Spotify and UMG Strike New Deal
A Turning Point in Streaming Royalties and Legal Battles?
In a significant development that could reshape the landscape of music streaming and royalty payments, Spotify and Universal Music Group (UMG) have announced a new multi-year licensing agreement. This deal comes amidst ongoing legal battles and industry-wide debates over streaming royalties, particularly in light of Spotify’s controversial bundling practices.
The New UMG-Spotify Deal: What’s in It?
The agreement, announced on January 26, 2025, marks a pivotal moment in the relationship between the world’s largest music company and the leading streaming platform. According to the official press release, the deal focuses on "growth, innovation, and the advancement of artists’ and songwriters’ success."
Key elements of the deal include:
New Subscription Tiers: The agreement paves the way for new paid subscription tiers, including a potential "Super-Premium" tier aimed at superfans. This tier could offer perks like early access to music, exclusive deluxe editions, hi-res audio, and artist Q&A sessions.
Bundling of Music and Non-Music Content: The deal also hints at the bundling of music with non-music content, such as audiobooks, which has been a contentious issue in the industry.
Direct Licensing for Publishing: Perhaps the most significant aspect of the deal is the establishment of a direct license between Spotify and Universal Music Publishing Group (UMPG) in the U.S. and several other countries. This direct licensing arrangement could potentially bypass some of the issues tied to Spotify’s bundling strategy, which has been criticized for reducing mechanical royalty payouts to songwriters and publishers.
The Bundling Controversy: A Legal Minefield
Spotify’s decision to bundle audiobooks with its Premium subscription last year sparked outrage across the music industry. By reclassifying its Premium tier as a "bundled subscription," Spotify effectively reduced mechanical royalty payments to songwriters and publishers by 20%. This move impacted nearly 50 million subscribers and led to a lawsuit from the Mechanical Licensing Collective (MLC), which represents songwriters and publishers in the U.S.
The MLC’s lawsuit, filed in 2024, accused Spotify of exploiting a loophole in the Music Modernization Act (MMA) to lower royalty payments. The MMA, signed into law in 2018, was designed to streamline royalty payments and ensure fair compensation for artists and songwriters. However, Spotify’s bundling strategy was seen as a direct challenge to the spirit of the law.
A Shift in Spotify’s Strategy?
The new UMG deal suggests that Spotify may be reconsidering its approach to bundling and royalty payments. According to industry analysts, the direct licensing agreement with UMPG could "nullify" the negative effects of the bundling discount, leading to higher payouts for UMPG and its songwriters.
David Israelite, CEO of the National Music Publishers Association (NMPA), hailed the deal as "a clear sign that Spotify felt the backlash to its bundling scheme." He added, "While we do not have details of the agreement beyond what was in the press release, it appears that it increases royalty rates, which is good news for the entire industry."
However, Spotify has not completely abandoned its bundling strategy. A spokesperson for the company stated that the new deal "maintains its bundle," suggesting that the bundling model will continue, albeit with some adjustments to account for broader rights and a different economic treatment for music and non-music content.
What’s Next for the Industry?
The UMG-Spotify deal could set a precedent for other major labels and publishers to negotiate similar agreements. Sony Music and Warner Music Group, both of which have criticized Spotify’s bundling practices, may now push for better terms in their own licensing deals.
Moreover, the ongoing Phonorecords V negotiations, which will determine royalty rates for 2028-2032, could be influenced by this development. If UMG has secured better rates for its songwriters, it could embolden other publishers to demand similar concessions from Spotify and other streaming platforms.
For independent artists and publishers, the situation remains uncertain. While the direct licensing deal with UMPG is a positive step, it remains to be seen whether smaller players in the industry will benefit from similar arrangements.
Conclusion: A Step Forward, But Challenges Remain
The new UMG-Spotify deal represents a significant shift in the streaming landscape, offering hope for fairer royalty payments and a more artist-centric approach. However, the industry is still grappling with the broader implications of bundling and the need for comprehensive copyright reform.
As the legal battles continue and the Phonorecords V negotiations loom, one thing is clear: the fight for fair compensation in the digital age is far from over. Artists, songwriters, and publishers must remain vigilant and engaged in shaping the future of music streaming.
For more insights into how Spotify pays royalties and the ongoing debates surrounding streaming copyrights, check out our previous article, [MLC Sues Spotify, NMPA Calls for Copyright Renegotiations]
