The US National Music Publishers Association has welcomed the news that Universal Music’s big new deal with Spotify includes a direct licence in connection to the major’s songs catalogue within the US market, seemingly addressing the big bust up over audiobook bundling, at least in relation to Universal’s repertoire.
Universal boss Lucian Grainge is also very pleased with the new deal, not least because he got to include his two favourite buzzwords in his statement hailing its arrival: ‘streaming 2.0’ and ‘artist-centric’. Which are both pretty meaningless and - in the case of 'artist centric' - outright misleading, but once you’ve selected the words that make you buzz, it’s nice to get to use them.
“When we first presented our vision for the next stage in the evolution of music subscription several months ago - Streaming 2.0 - this is precisely the kind of partnership development we envisioned”, says Grainge of the new deal. “This agreement furthers and broadens the collaboration with Spotify for both our labels and music publisher, advancing artist-centric principles to drive greater monetisation for artists and songwriters, as well as enhancing product offerings for consumers”.
Universal announced yesterday that it had agreed new “multi-year agreements” with Spotify covering both its record labels and music publishing business, with a focus on “innovation and the advancement of artists’ and songwriters’ success”. On the songs side, it added, “the new publishing agreement establishes a direct licence between Spotify and Universal Music Publishing Group across Spotify’s current product portfolio in the US".
As a result, when it comes to Universal’s Anglo-American songs repertoire, Spotify is no longer relying on the compulsory licence that is available for song rights in the US. That being the licence that includes the controversial bundling provision which the streaming service has been exploiting to reduce its payments to music publishers and songwriters now that audiobooks are also part of its premium subscription package.
The NMPA has been scathing about Spotify’s use of the bundling provision, which is why it is also hailing this new deal. CEO David Israelite says, “The announcement of a deal between Spotify and Universal Music Publishing Group bodes well for the industry and is a clear sign that Spotify felt the backlash to its bundling scheme”.
Although the specifics of the new direct licence between Universal and Spotify for publishing in the US are not known, Israelite says, “it appears that it increases royalty rates which is good news for the entire industry”. That’s on the basis that other publishers should be able to negotiate similar terms. “A rising tide lifts all boats”, he adds, “and this signals that Spotify is coming back to the table after its disastrous attempt to manipulate royalty rates”.
Under US copyright law there is a compulsory licence covering the ‘mechanical copying’ of songs which audio streaming services can rely on, meaning they don’t need to negotiate direct deals with publishers or songwriters. Streaming services also exploit the separate performing rights in songs, which are usually licensed via collecting societies like BMI and ASCAP, but the compulsory licence basically sets the top line rates for what the services pay.
In other countries, streaming services usually license song rights via bespoke direct deals with either music publishers and collecting societies, depending on the repertoire. For example, Universal Music Publishing directly licenses its Anglo-American repertoire to streaming services across Europe, albeit in partnership with French collecting society SACEM.
Streaming services don’t have to rely on the compulsory licence in the US and can instead opt to negotiate direct deals with publishers, like they do elsewhere in the world. There have been direct deals of that kind in the past within the US, though it’s thought the core terms of previous direct deals were often the same as the compulsory licence, but with some bespoke arrangements relating to administration and the payment of advances.
The terms of the US compulsory licence are set every five years by the Copyright Royalty Board. There have been various high profile disputes between the music industry and the streaming services, and especially Spotify, in relation to the compulsory licence over the years, including over how the licence is administered and what the top level revenue share rate should be.
Those disputes led to the creation of collecting society The MLC, which now administers the licence, and a settlement on the top level rate, which currently stands at 15.25% of service provider revenue.
The most recent dispute centred on Spotify’s sneaky bundling trick. The compulsory licence includes provisions for platforms that bundle music with other kinds of content and services, like when Amazon includes music as part of its Prime product, or Apple bundles music with TV and news for Apple One.
Once Spotify started offering audiobooks as part of its premium subscription package in the US, despite not asking anyone if they wanted audiobooks, the streaming service reclassified that package as a bundle and applied the discount allowed in the compulsory licence’s bundling provision, significantly cutting what it has to pay to writers and publishers.
As well as prompting scathing statements from Israelite and the wider music publishing community, that move also led to The MLC filing a lawsuit, arguing that Spotify didn’t even qualify for the bundling provision. The NMPA also started to call for copyright law reform that would allow publishers to opt their catalogues out of the compulsory licence, forcing the streaming services to the negotiating table.
Although Universal can’t currently force Spotify to that negotiating table for these specific rights, the renegotiation of its wider deal with Spotify provided a good opportunity to try to pressure the streaming service into a direct deal around its song rights in the US. And a direct deal that isn’t impacted, at least to the same extent, by audiobook bundling.
Indeed, with Spotify’s current obsession with video content, it needs a specific direct relationship with Universal Music Publishing in the US anyway, because video content is not covered by the compulsory licence.
Assuming other publishers, including the independents, can reach similar agreements with Spotify, then Israelite is right that all boats should rise. Although, of course, the down side of direct deals is that all boats don’t necessarily rise to the same extent, and songwriters are usually in the dark about the buoyancy of whatever boat they are on. But for Universal writers at least, this is in theory good news.