Analysis

Deezer steps up its efforts to introduce user-centric payments


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Deezer is hoping to launch a pilot of a user-centric payment system (UCPS) by early 2020 in France, if it can persuade labels to back the idea. As part of its preparations, it has launched a website this morning explaining UCPS to music fans.

As a quick reminder: user-centric payments divide the streaming royalties from each listeners monthly subscription only between the artists they have listened to that month.

That’s instead of the existing ‘market share’ system used by streaming services, which gathers royalties into a central pool, then divides them and pays them out based on each artist’s share of overall streams from all listeners.

The question of whether a user-centric system would be a fairer way of dividing streaming royalties has been up for discussion since 2014: see our primer on past studies towards the end of this article. Deezer has been at the forefront of the debate since 2017, when the company started exploring the idea with labels.

That year, I interviewed Deezer’s CEO Hans-Holger Albrecht for his keynote at the Midem conference, and asked him about the plans. “We did a calculation and this is better for mid-sized artists, smaller artists and upcoming artists as it gives them a good chance,” he said then, while hoping that a switch to user-centric payments might be “done by the end of the year”.

That proved optimistic, but now in September 2019, Deezer is upping its efforts to introduce UCPS, complete with a hashtag (#MakeStreamingFair) and a tool for its subscribers to calculate how much of their subscription currently goes to the artists they actually listen to, and how that might change under UCPS.

Last week, Deezer briefed some journalists on its plans, including Music Ally. Its presentation claimed that more than 40 labels have already agreed to UCPS “including the majority of French labels”.

The logos of distributors Believe and Idol and labels Because Music and Wagram Music were included on a presentation-slide of confirmed supporters, but the three major labels and several large independents’ logos were not on the slide.

“For us this is something that has been close to our heart. We have never used a sledgehammer to push this through, we’ve tried to convince everybody in the industry that this is a better thing, and worth trying,” Deezer’s chief content and strategy officer Alexander Holland told Music Ally.

“We’ve fed all our partners with piles of data. Do we have the answer for every single question? The answer is no. But we still think this is a better way of doing it, and until we try, we will not know… My wish would be to implement it early next year, and really step up the pace. All our partners have received all the data that they need to take a qualified view.”

Deezer plans to launch its pilot in France, with a global rollout following at a later point if all goes well. The pilot will only introduce UCPS with labels (and royalties for music recordings) but not for publishers or collecting societies (for royalties for publishers and songwriters).

“We run this currently along the lines of recording only,” he said. “Our long-term intention is to roll this out over publishing as well. But this is already, as you have noticed from afar, a pretty laborious, lengthy process!”

Deezer’s presentation to journalists reflected the arguments that it has been making to labels in favour of user-centric payments, suggesting that they can “fix distortions” that exist in the existing market-share system.

One of those distortions is fraud: for example the infamous ‘Bulgarian Scam’ involving setting up thousands of Spotify Premium accounts to stream your own music round the clock, generating significantly more money in royalties than was being spent paying for the premium subscriptions.

Under UCPS, that would not be possible, an argument in favour of user-centric models first made by Annabella Coldrick, boss of the Music Managers Forum (MMF) in February 2018. Holland agreed that tackling this kind of fraud would be a benefit of Deezer’s UCPS, although he added that the company has not made this the main plank in its argument to labels.

“I would not run ‘fraud’ as the main argument for UCPS. A certain area of fraud would be eliminated by that, but other forms would not be affected,” he said. “Things like account hacking, for example, would need to be solved with very different tools.”

Deezer is focusing instead on the ‘fair’ aspects of UCPS: a gentle (rather than jarring) redistribution of royalties away from the biggest stars, and towards more local, independent and/or niche artists and genres. Partly through counterbalancing the fact that younger listeners stream much more intensely than older ones.

deezer alexander holland

“18-25 year-olds account for 19% of the users, but generate 24% of the royalties,” said Holland, referring to Deezer’s internal research. Redressing the balance, he stressed, does not mean a drastic change.

“It’s not that it puts the entire music industry upside down, and all of a sudden everything is thrown up in the air: Ed Sheeran is without income; the [major] labels fold, the indies thrive; and jazz musicians are the new Taylor Swift!” said Holland.

“It is true that [under UCPS] there is a tendency towards more niche catalogue and towards more local catalogue, but even that trend is not particularly stable. It differs from year to year, and single bigger releases or even deaths of artists can create peaks here and there.”

Another slide in Deezer’s presentation to journalists – based on data from Deezer France in 2018 – suggested that while the top 10 artists on its service might see a drop of slightly over 10% in their royalties under UCPS, the rest of the top 100 would only see an average dip of just over 3%, with sub single-per-cent declines for artists within the top 10,000, and gains for artists lower down.

[These are all generalisations. Within any of those tiers, there will be artists with loyal fanbases capable of ensuring they gain from UCPS rather than lose out. And not every artist outside the top 10,000 would gain. That’s an important thing to understand about user-centric payments: there are LOTS of nuances in the calculations.]

“Even here, the shift is not dramatic: even in the top 100 and top 200 it’s less than 1%. However, cumulatively this adds up and helps, in tendency, smaller, more independent artists,” said Holland. “1% of Taylor Swift’s income will help an independent musician in Colombia quite a lot!”

It’s a similarly-complex picture in terms of the redistribution between genres: local pop, classical, jazz, and region-specific genres (gospel and sertanejo in Brazil, for instance, or schlager in Germany) would see gains under UCPS, while hip-hop, R&B and EDM would be among the genres to see losses.

But again: within each of those genres there is a popularity spectrum with artists. An independent hip-hop artist with an engaged fanbase could easily be among the winners from a switch to UCPS, for example, while the ‘pop’ genre includes the megastars most likely to earn less under UCPS, and the local pop artists likely to gain.

“And if you take people who do hip-hop, if they’re hit by UCPS now, they may actually make their money back in the long term, when the people who listen to them are in their forties,” said Holland. “In the current system they may receive a lot of money from [young] people who stream through the night, in the future UCPS might be their retirement plan!”

“This [the calculations Deezer is showing] is a snapshot of today. I think total income distribution over the lifetime of an artist or listener is a totally different story.”

Deezer has also been examining the likely impact on labels, and the picture defies over-simplistic expectations here too. Majors lose, indies gain? Not quite.

“The truth of the matter is that the labels come out of this largely neutral. What they lose on some frontline artists, they gain on some back catalogue. But it’s not even as simple as that: you’ll also see some back catalogue that is not doing particularly well. Not everything by definition that is old is doing well,” said Holland.

Running these calculations and sharing them in deep detail with labels continues to be Deezer’s focus, as it aims to get the majors and large independents to sign up for its UCPS pilot.

Will those efforts be successful? Here, too, it’s complicated. Music Ally is well aware that even within a single major label, there’ll be camps of executives who are enthusiastic about user-centric payments, others who don’t want to rock the boat, and others who are neutral but want to see as much data as possible before making a decision.

Labels also know that if and when they do support user-centric payments, they’ll need the backing of artists: their nightmare scenario being one or more of their biggest artists storming in to their office demanding to know why their royalties have fallen under the new system that their label agreed to.

Deezer needs the backing of those labels – “we need everyone, within reason: at the very least all the majors and big indies,” said Holland – so the barriers to getting its pilot up and running by early 2020 are mainly about addressing the labels’ concerns.

Note too the location for that pilot: besides being Deezer’s homeland, France is a country where politicians have historically proved willing to provide strong legislative support for French music – radio quotas, for example. If UCPS does prove beneficial for local artists, as Deezer suggests, it’s not a big stretch to imagine the French government getting behind the idea, although it’s far too early to tell whether that might extend to encouraging (or requiring?) rival streaming services to go user-centric there too.

As for technology, Deezer says it is ready to flick the switch on UCPS as soon as all the labels are on board, although the company is also keen to ensure that its listeners – it has 14 million monthly active users, including (at the end of 2018, anyway) seven million subscribers.

[One interesting side-note: UCPS only applies to those paying subscribers because, as Deezer’s spokesperson explained it to Music Ally, royalties from its free tier are already distributed on a ‘per-stream’ basis to rightsholders: so it’s effectively already a user-centric system.]

“We’re running this on a consensus-driven approach,” said Holland. “This announcement is first and foremost underlining our commitment to UCPS, and pushing it on to the next level of this discussion. But we do not think that we should or could possibly do that against the industry consensus.”

Dig deeper… on user-centric payments

The two earliest studies of how a user-centric model might change streaming payouts were both conducted in Scandinavia based on data provided by WiMP, the streaming service later bought by Jay-Z and rebranded as Tidal.

User-centric settlement for music streaming‘ was published in March 2014 by Arnt Maasø of the University of Oslo, while ‘Music Streaming in Denmark‘ was published in May 2014 by Rasmus Rex Pederson of Roskilde University. You can read Music Ally’s summary of their key findings here.

In July 2015, Midia Research published some calculations showing the differences between the market-share and user-centric models, including an Excel spreadsheet for people to fiddle with the figures themselves.

Since 2017, the Finnish Musicians’ Union has been running its own research on the potential impact of the user-centric model, based on a dataset provided by Spotify of its Finnish subscribers’ data from March 2016.

Lottaliina Pokkinen talked about some early findings at the Slush conference in November 2017, and the study was then published in February 2018. Pokkinen and a panel of Nordic industry executives discussed its findings at the by:larm conference the following month.

Also in February 2018, Joseph Dimont of the University of California explored the model in his paper ‘Royalty Inequity: Why Music Streaming Services Should Switch to a Per-Subscriber Model‘, inspired by a widely-shared blog post by musician and entrepreneur Sharky Laguana.

Spotify’s chief economist Will Page and former PRS for Music executive David Safir have published two papers offering their analysis of the user-centric model, and posing some new questions about its likely impact. ‘Money In, Money Out‘ was published in August 2018, followed by ‘User-Centric Revisited: The Unintended Consequences of Royalty Distribution‘ a year later. Music Ally’s thoughts on the latter can be found here.

Stuart Dredge

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