SoundCloud Signs Licensing Deal With Warner Music

SoundCloud, a streaming music service that attracts 175 million users each month, has moved one step closer to being legit in the eyes of the music industry. After months of talks, SoundCloud — which makes millions of songs available free, but until recently has never paid royalties — has signed a licensing deal with the Warner Music Group, one of the three major global music companies, the two companies announced on Tuesday. Warner’s thousands of acts include stars like Bruno Mars, Led Zeppelin and Kylie Minogue.
It is the first such deal that SoundCloud has struck with a major label, and will guarantee that Warner artists will get paid when their music is played on SoundCloud, even in the D.J. mixes and mash-ups that have made SoundCloud a vital outlet in the fast-moving genres of dance and hip-hop.

The deal covers artists signed to Warner’s record labels, like Atlantic and Warner Brothers, along with the songwriters represented by its music publishing arm, Warner/Chappell.

According to the announcement, SoundCloud will add a paid subscription tier in the first half of next year. Warner will also pay for an equity stake of 3 to 5 percent of the company, and will also indemnify SoundCloud against past copyright infringement, according to a person briefed on the deal who spoke on condition of anonymity.

“SoundCloud is a platform built on music innovation and it has a rare ability to drive music discovery while enhancing the connection and collaboration between an artist and their following,” Robert Wiesenthal, the Warner Music Group’s chief operating officer, said in a statement. “Our deal will foster that relationship, while providing a powerful range of income opportunities for WMG’s artists and songwriters.”

For the music industry, SoundCloud has been both a valuable marketing tool and a financial nuisance. Praised for its sleek design and its ability to easily share music on social media, it has become enormously popular with musicians, who often use it to reward fans with brand-new and exclusive material.

At the same time, SoundCloud has annoyed music executives because it competed with outlets like Spotify and YouTube but, unlike those outlets, paid no royalties. Last year SoundCloud, which is based in Berlin, lost $29 million on revenues of just $14 million, mostly drawn from the hosting fees it charges record companies and others that post large numbers of songs.

Under pressure from the music industry to generate more money, SoundCloud in August introduced a plan to add advertising to some songs, a plan that requires licensing deals from music companies. SoundCloud signed a few dozen deals with mostly smaller record companies, but the negotiations with the biggest labels — which each have demanded equity stakes— have been slow going.

Sony and Universal, the other two majors, are said to be far from signing their deals. Last week, Lucian Grainge, Universal’s chairman, said at the WSJD Live Global Technology Conference that before making any licensing agreement he needed to discuss with SoundCloud “what the business plan is going to be.” The Wall Street Journal reported on Tuesday that Warner and SoundCloud were nearing a deal.

Compared with the all-encompassing licensing deals that labels sign with Spotify, iTunes and other outlets, the agreement that Warner signed with SoundCloud is unusual in that it does not cover everything in the label’s catalog. Instead, it gives Warner and its artists latitude to choose what tracks will be made available on the service at any given time.

Alex Ljung, SoundCloud’s chief executive and one of the company’s founders, said in an interview that while Warner’s participation was welcome, the service had already opened to independent creators in August, who were already receiving “decent-size checks,” he said.

“It’s not just about the major labels,” Mr. Ljung added. “It’s about other kinds of creators too, and for them it’s already functioning, and doing super well.”

Source: The NY Times