UMG Reportedly Capitalizes on Pandora Royalties With Significant Calculation Changes – Will the Other Majors Follow?

The Santa Monica headquarters of Universal Music Group, which has dramatically changed the way it handles Pandora royalties. Photo Credit: Coolcaesar

A new report is shedding light on the revenue effects of Universal Music’s revamped handling of Pandora royalties.Billboard just recently explored the impact of UMG’s Pandora royalties-payout pivot, which first entered the media spotlight last October. According to the corresponding report from Complete Music Update, Universal Music actually implemented the retooled system (without a formal announcement) back in 2022.

In brief, said retooled system refers to treating revenue from Pandora – which previously fought for classification as a non-interactive service but has for a while offered on-demand listening as well – like that attributable to Spotify, Apple Music, and others.

Pandora, given its non-interactive origins (meaning a digital platform where one cannot “interact” by selecting, skipping, or replaying a particular song) formerly forwarded all UMG recorded performance royalties to SoundExchange.

50 percent of the payments (made based on a compulsory license rate set by the Copyright Royalty Board) were then distributed by the entity to the relevant performers: 45 percent for featured acts, the remaining five percent for session musicians. The appropriate recorded rightsholders, or the major label in this instance, collected the other half.

But Pandora’s addition of on-demand streaming brought with it an embrace of direct rightsholder deals. And it’s these deals that laid the groundwork for a potential reclassification of Pandora revenue.As it stands, Warner Music Group and Sony Music Entertainment, notwithstanding their direct pacts with Pandora, are still forwarding the involved revenue to SoundExchange, according to Billboard. But Universal Music has dropped the practice in favor of paying the royalties to its acts under contractually negotiated terms for on-demand streaming.

Predictably, the deals in general feature far smaller revenue shares than the 50 percent provided by SoundExchange. Also affecting UMG artists’ payments are unrecouped balances on record agreements; SoundExchange compensation reached performers even if they hadn’t recouped on the underlying label tie-ups.

Now, with UMG handling the payments on its own, a number of professionals, instead of receiving the compensation, are seeing it applied to the outstanding balances at hand. Per Billboard’s estimate, Universal Music had “contributed $135 million to SoundExchange as part of its Pandora share for artists.”

Needless to say, the far-from-ideal situation isn’t hitting the pocketbooks of the label’s biggest stars, but rather less commercially prominent artists who may well have relied on the income source. Though it continues to struggle against the streaming sphere’s leading players, Pandora reported having 46.03 million monthly active users as of 2023’s end, including a little over six million paid users.

As mentioned, it’ll be worth monitoring the situation (which could have a material impact on SoundExchange itself), including whether the other Big Three labels employ an approach similar to that in place at UMG. SoundExchange, which is suing SiriusXM over allegedly owed payments, reported $1 billion worth of royalty distributions for 2023, up about 4.3 percent year over year.