Universal Music Group is in talks with SoundCloud to overhaul music royalty payments. Here’s the latest.
A Bloomberg report details talks among the companies encompassing changes to the standard industry royalty structure. Those familiar with the matter said the two companies are likely to reach a conclusion before the end of the year. Both UMG and SoundCloud declined to comment to Bloomberg and no exact details have been ironed out.
But music royalty structure has been a hot button issue for artists since the takeover of music streaming. Universal Music CEO Lucian Grainge has publicly commented on possibly adjusting structure so that AI-generated tracks and white noise aren’t generating royalty payments alongside artists like Drake and Lizzo.
So what could the music royalty structure change entail? It could adjust to tiers for active engagement, rather than passive engagement. Think of it like this: an artist earns a penny when someone visits their artist page and begins listening to their music. But if that same song appears in a music discovery playlist while passively listening, perhaps it only generated a quarter of a cent.
The current model sees digital service providers (DSPs) like Spotify place royalties into one giant pool. That pool of money is distributed to rights holders based on their share of listening that month. That’s one reason why UMG doesn’t want ambient audio generating royalties—someone may listen to an eight-hour track of sleep music.
SoundCloud has changed its royalty structure to what it calls ‘Fan-Powered Royalties.’ Instead of pooling its money to distribute like Spotify, it divides each customer’s subscription among the artists that customer listened to—so artists benefit when listeners play their music. The idea is that artists with loyal fanbases are able to generate more revenue thanks to that loyalty. SoundCloud has arranged deals with Warner Music Group and Merlin, an independent label representative.