Universal Music Group and Spotify have struck a new direct deal, impacting both the company’s recorded music and publishing royalty rates, the companies announced today (Jan. 26). In a statement, UMG chairman/CEO Lucian Grainge said that the deal is “precisely the kind of partnership development [UMG] envisioned” as part of its idea for “Streaming 2.0,” the company’s proposed changes to revamp streaming royalty rates and improve remuneration for its artists on streaming platforms.

Under the new agreement, UMG and Spotify “will collaborate closely to advance the next era of streaming innovation,” according to a press release. “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,” the press release continues. The deal also includes continued protection for UMG through Spotify’s fraud detection and enforcement systems. 

Importantly, the agreement includes a direct deal between Spotify and Universal Music Publishing Group, the first direct deal between Spotify and a publisher since the passage of the Music Modernization Act in 2018. One top publishing executive tells Billboard that this change “sounds like Spotify is raising the white flag” about the so-called “bundling” dispute which has soured relations between many publishers, writers and Spotify since it launched last year. In March, Billboard reported that Spotify’s payments to music publishers and songwriters would be cut significantly to account for Spotify bundling in audiobooks as part of its premium tiers. Instead of paying out royalties for these tiers purely to music publishers and writers, Spotify began splitting the payments between music and books publishers. 

Billboard estimated the losses to be about $150 million in the first year the bundled audiobooks took effect. Now, nearly a year later, Universal Music Publishing Group appears to be back in a better position with Spotify. One source familiar with the deal said it has improved royalty payments for UMPG songwriters, although the two companies declined to state the specifics of how the new publishing royalty model (or the one for recorded music) works. 

“Spotify maintains its bundle, but with this direct deal, it has evolved to account for broader rights, including a different economic treatment for music and non-music content,” a Spotify spokesperson clarified in a statement to Billboard.

“[This deal] makes sense,” the publishing executive tells Billboard. “[Spotify is] despised in the songwriting industry. [One of] their main competitors, Amazon, has already left them isolated and alone. And they claim to want to expand into more videos but can’t get deals done. It was monumentally stupid for them to put themselves in this position but perhaps they are finally trying to get out of the bind they put themselves in.”

Grainge said, in his complete statement about the deal, “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. 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.”

“For nearly two decades, Spotify has made good on its commitment to return the music industry to growth, ensuring that we deliver record payouts to the benefit of artists and songwriters each new year,” Spotify founder/CEO Daniel Ek said in a statement. “This partnership ensures we can continue to deliver on this promise by embracing the certainty that constant innovation is key to making paid music subscriptions even more attractive to a broader audience of fans around the world.”