SoundCloud is on the verge of confirming a landmark licensing deal with Universal Music Group, according to sources close to the digital platform speaking in confidence to MBW.
The agreement comes after months of intense negotiation talks between the two parties – and it appears that Universal has ended up in a position of strength.
This might help explain why SoundCloud went on a stringent takedown and suspension spree last week.
The service removed a spate of copyright-infringing users and mixes off its service, but some legitimate rights-holders such as indie label Lojinx and DJ Plastician were hit as collateral damage – and weren’t happy about it.
SoundCloud launched its On SoundCloud programme last year, which finally gave labels the opportunity to accrue advertising revenue from plays.
In March this year, SoundCloud announced that On SoundCloud was paying out around $166k per month to rights-holders.
In May, it hired former Facebook Ireland MD Sonia Flynn to help push up ad revenue.
“INITIALLY, UNIVERSAL’S DEMANDS WERE COMPLETELY UNACCEPTABLE TO SOUNDCLOUD. BUT THE POWER HAS SHIFTED SINCE THOSE DAYS.”
Since its launch, SoundCloud has struck deals with three major music rights-holding organisations.
In November last year, Warner Music Group agreed a licensing deal with On SoundCloud, which gives artists and labels three tools to act when copyright content is detected: they can either block the track, mute its audio, or choose to monetise it with ads.
Merlin, which represents 20,000 independent labels worldwide, signed a similarly-structured deal in June, a month after US publishing collective the NMPA signed a licensing agreement with SoundCloud.
All three of these deals have been signed on the basis that SoundCloud add launch a subscription tier to its offering in the coming months.
So far, though, Sony isn’t playing ball: the major label took down content from some of its biggest artists in May, which upset Sony-signed producer Madeon enough for him to tweet that the company was “holding its artists to ransom”.
So that leaves Universal.
Sources tell MBW that UMG has been demanding a significant equity stake in SoundCloud for any licensing deal to be inked, as well as guarantees regarding the forthcoming subscription tier.
Warner is understood to have taken 5% equity in SoundCloud as part of its deal, and UMG apparently wants more.
Meanwhile, SoundCloud’s investors are believed to have become spooked by Sony’s recent actions, and have been pushing for loss-making SoundCloud to reach agreements with major rights-holders before anymore capital is made available.
An insider told MBW: “Universal had a couple of aggressive choices: they could either sue SoundCloud, which wasn’t off the table, or refuse to play ball with them and watch them slide out of existence as money ran low.
“But Universal knows that a world with a SoundCloud that it can control is better than a world without SoundCloud full stop – especially if that leads to a hundred clones popping up online.
“Initially, UMG’s demands were completely unacceptable to SoundCloud, but the balance of power – of who needs who to prosper – appears to have shifted since those days.”
It will be interesting to see how those demands affect SoundCloud if/when it launches its subscription tier.
Universal boss Lucian Grainge has made clear his feelings clear on services which over-rely on “freemium on-demand” content without effectively pushing consumers towards paying a subscription.
He told Hits in a new interview last week: “While ad-supported on-demand music definitely has a place, whether that’s as part of discovery or trials of new products and offerings, freemium alone is inadequate to support our critical ecosystem of artists, labels and the platforms themselves.
“What that means is that we must seek the proper balance between ad-supported and paid subscription. It’s not one or the other.
“With the two approaches in proper relationship, we can continue the level of investment we make in artists who then, in turn, can be fairly compensated for their work.
“If we get that right, everyone wins. That’s what we’re working towards.“
Complete supposition, but if SoundCloud is forced to sculpt its free tier to Universal’s liking – and how aggressively it pushes users to a paid-for model – it may subsequently become a useful tool in UMG’s ongoing negotiations with Spotify…