Universal Music Group and Spotify have inked a new licensing deal. It remedies Spotify’s infamous US ‘audiobook bundle’ royalty discount in UMG payouts, say MBW sources

Big news from the land of MBW’s well-connected industry sources: Universal Music Group and Spotify have inked a new licensing agreement. (This news has now been officially confirmed by both sides – read all about it here.)

We’re told the multi-year deal arrives a year earlier than many expected UMG’s next deal with Spotify to emerge.

And there’s a fascinating piece of news at its center, relating to the music publishing business.

According to MBW’s sources, Spotify has agreed to effectively eliminate its infamous mechanical royalty ‘bundle’ discount for Universal Music Publishing Group and its songwriters in the US.

How has UMG’s new agreement with Spotify scrubbed the mechanical royalty discount from the way that Daniel Ek‘s company pays Universal Music Publishing Group and its songwriters?

We’re told it’s complex; after all, the current mechanical royalties situation is guided by a statutory ruling for music publishers in the US made by the Copyright Royalty Board (Phonorecords IV – see below).

One of our sources tells us UMG’s new deal with Spotify encompasses some kind of “direct agreement” between UMPG and the streamer.

Like you, we await more details. (We’ve asked both Spotify and Universal Music Group for comment.)

UPDATE: A Spotify spokesperson has provided the following statement: “Spotify maintains its bundle, but with this direct deal [with UMPG], it has evolved to account for broader rights, including a different economic treatment for music and non-music content.”

Like we said; it’s a complex picture. But it’s MBW’s job to try and make it simple for our readers to comprehend, and we stand by the reporting above.

Spotify’s ‘bundle discount’ started hitting US music rightsholder payouts in the spring of last year.

Under a 2022 legal settlement called Phonorecords IV, music publishers accepted that ‘bundled’ multimedia services in the US were permitted to pay a lower mechanical royalty rate than standalone music subscription services.

Spotify then added audiobooks to its standard Premium subscription tier, before claiming this addition made said tier a ‘bundled offering’ – thus applying the Phonorecords IV discount for US mechanical royalty payouts.

According to estimates, the move will have saved Spotify over $100 million in royalty payouts in 2024.

But it also attracted legal action: the Mechanical Licensing Collective (MLC) filed a lawsuit against Spotify in May 2024, alleging that platform was illegally underpaying royalties to songwriters and publishers as a result of the bundling move.

Outside of the ‘bundling’ element of UMG and Spotify’s new deal, the new agreement is expected to be influenced by Universal’s ‘Streaming 2.0’ manifesto, which was first unveiled at the music company’s Capital Markets Day (CMD) in London last year.

At that CMD, UMG explained that ‘Streaming 2.0’ represented a new era of digital music focused on changes including:

• Streaming subscription offerings becoming ‘segmented’, with more expensive options for music ‘superfans’; and
• Subscription ARPU (average revenue per user) moving upwards across music platforms, partly as a result of the aforementioned ‘superfan’-targeted offerings, and partly as a result of future streaming price rises.

In December, Universal announced a new multi-year licensing agreement with Amazon Music.

Universal Music Group boss, Sir Lucian Grainge, said that contract was anchored in the principles of “Streaming 2.0”.

Spotify and Universal Music Group updated their existing licensing agreement as recently as March last year, agreeing to collaborate on “new promotional and social tools” for UMG artists on the Spotify platform.

That announcement was believed to be an additive update to a formal multi-year licensing agreement between UMG and Spotify that was signed in 2022 or 2023.

In July 2023, Sir Lucian Grainge told investors on a UMG earnings call that, as part of this agreement, Spotify had committed to “work to address” concerns around streaming platforms being “flooded” with tracks that content that music fans do not want”.

The new deal, revealed by MBW sources today, is understood to supersede any previous agreements between the two parties.Music Business Worldwide