The following is a Digital Music News exclusive. Once again, you read it here first.
Universal Music Group chairman and CEO Lucian Grainge is now fighting to keep his job, and will likely be fired in the coming months if conditions don’t dramatically improve, according to multiple sources now sharing details with Digital Music News. UMG is easily the largest label in the world, with massive influence over other labels, publishers, artists, and digital music services. The heavy pressure is coming from Parisian corporate parent Vivendi SA, whose hard-charging chief Vincent Bollore is exacting extreme pressure on Grainge and associates to “fix the free problem” that is plaguing both UMG and broader recording industry revenues.
“This is all coming from Vivendi. They don’t really understand how free [content] works [in music],” one source relayed.
Enter key figure Rob Wells, the well-respected but recently-axed head of digital at UMG whose freemium ghost still lingers in the hallways. Wells introduced a totally different element into the Universal Music Group culture by embracing Spotify, encouraging freemium, and shifting the focus towards converting ad-supported users. That was a tough sell upward, especially since Spotify’s ‘freemium funnel’ and YouTube’s mass free-for-all failed to produce enough paying subscribers.
“Wells was a sacrifice,” one source within Universal Music Group relayed to Digital Music News. “Lucian fired Wells to buy six months for himself, that’s the only reason [Wells] was fired.”
All of which brings us to the present, which is about six months later. See the problem here for Lucian & Co.? Suddenly, anti-freemium comments uttered by Grainge, and soon parroted by Sony Music Entertainment CEO Doug Morris, make a lot more sense. “Ad-funded isn’t a sustainable business for them or for us,” Grainge recently told Kara Swisher at Re/Code, just one of several comments blasting the ‘freemium’ approach.
Morris, the OG boss over at Sony Music Entertainment, subsequently took it there. “Basically, I equate ‘free’ with the decline of the music business,” Morris told Hits Magazine soon thereafter. “Why should anyone pay for anything if they can get it for free?”
“In general, free is death.”
What happened next was difficult to watch, at least if you’re rooting for Grainge. Enter longtime label insider Jimmy Iovine, a former top UMG executive, confidante of Grainge, and a godsend for fixing the ‘free problem’ within the Apple mothership. Here was Grainge’s savior: as a pivotal figure within the just-acquired Beats powerhouse, Iovine promised to launch Apple Music with limited free access, and usher in a brand new era of paid-only access.
And that’s where things started to quickly implode. Grainge, Iovine, and other top executives soon started sealing a limited, three-month free window with Apple Music, and then moved to pressure rivals like Spotify to do the same. Spotify pushed back with ferocity at the perceived death sentence, but even worse, state attorneys general in both New York and Connecticut yanked out their anti-competitive rear-end probes. The result is that Spotify is extremely unlikely to shift towards a limited, three-month free period, much less ditch their ad-supported tier.
What’s worse, Apple may soon shift towards a free+ad-supported structure as well, if only to effectively compete with Spotify.
Meanwhile, megaton gorillas Soundcloud and YouTube are getting far bolder with big labels like UMG. For starters, YouTube has been taking its time to launch its premium tier, YouTube MusicKey, but the company is now brashly sticking by its ad-supported, free guns. “We’ll always have ad-supported: that’s our core, and we’ll never stop focusing on it. It’s in Google’s DNA to be in the ad-supported business,” Robert Kyncl cavalierly said out loud.
“Subscription is just an add-on. It’s an adjacent business that we’re building.”
Meanwhile, Soundcloud CEO Alexander Ljung has reiterated his company’s commitment to free access, despite heavy pressure from both UMG and Sony to shift towards paid. That might explain why Soundcloud now faces the specter of massive legal action from UMG, Sony Music, and the RIAA, for massive copyright infringement (WMG has already signed a deal, considered a one-off). All of which will make the lawyers rich, but really doesn’t benefit UMG’s bottom line.
And then there’s Spotify. According to multiple sources to DMN, Spotify faces three critical major label contract renewals in October. But instead of getting forced into limited free, sources feel a compromise will be reached around ‘gated content,’ or limiting certain content to premium-only listeners. That has been a longtime demand from a string of big artists, most notably Adele and Taylor Swift.
Meanwhile, deep inside the bowels of UMG, studies have been commissioned to determine the revenue upside from closing pirated and free content (if that’s even possible). At the behest of Vivendi, the Bain-commissioned internal study projected a 17-times revenue increase in recorded revenues over a three-year span, at least in one scenario (a lot more on that study ahead).
Of course, Universal Music Group’s PR department has flatly denied that any of this is going on, but that’s what they’re paid to do. “It’s impossible to give ‘detail’ about presumptions that are completely removed from reality – whether ‘on’ or ‘off-the-record’,” snapped UMG head of communications Andy Fixmer in an email to Digital Music News.
“Regarding Vivendi, you should contact them directly.”
On that note, one source noted that Grainge may orchestrate a ‘faux-promotion’ to counteract the layoff leak, or even sacrifice another freemium lamb a-la Wells. All of which sounds like a great use of shrinking company resources…
Now before we jump into the discussion, I’d like to extend my warm gratitude to the Wall Street Journal, Re/Code, Hypebot, Billboard, and about ten other ‘publications’ in advance for stealing details from this article and not crediting us, and generally lacking anything substantive in the gonadal region. Yours truly, Paul.
So…
Softbank offered $85 BILLION for Universal and Vivendi said no?
$8.5 billion
Incidentally, it was rumored that there was a more recent offer from Liberty Media, no idea on the valuation. But this all suggests that Vivendi — like Blavatnik and others — feel there’s big upside on these recorded music companies.
EIGHT year to late! We are in the MIDDLE of MUSIC INDUSTRY suicide!
British team with Mr. Keeling in charge of GLOBAL digital business is almost done with conversion of MUSIC INDUSTRY to total ASHES!
CONGRATULATIONS!!!!!!!!! ASSHOLES!
What? by signing multi-million dollar deals week in week out? Who’s the asshole?
in the end, it’s just math… and david lowery nailed this in November of 2014…
http://thetrichordist.com/2014/10/09/who-will-be-the-first-fired-label-execs-over-spotify-cannibalization/
This is extremely interesting. I wonder what a CEO who does nothing but downsize will put on his resume
Ask Tim Armstrong (Hint: sell company to Verizon.)
Remi’s got a solution. Lock song identity and 39 cents/ a track. So, as piracy would increase due to lock up, greatly offset by the buy price.
umm…. 🙂
I think the solution is going to be a bit more nuanced than that (and probably won’t include holding songs hostage).
We’ve been discussing our financial models for streaming with labels and getting strong positive feedback from the finance folks – I’ll post links to them here soon so DMN readers can take a look and hopefully share your thoughts, we’d love to hear your input.
Sarah,
Whoever you are, just think, what is the value of 2B (billion)+ users of ANYTHING!!!!!!!
Twitter with 200M (million) users and abbility to sell few ads got $30B IPO rollout.
Music industry with over 2B users of Shazam, Soundhound, Gracenote, GOOGLE VOICE SEARCH and just few more lyric ID services is SCREWED!
Walking blindfolded, guided by Daniel Ek and Eddy Cue in to the CLIFFFFFFFFFF!
Doug Morris and Lucian Grainge must go NOW!
I am sorry, YESTERDAY – life is to short to live such a grotesque for over 15 years.
I am not anonymous, Lucian Grainge and Doug Morris must go!
Next Grammies is far away, so we do not need them.
By the way, Facebook has 1.23B users and is doing extremely well!
Why music industry is neglecting 2B consumers of FREE MUSIC supplied by working for FREE PIMPS!
Give money to PIMPS to assure cash collection before music pleasure is consumed!
Try this – pull up a song on Youtube. Now listen all day with pandora like algorithms – commercial free while your monitor sleeps. Plus unlimited free on demand of virtually anything. Hello.
So let me see if I’ve got this right:
a) Lucien Grainge is going to be fired because his bosses at Universal don’t think he is being tough enough against freemium;
b) After firing Grainge, Universal will do a deal with Spotify which falls a long way short of Grainge’s position.
Do I see just a tiny inconsistency here?
And are the ‘multiple sources’ for the story by any chance Rob Wells, Daniel Ek, and their grannies?
David, respectfully I fear you skimmed this article, and didn’t really pick up some important details. Let me address your points.
(a) The pressure is coming from a high-level at Vivendi, not from within UMG.
(b) Universal is currently in negotiations with Spotify, with a renewal date in October. Actually this is one critical reason why Spotify is not having an IPO yet, incidentally, but we’ll be covering that in a future exclusive article.
(c) I didn’t speak to either Rob nor Daniel for this article.
paul
“What’s worse, Apple may soon shift towards a free+ad-supported structure as well, if only to effectively compete with Spotify.”
Hello Hello – what’s all this about Apple going free+ad-supported?? Please tell me this isn’t so…..
That’s what I’m going to categorize as ‘scuttlebutt’ at this stage, but actually, I think it might happen. Let’s see.
Is there any actual evidence that Apple may incorporate a free/ad structure, or is that pure conjecture?
Oh, fuck…
The only leverage tech companies have is that the US (unlike countries in Europe or Australia) refuses to block pirate sites like what.cd, etc. This is because Google has paid off American politicians. Great country.
Yes! Site blocking is the key! It works!
You’re scared!
The truth stings!
Go die in a fire, tech douche!
Paul,
lets assume this could happen – who could be next in line? it does not look like a proper replacement is on the market nor to headhunt
Everyone is expendable
Yannick Bolloré, son of the biggest Vivendi shareholder Vincent Bolloré.
do you really think he would swap havas for universal? hard to imagine they would install someone without any experience in music management, even being quite sure that max hole wont make the cut. don’t think this will happen, simply due to the fact that there isn’t an adequate replacement out there
“Successful ad-supported streaming for dummies”:
1. eradicate illegal content sources (it might imply making war to a couple of countries though) and/or de-index illegal links from major search engines (softer solution) = drive music fans to legal sources + convert random people (non-music fans) to using legal platforms = audience increase for freemium services
2. monetize all legal / controlled music content sources with Content ID-like processes (fingerprinting, scan & match…) which is currently done on YouTube and starting on SoundCloud
3. increase ad rotation / frequency on existing freemium offers (Spotify, Deezer, etc.) = number, length and frequency of ads shall be similar to terrestrial radio (if people can deal with it on radio they can deal with it online); more ads will encourage real music lovers to subscribe to a premium offer (for getting rid of the ads)
increased audience on monetized freemium sources + increased CPM + more annoying ads = increased freemium revenue + increased conversion to premium = more money for right holders (labels, publishers, artists, songwriters) = less Taylor Swift posing as indie artists’ representative in mass media.
Easy 🙂
What?
the solution is,record companies like universal and sony should start looking at them selves as tech companies that produce digital content ,and start protecting their digital product from the production stage in studio and store them in their own servers.they do the distribution for the artist to radio stations ,streaming services ,drop the download and the CD coz they are poor formats for protecting digital files ,stick to streaming services coz they don’t offer digital files but streams and finally change the business model of streaming services.
What in god’s name are you people droning on about?
The US refuses to enforce copyright law because their politicians have been bought off by Google.
That’s it!
End of story!
All of these bogus attempts at figuring out what to do are aimless pathetic grasping at straws. And all of them are happening because the US has decided to stop enforcing its laws. There is no precedence. Ditch your stockholm syndrome and fix your shitty USA government.
A streaming only option is impossible, anyone can convert streaming audio to an mp3 file they can then download to listen to any time, anywhere, with or without wifi, with simple, free utilities online.
I have done it with songs on youtube, using a utility I found online with a simple google search. It strips the audio out of the video. And not all youtube content has advertising.
Record labels have this fantasy that they are going to trick people into going back to paying $18 for CDs. They aren’t going to give up on the dinosaur of physical media any time soon.
When I see all these comments like
– “Apple going free+ad-supported?? Please tell me this isn’t so…..”,
– “Doug Morris and Lucian Grainge must go NOW!”
and all the whining about “the free should go”, “they are killing the industry”…. I always think: wait a minute, nobody forced you to sign a contract with UMG or Sony. So if you did, at that moment you agreed to give them all the rights to do whatever they’re pleased with your music and sign all the deals they want.
But if you didn’t sign.. well, great news you don’t have to put your music on ANY platform with whom you disagree with the terms.
It seems sometimes that “the faith is done”, “that’s it, they destroyed it”, “we can’t do s*** cause we’re only musicians” …. Actually THEY couldn’t do anything without OUR music.
Their power is our music, just like the banks and the “laws of market” that seem untouchable.. but at the end it all comes to our money and what we do with it (our choice to put it or not in an ethic bank for ex.)
I don’t know, I just think it’s funny 🙂
Speaking as an independent label owner – definitely not signed to UMG or Sony etc:-
The Apple Music deal as it is now, with the 3 month free period paying a reduced amount, is just about acceptable.
But if Apple Music introduced and forced us to accept a permanent free ad-supported tier that would be a big negative change and would be far less acceptable.
Get it?
I get it, just not the “forced us to accept” part of it but it’s ok.
Really, there isn’t anybody “forcing” you to do almost anything in life, these are all choices. And with bad choices that so many people made we arrived to this f*** up situation. But at the end it all come down to that: people choices. Just don’t put your music in Apple and see what happen (o wait, you think that you can’t ’cause everybody else is going to put his music there and you just can’t be the one that does not put yours on Apple’s servers. Yeah, that’s exactly what another 1000 like you just thought too. That’s what they play with when they come with those unacceptable deals.)
Nah, you don’t get it…
In theory, you aren’t forced to do anything. You can make or not make a deal – either way, it’s voluntary. You’re responsible for everything you voluntarily do.
In reality, it’s not that simple. Many of these issues arise from the conflict between short term and long term needs: “Apple is offering a bad deal that I’d like to reject, but in the short term I have some reason that makes rejecting it unacceptably risky for my business – and the long term doesn’t matter if my business folds next month.”
No, that’s still not the equivalent of “forcing” anyone to agree to a bad deal, and ultimately the business is responsible for its decisions.
But even though they weren’t “forced” to agree, it’s quite possible that they didn’t have much of a choice.
No No you are putting the cart before the horse!
Currently Apple Music is offering a reasonable deal, potentially considerably better than Spotify. Indie labels are accepting. OK?
But if at some unspecified future stage Apple Music radically degraded their deal and tried to present indie labels with a fait accompli (ie “forcing it”) then we would have to seriously consider withdrawing, rather than accept their revised terms and conditions. And that would be a pity, would it not, if a previously acceptable deal was to be degraded at some future stage and turned into an unacceptable deal?.
Get it now?
sure it’d be a pity – but shit happens. Then you could just reject it and Apple’s attempt to “force” it would fail.
steveh:
The Apple Music deal as it is now, with the 3 month free period paying a reduced amount, is just about acceptable.
What would make it fully acceptable?
“Spotify’s ‘freemium funnel’ […] failed to produce enough paying subscribers.”
Spotify went from 15 million paid subscribers to 20 million paid subscribers in the first quarter of 2015. That’s a ~33% increase in 3 months.
Those Vivendi execs must be pretty hard to impress.
I’d encourage you to look at the bigger picture here, including the massive 66%+ decline in recording revenues from the early 2000s. Not all of those premium subscribers are paying $9.99, I’d posit that less than half of them are. And, you have 55 million that aren’t paying anything, and that’s just on Spotify alone.
That does even include all the free users on YouTube, Soundcloud, etc.
This goes on and on, but if you’re Vivendi, you’re wondering where your major label went.
The music industry is run by greedy, short-sighted whores. Most of its senior executives only make decisions based on what impacts their bonuses. Thats how we got into this mess. NARAS, the RIAA, NARM. and all the rest of the industry groups were all asleep at the wheel when the Apple deals were done. That was the beginning of the end, and the big labels never recovered.
Ditto the music publishers. If anyone was greedier than music labels it was music publishers. So the industry laid off it best people. This protected the “know-nothing” executives at the top. These were all the same guys who never paid for a record – let alone a CD – and never visited a record store. They preferred to wine and dine the heads of Wal Mart, Target and Best Buy. And look at how these predators turned and got rid of most of their music inventories.
The answers lie with music fans. Bob Lefstez (another one who doesn’t have to pay for anything) ain’t gonna save the industry. True music fans want to own something, not a bunch of air in the “cloud”. The folks who sold us on the cloud are like the ones who keep inventing “flavored water” under col brand names. It’s still just watered down soda pop.
But I digress. Wait until the major labels collapse. Eventually the top executives will be revealed to be not worth their exorbitant salaries, which are really eating up all the profits. How much does Lucien Grange make?. What does he actually DO? Nothing that a few smart kids can’t do…
I agree with Joe Grizzly in much of his analysis of how the industry got where it is — but I don’t agree with his dismissal of cloud-based music. I have 1200 LPs, 500+ CDs, and 200 singles and 78s, yet I’ve been a stream subscriber for a decade now. This is, overall, the best ongoing recorded music experience I’ve had since I discovered hi fi at the beginning of the 1960s. I’m a huge fan of the streaming experience. (I’ve used 7 services, currently on Google’s All Access.)
I kinda agree with some of this “True music fans want to own something…”.
This is correct.
However and this is where most people in this “industry” got it wrong, imho, the error is to focus on this extremely restricted audience named “music fans”.
You can’t make an entire economic sector work with a bunch of “music fans” (a bunch being a few hundred millions at most here).
These ones are already converted into paid content, whatever it is, paid downloads, premium streaming, buying CDs or vinyls, etc. No problem at all here, the “fans” have always paid for music and it is not going to stop soon.
The answer lie with non-music fans. Random people. People who don’t give a f$*!k about music.
People who listen to the radio in their car, who use YouTube as their primary source for listening to new songs, who don’t buy records, who have never paid for downloads, etc. but still somehow “use” music (mostly in a passive way) in their everyday life.
When “our” industry will figure out a way to drive them to controlled and monetized (directly or indirectly) music content sources it will be a massive game changer.
Your analysis is completely off base. I worked for a major label during the period of time that Wal-Mart, Target and Best Buy became dominant, I can tell you that no one was happy about it, nor did they court it as you seem to imply.
During the time I was there the business went from 80% mom and pop stores, 20% big box to the complete reverse, 80% big box, 20% mom and pop (and now, virtually only big box.)
No one wants to see their customer base go from thousands down to 3 (who now have leverage over you), and furthermore only want to stock current hits as opposed to your back catalog which tides you over when you have no hits. Not only that, but they were using the hits as loss leaders and selling below cost to bring people into the stores (where they were really more interested in selling you a washing machine while you were there.) This played a large part in putting a lot of those smaller stores out of business, and I can tell you we weren’t at all happy about it.
Gotta start cracking down on piracy!
Guys, sorry to distrupt your discussion in the middle, but it is extremely important for us, that people like you, who cares so much for rights and music, will show your support in our fight for our lost wages. Please read this article by Lauren Davidson, of The Telegraph. Please visit our Facebook page. Thank you!
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/11558339/Qtrax-the-company-that-wants-to-fix-musicians-pay-hasnt-paid-its-own-staff.html
https://www.facebook.com/QtraxUnpaidFormerStaffManifesto?ref=tn_tnmn
Justin Mayer here, Plum Minnow Inc. Highly Exalted P.O.V. & Mannequin Mirage Modelling, long since retired from the music business moving steady in other directions, everything working out beautifully for me.
The latest news off the wire is that Lucian Grainge’s exit has been intiated. Last night Lucian Grainge was fired inside the psychopathic hive-mind that he and the music business is currently ruining.
These news bits often are 50/50 on which way they go but generally the feed/stream i was tuned into generally results in a higher percentage of actualization therefore i would tender a reasonable guess that Lucian Grainge will indeed be terminated for just cause and lack of ability leaving Mr. Lucian Grainge zero claim or right to sue or even complain.
Lucian Grainge has been a massive failure for the music business and Universal as well as Vivendi and persons like Mr. Grainge have only continued to ruin anything that was ever good about music.
Partyly due to Lucian Grainge and Universal and Sony’s treatement of me over the last decade, I have steadily been making moves in other directions. I have been in the media game for 2 years now while seeking traction and deals in another area. The reality is for a few years I have been a sex producer. I have been slowly seeking deals, for sex work, of a flesh kind, or investment, in my business or myself, to get going on a new career to provide me the security and means to possibly build a retirement, to employee people and pay citizens to work, legally.
There is a 2 year wait period while i and the agencies and other countries see who jacks and robs Aged So Fine, a record that Miranda Kerr facilitated a crime by permeating the digital network with my unreleased/unpublished PROPERTY/CONTENT/PRODUCT!
I have claims left right and center and no plans to sue any time soon.
This is the lates off the wire, June 11/2016 7:06 am Pacific Time.
#lifeisgoodnolifeisphenomenal #cantwaittoseemygirfriendsintheflesh #nogroupiesplease #nomorepeopletalkingmusicdealsplease