Hip Hop News: Lucians Letter. By, Bob Lefsetz (2024)

“Sir Lucian Grainge: Music Needs a New Streaming Payout Model… And We’re Working On It”: https://bit.ly/3iJw91m

The model changed.

Used to be the major labels controlled distribution and exploitation. It was essentially a closed ecosystem. You needed major distribution or you couldn’t get paid, even if the retailer sold your records. And the majors had their hands deep into the marketing world. They made the artists.

That paradigm no longer applies.

As for Lucian Grainge’s letter to his troops…

Got to give Lucian credit, he’s an incredible executive, who incentivizes his troops, who does not run his operation on fear. And he’s been handsomely rewarded for his work, especially the nine-digit payout after Universal went public.

Most of Lucian’s letter is barely more than boilerplate, delineating Universal’s accomplishments and talking about…spatial audio and streaming payouts.

As for spatial audio, you can deliver it but will people come? Most of the remixes are awful, as for new music, in Atmos from scratch… Last time I checked, people only had two ears. As for an immersive experience, quad failed, never mind the nonstarting digital tape formats, why should today be any different?

Well, no extra equipment is needed to hear it. Well, not exactly, but I don’t want to get into Bluetooth tech, never mind digital audio converters, but Apple can deliver Atmos seamlessly. Do we want this?

Forget that many people can’t hear it and don’t want it, do you really think indie artists are going to pay for these mixes? And indie is burgeoning, a lot of the majors’ market share is as a result of distribution of indie labels.

As for streaming payouts…

There’s a classic expression in the music business…it’s not about the money, IT’S ABOUT THE MONEY!

Sure, Lucian cares about his artists. But not as much as he cares about satisfying his shareholders and lining his own pockets. It’s human nature. I’ve yet to find a corporate guy this rich, and they’re all guys in the music business, who puts himself behind the artists and the company. First and foremost, they didn’t start the company, they’ve got no inherent loyalty, this is not Chris Blackwell with Island or Herb & Jerry with A&M, and second the artists are independent contractors who leave their product, and at best get advances and royalties, never mind that there’s a huge stream of revenue from product that was signed by others and delivers revenue decades later. It’s essentially free money to the labels.

As for artist royalties…

Yes, the labels are now paying artists who are upside down, but most of them don’t have many streams to begin with. And the royalty rates of yore are piss-poor, the label takes the lion’s share of the money. And they’re not giving up any share of their pie today unless the artist has incredible leverage, which is rare.

So, the label makes you a star… When in truth, today the act makes itself a star. TikTok rules, and so far the labels haven’t been able to game it. Talk to anybody who actually works at a label, they’re completely flummoxed. Radio means less than ever before. The lunatics have taken over the asylum, the audience is in control, and uncontrollable. And the majors did not foresee this, did not prepare for this and have no answer for this.

Meanwhile, you can get paid almost all of the money from a streaming service by using an indie distributor who takes a small fee.

So who needs a major label? VERY FEW ACTS!

And very few acts are signed to the major label.

And Lucian Grainge is trying to do an end run around distribution. That’s what this streaming payout bit is all about. He wants the detritus removed from streaming services, so his artists dominate. Just like labels controlled all the space in record stores… If you can’t buy it, if you can’t stream it, it’s like it doesn’t exist.

So those 100,000 tracks a day… He wants them gone, deplatformed, even though most of them barely get streamed anyway.

But this is going against the tide. On YouTube, Instagram and TikTok anybody can play. Now they’re going to restrict uploading to music streaming services? As bad an image as Spotify has, unjustified, in the artist community, the wannabes would go berserk if they couldn’t get on. Limitation is not the future, welcome to 2023.

As for gaming the system…

Fraud exists.

Now let me see… The labels didn’t pay on promotional records. They take packaging deductions when there is no packaging.

And from time immemorial there was shrinkage, not only outright theft, but retailers who didn’t pay their bills or went bankrupt or completely out of business.

As for pricing… Manufacturers hate to give this up. When you see an album suddenly go up the chart… Oftentimes there was a deal at the iTunes Store, blowing it out for almost nothing, and since sales are inanely weighted more than streams in the insane Luminate chart, the record goes up, especially after the acts incentivize their brain dead fans to buy, oftentimes product they already own!

So bad actors, short tracks… They’re always gonna exist, you’re still getting spam in your inbox decades after e-mail flourished.

Change the model, I don’t care. Do it on listening time, even pay based on what the consumer actually listens to, it’s not going to make a big difference.

As for Spotify, et al, coughing up more dough…

Streaming is terrible business, it doesn’t scale, costs rise in tandem to income, and margins are piss-poor to begin with, which is why you see Spotify in podcasts and books and still swimming in red ink.

In other words, you can’t squeeze blood from a stone. And the English government looked into this and what did it find? The problem lies with the labels and the crappy deals they give artists, not with the streaming companies. Got a bit of ink, but the ignorant who believe streaming is the devil didn’t spread the word, so you may not know this.

However…

It’s all irrelevant.

WHAT?

For over half a century all the revenue was in recordings. And the same brain dead press fed information from the the labels and the RIAA still parrots this falsehood. But the internet has wrought change.

First, a number one hit on the chart reaches fewer people than ever before. You can be a rabid fan going to a show every night and never cross paths with a hitmaker. Believe me, there is money in streaming hits. But, the percentage of market share of hits is actually going down, because it’s harder than ever to break a record.

It’s really about all the other acts in the business, the old ones who’ve graduated from major label deals, and the new ones not doing enough business to gain major label interest. Never mind this is not the nineteen seventies, major labels don’t sign a broad swath of product, they sign less and in fewer genres than ever before. Which means you might be a musician making a living and not only are you not signed to a major, streaming revenue is a small percentage of your income. And Ticketmaster is now the enemy, not Spotify…

Does the public hate Spotify? No, the public LOVES streaming.

They’re bitching about Ticketmaster because they can’t get a ticket. Demand is so great that they’re locked out. They DESERVE a ticket, the same way artists with few streams believe they DESERVE to get paid a ton by Spotify. As for the major label deals of yore, signing a ton with big advances, they’re gone just like coal mining and soon gasoline automobiles, adapt or die.

So the dirty little secret is unlike in record deals, the act gets almost all of the money in live. Which is why the Ticketmaster fees exist to begin with, to generate revenue so the promoter can survive. Promoter margins are a small fraction of those of Universal. As for losing money on developing acts… Promoters can also lose money on hit acts, whose demand suddenly evaporates.

So if you’re an artist…

The dream is no longer to get a major label record deal.

If you’re a rapper, or a TikTok star, and you go viral and can hold up the label for a ton of money, more power to you. But that’s a very thin slice of the pie.

Make any music you want to. Distribution is essentially free, literally on YouTube and other streaming platforms. The challenge isn’t distribution, but how to get people to actually listen to your music and want to continue to do so and spread the word, show up at your gig and buy merchandise and…

There are more ways to monetize than ever before. But first you need an audience, and that’s the hardest thing to achieve. This is what the major labels used to deliver, more important than any cash advance, but now the major labels can’t do this anymore! Records don’t start on radio, radio comes last, at least terrestrial radio. As for television appearances, the only shows that move the needle are SNL and “CBS Sunday Morning.” Go on another show and you can tell your friends, but it’s not going to impact your streams, almost no one will see you!

Just like television is evolving from cable to streaming, the same thing is happening in music, and there’s so much product in streaming that no show is seen as much as “M.A.S.H.,” or even “Game of Thrones.” You may be addicted to Sunday nightshows dribbled out by HBO, but the younger generation is not, it’s all about bingeing. And Warner Bros. Discovery has killed development and production and is actually removing shows from HBO Max in order to pay fewer fees. In truth, most hit product cannot be foreseen, which is why Netflix and major labels put out a plethora. You can’t restrict the pipeline. And, once again, the consumer is in control.

And what did we learn from tech?

YOU’VE GOT TO GIVE TO GET!

All these platform/services start off free, to gain audience, market share. They know if they get enough eyeballs, there are plenty of ways to monetize. But somehow in music acts think they should make a living from square one? And most tech platforms don’t succeed, and neither do most acts.

As for bad live deals when you’re starting out… The whole world runs on leverage, but somehow music is immune? I don’t think so.

So, you’re in charge of your own business, you’re in control. If you rail at the distribution systems, the joke is on you. They’re tools, and so many of them are free. Use them to gain an audience. And if you don’t, well so many new businesses fail, music is the same way.

Now if you gain an audience, if you’re generating revenue, your inbox will be flooded with offers. On good terms, since you’ve got what they want, you’ve achieved the hardest thing. If the major label offers you almost all the money and you get your masters back, maybe do the deal. As for pushing your career further… Unless you make hip-hop or pop, the fee you pay isn’t worth it, the major label can’t deliver.

The world keeps getting bigger in music, not smaller. Universal wants it smaller, it wants control, because without control, its leverage lessens.

Yes, the reason the major labels have such clout with streamers is because of their catalogs, every platform needs all the music to function. If it were like tech, and only the new survived, where there was no demand for the old, it would be different, but it’s not.

As for record companies going into the streaming business. Who’d want to? The margins are terrible and they’re all spewing red ink anyway.

No, the majors just want to squeeze the streamers for a bigger percentage of the pie. And knowing that the streamers can barely survive on 30%, they know that the money has to come from elsewhere…the indies, the bad actors, the left field. Come on, did you predict TikTok? Then how are you going to predict the new musical trend? Furthermore, we haven’t had a new trend in decades, we used to get one every few years, with grunge replacing hair bands and… That’s the conundrum of the internet, everything moves faster and slower. Fast if you’re in the channel with traction, slow if you’re building traction.

So if you’re a Universal artist I’d be more concerned with the royalty rate from the record company than from the streaming company. And I’m going to lay it out clearly, if your tracks don’t get streamed, you don’t get paid! It’s basic math, and it’s never going to change.

We’ve yet to see anybody harness the power of the internet into a new music company model. Maybe when the boomers retire. But in truth, it’s risky and there’s not enough money in it. Carolco, the most successful independent movie company, went bankrupt, because it had no catalog. The catalog is keeping the majors alive, without it…the whole model does not work.

So hate on Spotify, hate on Ticketmaster, cheer on Lucian Grainge…

But the joke is on you.

Look in the mirror, that’s your record company. All those influencers, they built it themselves, but it’s different in music? I don’t think so.

The scale has tipped. Recorded music is just a fraction of most artists’ revenue today, and that isn’t going to change. But there are so many other ways to make money, and in a world where we all have the same smartphones, the money is in unique experiences, and that’s what a concert delivers. Hell, if you’re an old hit band or a young hit act go on the road and play the same hits every night. But if you’re starting from scratch, every show should be different. You should release a plethora of product, you should have a relationship with your fans. Don’t be aloof, mystery is history. Everyone is accessible online, you can tweet Elon Musk or Mark Cuban and they’ll respond, but you’re too good to interact? I don’t think so.

Look at tomorrow, not yesterday. You have the tools at your disposal. You can create and distribute and market nearly for free. Why are you complaining? The majors have a hard time marketing, but it should be easy for you? The best marketers are the online stars, the influencers, study them as opposed to the major labels.

And don’t look for a hand to help you.

Trust nobody in entertainment, they’re all out for themselves. If you’re generating revenue, they’re your best friend, if you’re not…

And you only get one shot.

But the good thing is unlike in the past you can make mistakes and move on like they never happened. People don’t remember school shootings, never mind your stiff record or misstep.

It’s a changed world. Own it.