With the mud nonetheless removed from settled on the UMG / Deezer streaming royalty proposal, one thing even greater is coming: Spotify is popping the idea into actuality in Q1 2024. The behind-the-scenes conversations have been ongoing for a while, however the particulars had been acknowledged publicly on panels finally week’s ADE convention, that means that the knowledge is now firmly within the public area. Clearly, nothing is official at this stage, so think about this ‘as reported’ info. Even when the ultimate particulars find yourself various, what is obvious is that two-tier licensing is about to turn out to be a actuality.

Issues are shifting quick, going from ‘restricted trial’ to ‘really taking place’ within the proverbial blink of the attention. If Spotify is certainly set to launch two-tier royalties simply months from now, it begs the query as to what the Deezer trial was about within the first place? If selections had already been made elsewhere, then the chances are high that it was a manner of softening up business opinion earlier than the large information hit subsequent yr, to acclimatise the business group to the idea forward of launch.

Streaming democratised entry to the technique of distribution, enabling an unprecedented progress in artists and releases. However the brake is now being firmly utilized. Streams could have all been created equal, however now some streams have gotten extra equal than others. 

There are, after all, compelling arguments for ‘fixing’ streaming royalties (arguments that we have now mentioned at size). But when shoppers are selecting to take heed to long-tail artists, or if the algorithms think about long-tail artists to be the fitting match for his or her tastes, then the ‘downside’ lies with consumption patterns, not royalties. (And naturally, what shoppers are listening to can also be essentially the most exact approach to measure the place and the way subscribers allocate the worth of their subscription.)

Between 2019 and 2022, artists direct streaming income grew by 130% whereas the majors grew by 58%. Lengthy-tail artists are rising their share of ear (even accounting for the truth that algorithms usually are not impartial brokers). In 2022, artists direct accounted for 8% of worldwide streaming income and at present trajectory would attain 10% by 2025. Think about that WMG’s share was 16% in 2022, and it turns into clear simply how vital the long-tail pool is.

However right here is the place the cynical genius of the two-tier system comes into play. Proper now, streams and income are successfully synonymous, however by this time subsequent yr, they are going to imply very various things. The vast majority of artists direct will now not be paid for his or her contribution to the worth of the $11.99 subscription. The c.10% of consumption they are going to generate will disappear from the streaming income map. They are going to be othered, their income turning into a brand new black field for the most important artists to share between themselves. Which implies that, hey presto, all that annoying artists direct market share instantly will get reallocated to everybody else. Market share erosion? What market share erosion?

The 2-tier system doesn’t even attempt to flip again the clock on the rise of independence, it merely funnels the rising income from this cultural paradigm shift to the larger artists who’re dropping share. If DSP streaming was the one recreation on the town, then the dangers of antagonising long-tail artists (label and direct) can be comparatively low. However the music consumption and creation landscapes are altering. Non-DSP streaming income is outgrowing DSP streaming, whereas creators selecting to launch solely on non-DSP platforms is rising twice as quick as artists releasing onto DSPs.

Maybe it could serve greater labels and artists effectively, to have smaller artists and labels focus their consideration elsewhere. But when they achieve this, then they are going to take viewers consideration and cultural capital with them. At some stage or one other, that form of shift will begin to chunk into DSP acquisition and retention charges. By which stage it might be too late to halt the decline.