Big Licensing News from MBW
Major developments from the Land of MBW, sourced from well-connected industry insiders: Universal Music Group and Spotify have entered into a new licensing agreement.
We’ve been informed that the multi-year deal is set to debut a year earlier than initially anticipated for UMG and Spotify.
Updates on Music Publishing Business
At the core of this agreement is significant news concerning the music publishing business.
According to MBW sources, Spotify has consented to effectively eliminate its notorious mechanical royalty “package” discount for Universal Music Publishing Group and its songwriters in the USA.
How does this UMG new agreement with Spotify work regarding mechanical royalty discounts? How does Daniel Ek’s company compensate Universal Music Publishing Group and its songwriters?
We’ve been told that this was a challenging issue; after all, the existing state of mechanical royalties is guided by a legislative ruling affecting music publishers in the US, established by the Copyright Board (Phonorecords IV – see below).
One of our sources reveals that the new UMG deal with Spotify includes a type of “Direct Agreement” between UMPG and the streaming service.
Like you, we are eagerly waiting for more details. (We have reached out to both Spotify and Universal Music Group for comments.)
Spotify’s “DISCOUNT” has been impacting RightSholder music payments since last spring.
Per the legal settlement dubbed Phonorecords IV in 2022, music publishers have recognized that “bundled” media services in the US have been permitted to offer lower mechanical royalty rates than those applied to standalone music subscription services.
Following this, Spotify added audiobooks to its standard Premium subscription level and claimed this add-on triggered a “WARNING” under Phonorecords IV, applying discounts to US mechanical royalty payments.
This maneuver is estimated to save Spotify over 100 million dollars in royalty payments for 2024.
However, it has also led to a lawsuit: the Mechanical Licensing Collective (MLC) filed a suit against Spotify in May 2024, accusing the platform of illegally underpaying royalties to songwriters and publishers due to this move.
Beyond the “union” aspect of UMG and Spotify’s new direction, it’s expected that the new agreement will be influenced by Universal’s ‘Streaming 2.0’ manifesto, first presented at Music Company Capital Day (CMD) in London last year.
During CMD, UMG explained that ‘Streaming 2.0’ marks a new era of digital music that focuses on transformation, which includes:
- Streaming subscription offers becoming ‘segmented’ with more premium music options for “Superfans”;
- Increased ARPU (Average Revenue Per User) across music platforms, partially due to the aforementioned superfan offerings and partly because of impending streaming price increases.
In December, Universal announced a new multi-year licensing agreement with Amazon Music.
Universal Music Group CEO Sir Lucian Grange stated that the contract aligned with principles of “Flow 2.0.”
Spotify and Universal Music Group recently updated their existing licensing agreement, collaborating on “new advertising and social tools” for UMG artists on the Spotify platform.
This announcement was seen as an additional update to the official multi-year licensing agreement between UMG and Spotify, which was established in 2022 or 2023.
In July 2023, Sir Lucian Grange mentioned during a UMG revenue call that as part of this agreement, Spotify committed to “working to resolve” issues with streaming platforms being “flooded” by non-music tracks.
The new course revealed by MBW sources is believed to supersede any previous agreements between the two parties.
