UMG chairman pledges to “re-design business models”

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In a leaked internal memo published by Billboard, CEO and Chairman of Universal Music Group, Lucian Grainge, promised a continued commitment to artist development, and pledged to “re-design business models” as necessary.

A forward-looking employee letter that sketched broad strategic points for 2015, the memo said it was imperative to “broaden the definition of what it means to be a music company.” Part of that is evidently to participate in how new music distribution platforms (e.g. streaming) are shaped. UMG will “be a formative player in shaping and developing the music platforms of tomorrow.”

The memo comes at a time when major labels are engaged in publicized contract renewal discussions with Spotify, which reportedly include are-evaluation of Spotify Free, which offers semi-interactive listening at no charge. The so-called freemium model is recognized to furnish an on-ramp to paid music subscription, which yields more money to labels and artists. Some controversy has emerged recently about whether the model works adequately.

In that context, Grainge’s most provocative remark would be this: “We’ll be working with all of our partners — traditional and non-traditional — to design and, where necessary, re-design business models that will become the foundation for a strong and sustainable future for all of us.”

Interactive services like Spotify acquire their music catalogs through negotiation with rights-holders. Non-interactive platforms like Pandora, which resemble radio more than CD collecting, use statutory licensing mechanisms regulated by the U.S. government. Music labels rely on SoundExchange to represent them in government negotiations. But Grainge’s “re-design” remark appears aimed at the interactive side, and in particular at the unlimited “freemium” model.

Brad Hill