SoundCloud Signs Up Universal Music, Subscription Service Comes Closer to Reality

SoundCloud has reached a multi-territory licensing deal with Universal Music Group and the Universal Music Publishing Group. The agreement will see UMG monetizing (via the company's On SoundCloud advertising program) and monitoring streams of its catalog on the audio platform, leaving Sony Music and Sony/ATV as the only major music companies not to strike a deal with the company. Commercial and financial terms of the deal were not disclosed.

The agreement comes just weeks after a settlement was reached between SoundCloud and U.K. collection society PRS for Music after the latter sued the company over royalty collections.

SoundCloud and UMG's contract comes ahead of a planned subscription tier on the platform, some details of which have begun to emerge. Stephen Bryan, Chief Content Officer for SoundCloud, tells Billboard that service will arrive this year, with a source saying it can be expected before the second quarter of the year. That source says the service will not mirror Spotify's "all-in" approach to free and paid tiers, allowing "windowing" and ad-backed streams in a variety of ways to rights holders.

The launch of that service would require reaching a truce with Sony Music, which has taken a somewhat aggressive approach to its negotiations with the company, pulling all of its songs off the platform last year. Asked whether the service, which has been in development for some time and was said to be launching in 2015, was ready to go barring a Sony contact, Bryan tells Billboard that "obviously," securing relationships with the content companies is a requirement for launch, and that they "have a very compelling offering to make."

“With this partnership, we’re ensuring recording artists, songwriters and labels benefit, both creatively and commercially, from the exciting new forms of music community engagement on SoundCloud," says UMG chairman and CEO Lucian Grainge in a statement. "We look forward to working with SoundCloud and supporting the company’s evolution into a successful commercial service.”

SoundCloud has rhizomatically evolved along with the streaming market, pivoting when necessary in an industry almost wholly dependent on top-down relationships with key stakeholders. The RIAA has shown it is more than willing to aggressively pursue those who don't play along; music start-up Aurous, which funneled music from myriad and unsanctioned sources, was sued within days of its launch last year before shutting down completely.

Expect a contraction of free streaming this year, rumblings of which began not long ago as Spotify was said to be considering a change in its all-in freemium policy. Digital music companies' free offerings will almost surely contract in an attempt to drive listeners towards paid subscriptions, which are far more valuable to rights holders than ad-supported plays. So, while 78 percent of recent survey respondents told Nielsen Music that it is 'very unlikely' they'd be willing to pay for a streaming service in the next six months -- 42 percent said they could just as easily stream their music for free -- they might have no choice soon.

At the heart of SoundCloud's value lies the derivative works -- remixes, sample-based music and mixes -- that drive a significant portion of its listening hours. Copyright identification and royalty remuneration on songs that contain, for example, multiple samples is an incredibly complex technological hurdle, but one the company is focused on solving and one that must be accommodated. Better to monetize creativity than drive it back into the shadows, after all.

"One of the core components of our relationship with the industry is a new push within the deals that will enable the monetization of user-generated content like remixes and mashups," says Bryan. "We've created a very unique ecosystem. Through these deals we have the right incentives in place."

Because of its legal requirements, SoundCloud has garnered criticism from creators and editorial outlets like Fact, which regularly posts mixes from producers and DJs and recently began posting those works to Mixcloud, a SoundCloud competitor. (Mixcloud provides scant details on its licensing agreements, saying only that it has signed 'various collecting societies around the world.)

But any company that realistically aims for longevity in the digital music space will at some point or another (sooner than later, as Aurous illustrated) have to sit down with labels and publishers, which SoundCloud has made a priority. The company is, by far, the furthest along in both that and two other related areas of business; monitoring of unlicensed copyrights and ad sales. "We've invested significantly in building out our ad sales team," says Bryan.

Bryan says the company's strategy can be summed up easily: to let its creator base "continue doing what they do."

this is great for producer but bummer for dJ/remixers. Trust When i say I've migrated to mixcloud.