After months of negotiations with the major record labels (namely, Universal, Sony and Warner), Warner Music Group has finally signed a deal to license its music to SoundCloud Ltd., the companies said.
Warner is the first major record label to start earning money from SoundCloud, which will pay royalties to both Warner Music each time one of the songs they’ve opted to monetize is streamed on its free, ad-supported service, as well as for songs played on a new subscription service, according to a person familiar with the matter.
The record company’s decision to sign the deal had hinged upon the guaranteed launch of the paid subscription service, which will likely offer consumers different levels of access for different monthly prices. SoundCloud will continue to offer a free listening option as well, Mr. Ljung said. SoundCloud plans to launch the subscription service in the first half of next year, said SoundCloud Chief Executive Alexander Ljung.
Currently SoundCloud is free for listeners, about 175 million of whom visit the site each month. Internet radio company Pandora Media Inc., by comparison, has nearly 80 million active monthly users, while on-demand music service Spotify AB has 40 million, about 10 million of whom pay for $10-a-month subscriptions.
Artists who want to upload songs, mixes and mashups onto SoundCloud in significant volume do pay a monthly fee, as you may already be aware. As of now, record companies don’t earn money from the site, nor do artists, music publishers or songwriters.
Record labels have allowed much of their content to remain on the site, however, on the theory that the exposure might help drive sales or listening on other services that do pay. Most commonly, labels remove music that has been leaked prematurely, or at the request of a particular artist.
SoundCloud started advertising on the site this summer to bring in revenue that could pave the way for licensing deals. It is already sharing revenue with about 40 partners, from independent labels to individual artists, but Warner Music is the first major label to sign on.
As part of the deal, Warner will also take a stake in SoundCloud, according to people familiar with the matter. Earlier this summer, SoundCloud was negotiating with the major labels for a 3-5% stake in the company. Clearly, the labels want a piece of the pie and have been fighting hard to get a big enough slice. (Worth noting, Spotify gave major labels equity several years ago as part of a deal to get that service licensed in the U.S.)
What does this mean for me, a SoundCloud listener?
Keep your eyes on the news in the coming months. Although SoundCloud has promised that its free services will not be going away, we have to wonder if the user experience will change. Both Pandora and Spotify drive users to paid subscription models by annoying them with advertisements while they are streaming music. At present, SoundCloud doesn’t do anything like that. As members of the dance music community, searching for new music on a daily basis, the DMNW team is following the news about SoundCloud closely to find out what is in store for users. We will keep you posted as developments occur!
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