Universal Music Group and SoundCloud Discuss License Fee Overhaul

Photo Credit: Theo Eilersten

Universal Music Group is in talks with SoundCloud to overhaul music license payments. Here’s the latest.

A Bloomberg report details discussions between the companies about changes to the industry-standard royalty structure. People familiar with the matter said the two companies are likely to reach a deal before the end of the year. Both UMG and SoundCloud declined to comment to Bloomberg and no specific details have been clarified.

But since the music streaming takeover, the structure of music licenses for artists has been a hot topic. Universal Music CEO Lucian Grainge has spoken publicly about potentially adjusting the structure so that AI-generated tracks and white noise alongside artists like Drake and Lizzo don’t generate royalties.

What could changing the music royalty structure entail? It could adapt to tiers for active engagement rather than passive engagement. Think of it this way: an artist earns a dime when someone visits their artist page and starts listening to their music. But if the same song pops up in a music discovery playlist when listening passively, it may have only generated a quarter cent.

The current model sees digital service providers (DSPs) like Spotify bundling royalties into a huge pool. This pool of money is distributed to rights holders based on their share of the audience that month. That’s one of the reasons UMG doesn’t charge royalties for ambient noise — someone might be listening to an eight-hour sleep music track.

SoundCloud has changed its royalty structure to fan-powered royalties. Rather than pooling its money for distribution like Spotify does, it splits each customer’s subscription between the artists the customer has been listening to – so artists benefit when listeners play their music. The idea is that artists with a loyal following can earn more revenue thanks to that loyalty. SoundCloud has signed deals with Warner Music Group and Merlin, an independent label representative.