UMG has struck a new YouTube deal that includes ‘guardrails’ around AI… and 3 other things Sir Lucian Grainge said on UMG’s Q3 earnings call
FrankyNelly
We’ve already reported on a couple of big deals from Universal Music Group in the past 24 hours.
First came the company’s licensing deal and copyright lawsuit settlement with AI music generator Udio. Next up was a strategic alliance with Stability AI to develop “next-generation professional music creation tools.”
The major music company announced another significant agreement during its Q3 earnings call today (October 30): a new licensing deal with YouTube.
UMG Chairman & CEO Sir Lucian Grainge outlined several strategic developments during the call, including the AI partnerships that he says will create “new and significant sources of future revenue.”
He also revealed in his opening remarks that UMG has completed a comprehensive new deal with YouTube, marking the company’s third major “Streaming 2.0 agreement” following a deal with Spotify in January and with Amazon in late December 2024.
“I’m pleased to report that we have successfully concluded our third major Streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing,” Grainge told investors.
“The agreement includes all aspects of YouTube’s various music services and platforms, embodies our artist-centric principles and drives greater monetization for artists and songwriters.”
The YouTube partnership represents more than just another renewal. According to Grainge, UMG secured “really important guardrails and protection for our artists and writers around gen AI content” as part of the agreement.
“I’m pleased to report that we have successfully concluded our third major Streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing.”
Sir Lucian Grainge
Chief Digital Officer Michael Nash elaborated later in the call, that the deal addresses multiple aspects of YouTube’s platform: “We’re advancing important components of our core objectives here, taking into account these unique and multifaceted components of their platform and the foundational principles that we’re carrying across in all of our negotiations with our partners.
“As Lucian said, we secured key protections in the agreement on AI, which is a critical achievement in promoting interest of our artists on their platform.”
Nash also confirmed that improved monetization of short-form video – a key challenge for the industry – is “certainly an objective that we’re actively advancing across multiple deal renewal discussions, including this one.”
The execs’ comments arrived after UMG posted revenues of €3.021 billion ($3.53bn) across all of its divisions (including recorded music, publishing, and more) for Q3, up 10.2% YoY at constant currency.
Here are three other key takeaways from UMG’s latest quarterly earnings presentation…
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1. UMG sees AI as the next major revenue driver, comparing it to the streaming revolution
Grainge expressed confidence in AI’s potential to transform the music industry, drawing parallels to the streaming revolution that reshaped the business 15 years ago.
“I have exactly the same feeling about this progress that I did 15 to 16 years ago when we were looking at what was the transaction business and the really early fledgling what was perceived at the time of the disruption of the album into something called ad-funded streaming,” Grainge revealed.
“We are at the vanguard of a new era. And it’s one of the reasons why we’re positive, we’re confident, and why we continue to invest right across the board in all aspects of what we anticipate will be the growth.”
“We are at the vanguard of a new era.”
Sir Lucian Grainge
Beyond the Udio partnership, UMG announced a strategic alliance with Stability AI to “codevelop professional AI music creation tools for creators of video, images and now music.”
Nash explained the significance: “UMG joins that group of significant players in their categories as the leader in the music vertical, and that puts us in a position to directly engage in a very artist-centric way the conversation with our creative community around the evolution of these tools.”
Looking ahead, Grainge envisions “Agentic AI will dynamically employ complex reasoning and adaptation, has the power to revolutionize the manner in which fans interact with and discover music. Imagine interacting with your favorite music through a sophisticated, highly personalized chatbot.”
When asked about the timeline and financial impact, Nash said these partnerships “could constitute an important source of incremental additional new future revenue for artists and songwriters,” though specific financial projections weren’t provided given that product launches are scheduled for 2026.
As Grainge concluded: “This is happening. It’s on. And we’re on”.
2. Japanese artists are breaking through globally, with BABYMETAL making history
UMG is “shattering the misconception” that Japanese artists have limited opportunities outside their home market, with several breakthrough successes in 2025.
“I’m extremely proud to report that UMG is shattering that misconception in several ways,” Grainge said of Japan, the world’s second-largest recorded music market.
“BABYMETAL released its first album after signing with Capitol in the US in August. The album debuted No.9 on the Billboard 200, making them the first Japanese group ever, ever to reach the Top 10 in the U.S.”
Superstar Ado’s recent tour attracted 500,000 fans across 33 cities in Asia, Europe, the US and Latin America, which Grainge called “a historic first for a Japanese artist purely outside of Japan.”
Additionally, Fujii Kaze saw “enormous success with his third album, released in September by Republic Records and next year, he set to perform [internationally].”
“I’ve also believed that we can break more local talent from Japan around the world. I’m really thrilled to see this progress. It’s what sets us out and defines us as a creative company,” Grainge said.
3. Physical music sales surged 23% as superfans seek deeper connections with artists
Contrary to industry expectations about physical music’s decline, UMG’s physical revenues soared in Q3.
Within Universal’s recorded music business, Physical revenue grew23.1% YoY at constant currency to €341 million ($398.31m), driven, according to UMG, “by initial shipments of Taylor Swift’s The Life of a Showgirl and strength in new releases, particularly in Japan”.
CFO Matt Ellis challenged conventional wisdom about the format: “What our fans are showing us is when they have opportunities to engage in many different ways with our artists, they want to do that and they will spend money doing that.”
Chief Operating Officer Boyd Muir explained that this isn’t about traditional format transformation: “This business is morphing into how we connect the fan together with the artists through a physical product, the two most significant examples of that so far is the growth in vinyl and the collectible aspect of that.”
“Vinyl that is sold is sold to people who do not own record players. So this is about a collectible,” Muir noted.
He revealed that a “very significant part of this is now coming through” direct-to-fan channels.
He explained: “Around that new release of these album products, we are seeing somewhere in the region of two thirds to 75% of the total volume actually coming through our own managed stores in relation to this product.”
Grainge added: “It’s the fans telling us that the belief that we have in the superfan and how we’re able to provide products and services, both physically as well as what they look like digitally in the future. They’re telling us about behavior and about connection.”
