Yesterday (January 26) was a busy day for the music trade media.
First, MBW broke the story that Universal Music Group and Spotify had inked a new multi-year agreement. Then the two parties officially confirmed it.
This, though, was a deal with a difference: unlike UMG and SPOT’s previous pact, the new agreement includes a direct licensing deal in the US (and other territories) between Universal’s music publishing company – Universal Music Publishing Group – and Spotify.
The impact of this element of the new deal is seismic: For one thing, according to MBW sources, it appears to remedy the infamous mechanical royalty discount rate that Spotify has been applying to payouts to UMPG in the United States.
For the past year, Spotify has categorized its flagship premium tier as a ‘bundled’ product, thanks to the firm adding audiobooks to its offering in late 2023.
According to Spotify, this ‘bundle’ categorization enables it to pay a lower mechanical royalty rate to rightsholders due to the wording of a 2022 ruling (‘Phonorecords IV’) from the US Copyright Royalty Board. (Others strongly disagree on this matter: the MLC is suing Spotify for alleged underpayment of the ‘bundle’-affected royalties.)
According to MBW’s sources, SPOT’s direct new agreement with UMPG is expected – in monetary terms – to substantially improve royalty payouts from Spotify to the publishing company and its songwriters vs. the current situation.
Spotify has clarified, however, that it continues to see a royalty value difference between ‘bundled’ audiobook-plus-music listeners vs. music-only listeners; this differentiation is likely to be made clear in black-and-white in some form in the new UMPG/Spotify agreement.
Phew. Got all that? Good.
Because now we can talk BIG MONEY.
Off the back of yesterday’s Spotify/UMG pact announcement, today (January 27), Universal Music Group’s share price on the Amsterdam Euronext has risen by a whopping 7.35% vs. the stock’s closing price on Friday (January 24).
UMG’s share price increased to EUR €26.00 at close today, compared to €24.22 at close on Friday.
This jump has had a significant impact on UMG’s public valuation.
According to MBW’s calculations, at the close of Friday, UMG had a public market cap of approximately EUR €44.30 billion, or around USD $46.47 billion at current exchange rates.
Now? With today’s trading ceased on the Euronext, that market cap stands at EUR €47.56 billion, equivalent to approximately USD $49.89 billion.
Yup: largely thanks to its Spotify announcement (or, at least, analyst and investor sentiment in the wake of that announcement) UMG just piled on approximately USD $3.4 billion in market cap value… in a single day.
It’s not just Universal Music Group that’s benefitting from a value jump in the wake of the Spotify news, either.
The share price of UMG’s rival Warner Music Group, which trades on the Nasdaq in the US, was up by 4.70% at today’s trading close vs. the trading close on Friday (January 24).
For obvious reasons, it doesn’t feel like an overreach to suggest that WMG’s analysts and investors have been buoyed by the UMG/Spotify news; they are no doubt naturally expecting that Warner will be able to secure similar ‘bundle discount’-zapping perks in its next deal with the streamer.
With a current market cap of USD $16.21 billion, Warner has added around $730 million to its public valuation today.
Together, then, UMG and WMG have jointly added approximately $4 billion-worth of market cap value to their companies following the UMG/SPOT news.
Warner’s share performance and market cap today (source: Google Finance)
Warner’s share price jump is actually something of an unusual sight on the Nasdaq today – the stock exchange’s overall value has tumbled in the wake of impressive new AI technology being unveiled by Chinese platform DeepSeek, which some have viewed as a cheaper-to-run threat to the likes of OpenAI and other US-based AI companies.
Spotify’s own share price remained steady on the New York Stock Exchange today, by the way, up 0.70%.
Spotify and Universal Music Group issued a joint press release yesterday confirming their new pact.
Although it didn’t explicitly mention Spotify’s ‘bundle’ discount (RE: Phonograph IV), it did confirm that UMPG and Spotify had signed a surprise new direct licensing agreement.
The PR read: “Under the new agreements, UMG and Spotify will collaborate closely to advance the next era of streaming innovation. Artists, songwriters and consumers will benefit from new and evolving offers, new paid subscription tiers, bundling of music and non-music content, and a richer audio and visual content catalog.
“By deepening audience experiences, driving further engagement and amplifying the connection between artists, songwriters and their fans, the collaboration between these two companies will position the industry for continued subscriber growth and retention.”Music Business Worldwide
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