Spotify has struck a deal with Universal Music Group to let subscribers create AI-generated covers and remixes of songs, marking the first time the audio-streaming giant will allow users to produce AI content using its platform.
Shares of the company rose around 16%.
The companies did not disclose the financial terms of the deal or which artists will participate in the new feature in their joint announcement on Thursday. Universal Music is home to artists including Taylor Swift, Ariana Grande, Drake and Billie Eilish.
The move puts Spotify in more direct competition with startups such as Udio and Suno that allow AI-powered music creation.
The new tool will create an additional source of income for artists and songwriters, on top of what they already earn on Spotify including through royalties, the companies said.
"What we're building is grounded in consent, credit and compensation for the artists and songwriters that take part," said Spotify Co-CEO Alex Norstrom.
Major record labels have been seeking new licensing arrangements to safeguard their vast catalogs as AI-generated music grows in popularity and consumers increasingly struggle to tell it apart from human-composed songs.
Last year, Udio signed deals with UMG and Warner Music Group to settle copyright cases, while Suno reached a settlement with WMG.
But the two AI music companies face class action lawsuits from more than 1,800 independent artists, who allege the startups' actions "were an attack" on the music community's "most vulnerable and valuable members."
Spotify has previously introduced several AI-powered music discovery features to boost user retention and engagement, including voice interaction for its personalized music tool AI DJ and the option to generate playlists using natural-language prompts.
