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Norwegian Report Alleging Tidal Manipulated Beyonc? & Kanye West Stream Counts Raises Questions: Analysis

A Norwegian newspaper investigation alleging that JAY-Z?s Tidal manipulated listener data to add hundreds of millions of false plays to Beyonc??s Lemonade and Kanye West?s The Life of Pablo begs a question: Why would the streaming service want to pay those artists? record labels millions of dollars for streams that never occurred?

Though Tidal strongly denied the allegations -- calling the report a ?smear campaign? based on stolen data and false assumptions -- and the record labels haven?t commented, the report suggests that the streaming service paid nearly $5 million in royalties to Universal Music Group and Sony Music for its reported plays of the two albums. The Norwegian story reported that Sony received $2.5 million for its streams of the Beyonc? album on Tidal during April and May of 2016, while the West album generated payments of 2 million euros ($2.22 million) for UMG between February and March 2016.

What?s more, Tidal also had to pay publishing royalties, calculated then on a four-tier formula, for those plays as well. Based on one of those tiers -- on which publishers get 21 percent of the payout to labels -- Tidal would have owed royalties of an additional $1 million to the songwriters and publishers of the music on those albums, raising Tidal?s total cost to nearly $6 million.

If Dagens N?ringsliv?s report is accurate, why would Tidal shell out so much to those labels and publishers unnecessarily?

First of all, Tidal is spending that money anyway. Tidal, like Spotify, Apple Music and other streaming services, has contracts with the major record labels that call for it to pay them their pro-rata share from a certain percentage of its revenue -- usually 58 percent to 60 percent -- from which the labels then pay the artists, typically sharing anywhere from 12 percent to 50 percent of the label's take with a given act, depending on his or her contract and number of plays.

But the total amount Tidal owes to all record labels doesn?t increase with the total number of streams in a licensing term. So the money it paid to Kanye's and Beyonc??s labels -- Def Jam and Columbia, respectively -- would otherwise have simply gone to other labels and acts, had the two stars not released those albums. Likewise, the publishing royalty pool would also contain the same amount, meaning the money that allegedly went to the songwriters and publishers on those two albums would have been distributed to other songwriters and publishers, anyway.

On the other hand, the money Tidal paid Def Jam and Columbia for the streams of those two albums could also be seen as a marketing cost to boost sales for Beyonc?, JAY-Z?s wife, and West, one of Tidal?s initial stakeholders and promoters, not to mention fattening those artists? wallets, as well. If the two artists were paid the "superstar royalty" rate of 50 percent on streaming, Beyonc? would have banked $1.25 million, while West received $1.11 million. Meanwhile, Sony would have benefited to the tune of $1.25 million, while Def Jam would have received $1.11 million -- money that could be used for marketing or to help labels recoup their advances. And Tidal touted both albums as enjoying massive plays, which helped both favorably in terms of generating incremental publicity for them.

Inflating the number of streams would also theoretically allow a streaming service to boost its said market share and command better deals with labels in the future, while a higher stream count could also improve the valuation of a streaming service, says one industry observer, allowing the service to recoup its payout to labels on so-called phantom plays in an equity sale.

Tidal sold a 33 percent stake of the company to Sprint in January 2017 for a reported $200 million, but didn?t disclose any details about the deal terms or negotiations.

But Lisa Alter, a partner with the law firm Alter Kendrick & Baron, tells Billboard, ?I don?t see any benefit to Tidal. It doesn?t make a lot of sense [that they would falsify plays]. It would be a gross violation of the trust that labels and artist hold for them, if they did it and got caught.?

The ultimate play counts didn?t boost West's album on the Billboard charts, since it was a Tidal-only exclusive and the service didn?t report plays from the album until April, two months after its initial release, when its exclusive period ended.

Beyonc??s Lemonade, meanwhile, would have debuted at No. 1 upon its release based on its album sales alone, so streams didn?t factor into its position on the Billboard 200 chart on its debut week ending April 28, when it entered atop the chart. That album was displaced by Drake?s Views the following week, with Lemonade falling to No. 2, a position it would have held anyway, based just on its sales.

For its part, Tidal condemned the report, saying the ?ridiculous story? contained lies and falsehoods and was based on stolen and manipulated data to ?smear? Tidal. Yet the story claimed to have an anonymous UMG executive giving credence to the overall report by confirming that the total plays for all music streamed that month on Tidal totaled 758,745,952, the same amount the newspaper found that the Tidal computer logs showed. The plays, according to the story, included phantom plays, as the newspaper tracked down several Tidal subscribers who denied they streamed songs from the two albums as many times as were attributed to them in the internal Tidal logs.

Some valid points. Good observations. Good read.