by Paul Resnikoff
The following is a Digital Music News exclusive. Once again, you read it here first.
Universal Music Group chairman and CEO Lucien 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 parentVivendi 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 in 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. “Lucien 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 Lucien & 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 (or at least pay a ton of money/give a first-born for free). 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.