SAG-AFTRA and WGA strike continues, though the writers appear to be back at the bargaining table. Pitchfork did an excellent piece speaking with various musicians, composers, and music supervisors about the effect of the strike on their lives. All interviewed were supportive of the strike but did make it clear it was negatively impacting their lives and that it’s made clear just how much they’re lacking right now without union representation. I mentioned this earlier in the summer but the Teamsters ratified their tentative agreement with UPS, which included massive gains for the workers and prevented what would’ve been one of the largest strikes in American history. In less positive news, TikTok laid off seven employees on their music team as part of some internal restructuring.

Government Tunes

SoundExchange is suing SiriusXM for $150 million alleging the company intentionally misrepresented how much it made from satellite radio to reduce the amount of money it owes. Now for a bit of deja vu, back in 2013 SoundExchange sued SiriusXM for not properly paying out royalties and ended up owing you guessed it…$150 million.

A Note of Financialization

Round Hill music bought the catalog of Big Loud Shirt Industries and fifty percent of the writer’s income from its founder Craig Wiseman; also its Music Royalty Fund III LP just picked up the Canadian company Linus Entertainment. Slightly less splashy, Primary Wave bought a “majority” of the catalog of Dennis DeYoung from the band Styx; Iconoclast picked up the producer royalties of Giorgio Moroder; BMG peeled away the writer’s share of Michael Munzin from SNAP!; Concord bought a “portion” of the catalog from the songwriter Tom Higgenson. Lastly, country songwriter Ashley Gorley is selling over 350 songs from his Tape Room Music business to the Raine Group-backed Right Light Ventures and Firebird Music.

Google and Universal Music Negotiate Deal Over AI ‘Deepfakes’ - The Financial Times (Subscription) / Google and YouTube are Trying to Have it Both Ways with AI and Copyright - The Verge

I continue to be confused about the market for people to pay for properly licensed artificially generated versions of their favorite artists. I said as much back in May about Grimes’ own venture into this space, so again we’ll see what if anything comes from this. Still, it does appear the press release machine is revving with promises of Frank Sinatra’s artificial corpse serenading on a YouTube screen coming to you.

The Price of Pop Fandom - Pitchfork

The resale price of current Taylor Swift tickets ($3,801) is over twenty times her previous tour ($157). That’s just one eye-opening stat from an excellent collection of articles by Pitchfork trying to understand the absurdity of modern ticketing.

A Guide to “Fan” Organizations Funded by the Ticketing Industry - Pitchfork

A handy article from that same package revealing how many pro-ticket scalping lobbying groups receive money from the likes of StubHub.

Amazon Music Raises Prices on Individual & Family Subscription Plans - Billboard (Subscription)

One day I’ll take a step back and access all these music streaming price hikes, but it’s worth highlighting Amazon’s second price increase since 2022. So, don’t expect these to be one-off announcements.

Gambling Could Save ESPN, But Ruin Sports - Bloomberg (Subscription)

The bleeding of the stone for higher revenue, and eventually profits, is seeing the rapid degradation of professional sports. The current absurdity of ticket prices, the music industry’s brief flirtation with NFTs, and K-Pop’s own gambling-like products already show music’s capacity to run towards fan addiction and exploitation to offset declining revenues in other parts of the business.

How Fanatics Is Building a Weird Monopoly Over Sports Trading Cards - BIG

A great article on the genuinely ridiculous monopolization path being forged by Fanatics over the sports trading card industry. Again, there are not-so-faint echoes between the squeezing of both fans and retail stores that will undoubtedly be familiar to music industry observers.