SoundCloud’s Deal with Warner Music and its possible consequences

SoundCloud, the Berlin-based music platform startup, announced its first deal with a major music label, Warner Music Group. While this sounds like good news to all, there is more to it. Find out more about the deal and what it will probably mean for artists on SoundCloud.


Inside SoundCloud's office in Berlin

Though accessing music online has become completely normal to us, it’s still an issue for artist, publishing houses, and music platforms.

This week a couple of interesting facts about consuming music hit (me and) us: A father of a 16 year old just reported to me that his kid begged him not to buy an iPhone for her, because she and her friends could not just send music to each other, since iTunes is not open for exchange. Interesting, I thought, thinking these times were over thanks to streaming platforms, YouTube, etc.

Next thing that hits the news is Taylor Swift pulling off all her albums from Spotify. According to a source talking to Business Insider, it is because Scott Borchetta, President and CEO of Taylor Swift's record label the Big Machine Label Group, asks for $200 million from Spotify.

Here comes the next big news in the music business: Warner Music Group has signed a deal with SoundCloud.

SoundCloud’s model – in short

SoundCloud differs in many ways to Spotify. First, it is made for those who create audio content, rather than for individuals who want to listen to large mainstream musicians. Second, the business model is different: While Spotify charges those who listen to music, SoundCloud offers uploading packages to those who make music/audio content. The options start at free, continue to a smaller amount, and in the end for a larger amount for unlimited uploads and promotional tools.

The Warner Music Group and SoundCloud Deal

The issue some DJs reported was that SoundCloud took their files down, because they mixed music they didn’t have the licence for. That can, at least for music coming from Warner, change now.

SoundCloud will pay a certain fee every time music from Warner is played. This deal will work on SoundCloud's ad-supported, creator partner program, "On SoundCloud", and its subscription streaming service that is due to launch in the first half of 2015.

This deal is no huge surprise to the industry. SoundCloud launched OnSoundCloud in August and teamed up with brands such as RedBull. Partnering with music labels to have ads run along with the music was the next step.

Warner Music Group also gets opportunities to use SoundCloud as a distribution channel. A statement says that new commercial and promotional possibilities are opening up for the Warner Music Group roster of established and emerging recording artists as well as to the songwriters signed to Warner Music Group’s music publishing arm Warner/Chappell Music. Warner Music Group and its artists will also have a greater ability to manage the availability of content and will get the chance to earn a piece of the cake when their music is used in other SoundCloud user’s remixes and mash-ups.

This solves two problems in one step: First, SoundCloud users will understand who denies access using their music, but also, e.g. mash-ups will not be deleted right away but stay online and pay the original artist. Details on the fees are disclosed.

WSJ refers to an insider that stated, Warner will take a 3% to 5% stake in SoundCloud. So far, this has not been commented by SoundCloud.

Artists stay the loser in these deals 

Warner Music Group is currently looking into new models and has just recently closed a deal with Shazaam and the radio station group Clear Channel Communications. Bobby Owsinski took a closer look at the second deal on Forbes and explained how these partnerships mostly benefit the labels, not anybody else. Also, he described the possible consequences for radio stations and what the term “exposed” means in the industry. (Quote: “Musicians learn early in their careers that whenever the term “exposure” is used, it essentially means “We’re getting you for free for dubious value in return.”)

Other labels and SoundCloud

With the Warner Music Group being the third largest player in the music industry, the question is what Universal and Sony are up to. With relying on people familiar with the deal, WSJ reports neither of the two music publishers have moved closer to licencing deals with SoundCloud.

After having posted a $29 million loss in 2013 on revenues of $14 million, it has yet to be seen if OnSoundCloud will get the startup into the right direction.

Voices in the industry say it’s too late for SoundCloud to make an exit. TechCrunch writes that  it has heard that the licensing problem was the reason the Twitter acquisition fell apart.

However, it is yet to be seen what the consequences will mean for SoundCloud and its artists and listeners in the long run. We have seen many startups beginning with a peer-to-peer model that later ended up being a “big players to peers” model, e.g. eBay.

The biggest fear is that with the big players coming in could take over the main advertising and maybe even editorial space. They are still the ones in power.

The hope is that the music industry sees the value it can earn with a fair agreement with SoundCloud - and that SoundCloud keeps its head up and knows its value.

You are a SoundCloud artist (or not) and have an opinion on this topic? Share it in the comment section below!

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Want to take a look into SoundCloud's office in Berlin? Check out the pictures.

Image: SoundCloud

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