The news broke this past Sunday that Universal Music Group and Spotify have struck a new, multi-year licensing deal.
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The main takeaway is that Spotify is now going to pay a higher royalty rate to Universal Music Publishing Group for mechanical royalties. Theoretically higher than Spotify is going to pay any other songwriter or publisher.
Let’s back up and put this all into context.
When Spotify initially launched way back in 2008, the music industry was in a death spiral. CD sales were plummeting. iTunes sales were not making much of a dent in the piracy ravaging the industry. Spotify, it seemed, could present a legal alternative to the piracy and a pathway to recovery. However, Spotify needed the major labels to gain access to the most popular music in the world to power the platform.
The major labels licensed their full catalogs to Spotify, but made sure the agreements were on their terms and that they made out just fine no matter what. Spotify paid the majors massive advances (with no requirement that any of that money trickle down to their artists). The majors got equity in Spotify (collectively around 18% - which is now below 7% after cashing out shares in the hundreds of millions of dollars), lots of kick-backs in the form of free advertising on the platform, and most egregious of all, higher royalty rates than indie labels and artists got.
The big myth of the streaming era is that all streams are created equally.
Even though per-stream pay has been estimated, there is no such thing as a per-stream rate. And even though a simplified explanation of how streaming currently pays via the pro-rata model that Spotify utilizes, goes something like: artists & labels make the proportionate amount of money equal to the proportionate amount of streams they get versus all other streams on the platform. It’s not even that simple.
This payment model also establishes the variance of payments by explaining that streams that come from paid subscribers will pay more than streams that come from free users. And streams from users on cheaper plans (like family plans, or in countries with a lower subscription cost) also earn less.
But even all that isn’t the full truth.
See, one UMG stream is going to earn more than one indie artist stream. From the identical listener. Why? Because every label and distributor negotiates their rates directly with Spotify. And with strict NDAs included in every licensing deal, we may never know what these rates are and which label or distributor gets paid the most.
But you better believe that UMG is going to make damn sure that they get the highest rates in the industry.
Just like they did with Sunday’s deal.
Now when it comes to publishing, however, the majority of the royalties are based on a transparent statutory rate (set by the US Copyright Royalty Board), and paid out via the government-mandated collection organization, the MLC (for mechanical royalties). And the other publishing royalties are paid out via Performing Rights Orgs like ASCAP, BMI, SESAC, GMR (for performance royalties). And then these orgs pay songwriters and publishers.
However, some publishers can opt out of these compulsory agreements and strike direct deals with Spotify and other DSPs.
Which UMG just did.
Spotify took a lot of flack last year for announcing it was going to be paying publishers and songwriters an estimated $150 million less in royalties in just the first year because it was reclassifying its premium subscriptions as a “bundle” since adding audiobooks. Thanks to a celebrated agreement between the NMPA (the organization representing publishers) and DiMA (the org representing streamers), the mechanical royalty rate is reduced for bundled tiers. (The MLC sued Spotify over this, stipulating that this bundle reclassification was “unlawful,” but just lost that case.)
UMG has now skirted this loophole that Spotify exploited.
In the press release, UMG CEO Lucian Grainge stated, “This agreement furthers and broadens the collaboration with Spotify for both our labels and music publisher, advancing artist-centric principles to drive greater monetization for artists and songwriters, as well as enhancing product offerings for consumers.”
He continues to push this “artist-centric” doublespeak that he coined a couple years ago while laying the groundwork for indie artist theft. There is absolutely nothing artist-centric about any of the initiatives UMG has pushed onto the industry recently.
WIthholding pay from poorer artists to give to richer artists isn’t artist-centric. Penalizing indie artists when their songs get botted, isn’t artist-centric. Striking deals with generative AI music companies that flood Spotify with AI generated music, pulling royalties away from human artists and songwriters, is not artist-centric.
We can safely assume that anything UMG states as “artist-centric” is in actuality, label-centric. Or more aptly, UMG-centric.
And now, Spotify is attempting to overshadow this clear royalty manipulation in favor of the largest music corporation in the world valued at over $50 billion, by announcing it paid the music industry $10 billion in 2024.
In the press release, it also states “Today, well over 10,000 artists generate over $100,000 per year from Spotify alone. That's a beautiful thing.”
But now we know we can’t take anything Spotify says at face value. As revealed in immense detail in Liz Pelly’s new book Mood Machine (and initially excerpted in her Harper’s piece), Spotify has been filling its extremely popular official editorial playlists with low-cost, royalty-free music from stock-music companies (sometimes AI-generated), with the goal of paying fewer royalties to working artists: intentionally replacing real artists on these high-trafficked playlists with “ghost” artists that don’t actually exist.
This makes Spotify’s stock price go up, all while artist pay goes down.
I get it. We live in a capitalist society. And Spotify and UMG are beholden to their shareholders. Their goal is to make more money at any cost. Artists be damned.
But when the CEO of the largest music streaming platform in the world is worth more than the 4 richest musicians combined, all while continually undercutting the hard-working musicians and songwriters that power his platform, it’s time we stop pretending the game is fair.
So, what are we to do?
Taking your music off of Spotify ain’t a realistic solution when that’s how the majority of the listening public prefer to listen to music (and without a coordinated effort from every artist - many of whom are beholden to their labels - it won’t move the needle).
Not to mention, Spotify is the only DSP actively promoting concerts (with ticket links) and offering commission-free merch. I will absolutely give credit where credit is due.
Apple Music, TIDAL, and Amazon Music are also owned by billionaires and similarly pay on the same pro-rata payment model. People mistakenly claim that “TIDAL pays more!” or “Amazon Music pays the most!” This is not true.
There isn’t an artist on planet earth that has made more money from TIDAL or Amazon Music than from Spotify.
The only reason their “per stream rate” (which, remember, ISN’T A THING) is because they have so few users.
Would you rather make more of less or less of more?
Government intervention seems to be the only way to make the streaming landscape fair. To require that every stream is treated equally. Make direct licensing illegal. Undo the licensing NDAs so we have transparency.
Even though there was a bill introduced to the US House last year, The Living Wage For Musicians Act, (thanks to immense advocacy work by the UMAW), which has some great stuff in it, it hasn’t moved past the introduction stage. And seems unlikely it will.
I think we can advocate for a more fair music industry, while simultaneously, as Talib Kweli recently put it in his interview on The Daily Show, “build industry around yourself.”
The only way to cut out the from corporations and take matters into our own hands is to go direct to the fans.
Instead of renting our fans from social media and streaming platforms, we need to own them. Get your fans’ emails and phone numbers. Create a community with your fans via the many services out there like Vault.fm, MySeat, Openstage, Patreon, Bandcamp, or EVEN.
The majors have always rigged the game since the beginning of time. We can’t expect them to change in our capitalistic society. But we can find a better way forward as musicians. Together.
~Ari
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