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SoundCloud Confirms Licensing Deal With Warner Music Group

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SoundCloud, the user-created audio streaming platform currently used by 175 million unique listeners each month, confirmed today that it has inked its first licensing deal with one of the major record labels: the Warner Music Group — whose roster includes David Guetta, The Flaming Lips and Sheryl Crow — will partner with the streaming company around its ad-supported, creator partner program, “On SoundCloud” that was launched in August, as well as a paid subscription streaming service that will launch in the first half of 2015.
“We’re thrilled that Warner Music Group will be the first major label to join our new creator partner program,” said Alexander Ljung, SoundCloud’s founder & CEO, in a statement. “We expect to generate significant revenue for Warner and its artists in the months and years ahead as we roll out an ad-supported offering and subscription service that delivers real value to the industry.”
Terms of the deal are not being disclosed, nor whether there are any investments being made as part of the deal. Last month we revealed that SoundCloud was burning through its cash reserves, having lost $29 million in 2013 on revenues of $14 million and a potential need to raise more money. WMG, meanwhile, is not a stranger to taking strategic stakes in streaming services: its owner, Access Industries, is a shareholder in Deezer, having led the company’s $130 million round last year.
The Wall Street Journal earlier today reported that talks were nearing a conclusion between WMG and SoundCloud.
Prior to this, SoundCloud’s negotiations with the major music labels had stalled. Reports from the FT and others noted that Sony, WMG and Universal been in a deadlock with the startup over licensing terms, without specifying what the problems were on either side. Some had suggested, and we had heard, that the licensing issue — and the potential problems for SoundCloud if it wasn’t resolved — was even part of the reason why acquisition talks fell apart between Twitter and the music streaming company.
SoundCloud is not commenting but we understand that negotiations are still proceeding with Sony and Universal, the other two major labels that have yet to reach licensing terms with the Berlin-based startup. SoundCloud says that today there are 40 smaller labels, publishers, emerging artists and audio creators working on its On SoundCloud product.
As for what will be included in the “landmark partnership”, there are no specific details but a generic description of “new commercial and promotional possibilities for WMG’s roster of established and emerging recording artists as well as songwriters signed to WMG’s music publishing arm, Warner/Chappell Music.” It will also mean that WMG and artists it represents will have more control over how their content is posted on the platform, both as direct tracks and user-generated mixes.

The deal is a signal of both how traditional labels are willing to play ball with the new guard of digital music companies if the terms are right. WMG has also signed licensing partnerships with others including Shazam and Clear Channel.

“This leading-edge partnership reflects WMG’s commitment to establishing new and alternative business models that recognize the value of music for our artists,” said Rob Wiesenthal, Chief Operating Officer/Corporate, WMG in a statement. “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. Our deal will foster that relationship, while providing a powerful range of income opportunities for WMG’s artists and songwriters.”

What’s also interesting is that this also represents a new chapter for SoundCloud. Just as YouTube — built on the back of scrappy user-generated content — became a major platform for the distribution of “professional” content, so too is SoundCloud entering a more polished and less grass-roots phase of its life.

“SoundCloud is a distinctly artist-driven service, with a highly engaged global fan community at its heart,” Jonathan Dworkin, EVP, Digital Strategy & Business Development, WMG said in statement. “This deal will enable SoundCloud to further develop its product as well as its massive user base, and will deliver multi-tiered monetization while preserving the elements that have made the service so popular. It’s a win for artists, for rights-holders and for consumers.”

It will be interesting to see whether deals like these change the bigger character of the service as a result.

The Warner Music Group includes Asylum, Atlantic, Big Beat, East West, Elektra, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros., Warner Classics, Warner Music Nashville, and Word, as well as publishers Warner/Chappell Music.