UMG shares rally after new multi-year pact with Spotify

Investing.com — Universal Music Group (AS:UMG) and Spotify (NYSE:SPOT) have announced a new multi-year deal for recorded music and publishing, the companies announced in a Sunday statement.

The agreement includes a direct license between Spotify and UMG, spanning the US and several other countries, they said.

“Under the new agreements, UMG and Spotify will collaborate closely to advance the next era of streaming innovation,” the statement writes.

“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.”

UMG shares jumped 5% in European trading while Spotify’s US-listed shares fell 3% in premarket trading Monday.

Morgan Stanley (NYSE:MS) analysts said the early renewal of the UMG-Spotify partnership represents “a positive catalyst” for the world’s largest music label “and a broader affirmation of the music industry’s alignment to improve monetization throughout the value chain.”

“We see the early renewal of the deal, along with heavily-trailed prospects for super-premium tiers at digital streaming platforms (DSPs), as helping to underpin the average revenue per user (ARPU) element within UMG’s guidance for 8-10% subscription growth.”

Spotify’s CEO Daniel Ek said that the partnership would drive innovation, enhancing the appeal of music subscriptions to audiences worldwide.

Over the past year, the Swedish streaming giant has reduced its workforce, scaled back its podcast offerings, and cut marketing expenses as part of efforts to improve profitability.

Moreover, it has increased the prices of its US subscription plans to leverage strong demand for its premium services.

Earlier this month, UMG announced that Pershing Square, led by billionaire Bill Ackman, has requested a US secondary listing for the record label. In November, Ackman expressed plans to relocate both his investment firm and UMG, but his earlier request to delist from Euronext (EPA:ENX) Amsterdam was denied.

Pershing Square, which reduced its UMG stake to 7.48%, can request a US listing if it sells at least $500 million worth of shares. However, UMG argued this does not require delisting from Amsterdam or a US relocation.