Tense day for musical media
Yesterday (January 26) was a tense day for the musical media.
First, MBW broke the story that Universal Musical Group and Spotify signed a new long-term agreement. Then the two parties officially confirmed this.
It was a deal with a difference: unlike UMG and Spotify‘s previous agreement, the new agreement includes a transaction with direct licensing in the United States (and other territories) between Universal Musical Publishing Company – Universal Music Publishing Group – and Spotify.
Impact on royalties and market capitalization
The influence of this new arrangement is significant: according to MBW sources, it eliminates the notorious mechanical royalty discount that Spotify applied for payments to UMPG in the United States.
Over the past year, Spotify categorized its flagship premium level as “United Product”, thanks to the addition of audiobooks to its offerings at the end of 2023.
According to Spotify, this categorization of the “package” allows it to pay a lower rate on mechanical royalties set by the Royalty Council in the USA (others, however, do not agree with this issue: MLC has sued Spotify for the alleged underpayment of “royalties affected by bundling”).
According to MBW sources, Spotify’s new direct agreement with UMPG is expected to significantly improve royalties for Spotify’s publishing company and its songwriters compared to the current situation.
However, Spotify clarified that it continues to observe differences in royalty values between the Audiobook-Plus-Music listeners and those who only listen to music; this differentiation will likely be addressed in some form in the new UMPG/Spotify agreement.
Market reaction and earnings boost
Outside of yesterday’s Spotify/UMG announcement, today (January 27), Universal Musical Group saw its share price on Amsterdam Euronext rise by an impressive 7.35% compared to the closing price on January 24.
UMG’s share price increased to €26.00, up from €24.22 on Friday.
This surge significantly impacted UMG’s public market valuation.
According to MBW calculations, at the end of Friday, UMG had a market capitalization of approximately €44.30 billion or around $46.47 billion at current exchange rates.
Now, with today’s trading, this market capitalization has jumped to €47.56 billion, equivalent to approximately $49.89 billion.
Yes: largely due to its Spotify announcement, UMG has seen an approximate increase of $3.4 billion in market capitalization in just one day.
It’s not just Universal Musical Group that benefits from the price surge following Spotify’s news.
The share price of UMG‘s competitor, Warner Music Group, traded on Nasdaq in the United States, increased by 4.70% today compared to the closing price on January 24.
This uptick indicates that analysts and investors of WMG had a positive response to the UMG/Spotify news, as they likely expect Warner to secure similar ‘discount rates’ in an upcoming deal with a streaming service.
With a current market capitalization of $16.21 billion, Warner gained around $730 million in public valuation today.
Collectively, UMG and WMG added approximately $4 billion to their market valuations following the UMG/Spotify news.
Warner’s promotional and market capitalization today (Source: Google Finance)
The price surge for Warner is particularly noteworthy amid a broader decline in the NASDAQ today, with the overall index dropping following the unveiling of new AI technology by the Chinese platform Deepseek, which some see as a competitive threat to OpenAI and other American firms.
Spotify’s share price, on the other hand, remained stable on the New York Stock Exchange, gaining 0.70%.
Spotify and Universal Musical Group released a joint press release yesterday confirming their new pact.
Although it did not mention Spotify’s bundling discount (Re: Phonograph IV), it confirmed that UMPG and Spotify have signed a groundbreaking new licensing agreement.
The press release stated: “Under the new agreements, UMG and Spotify will collaborate closely to promote the next era of streaming innovation. Artists, songwriters, and consumers will benefit from new and evolving offers, new paid subscription tiers, and enhanced integration of music and non-musical content, as well as a richer catalog of audio and visual content.
“By deepening audience engagement, stimulating further interaction, and strengthening the connection between artists, songwriters, and their fans, this partnership positions the industry for further growth and subscriber retention.”
