As free music streaming continues to grow in popularity, one of the bigger services has hit an important milestone in its bid to build a profitable business.
For SoundCloud, it marks another step away from potential lawsuits from labels over lost revenues, and also provides the startup with another major partner as it continues to work through the long process of developing features to monetise its fairly unique platform.
“We are really trying to create a plaform that embraces all kinds of creativity, something that never existed before,” Alexander Ljung, SoundCloud’s CEO and co-founder, said in an interview with TechCrunch. “There is no off-the-shelf solution for licensing for this. We had to work with the whole music industry to create something that never existed before, and that takes a little bit of time.”
For UMG, the deal gives the music giant — which owns labels like A&M Records, Blue Note Records, Capitol Records, Decca, Def Jam Recordings, Deutsche Grammophon, Island Records, Motown and Polydor and represents artists as diverse as Avicii, Bob Marley, the Beatles and Justin Bieber — the ability to collect royalties when its artists are played on the platform, and to use SoundCloud’s marketing tools for further promotion.
“At UMG, we have long embraced empowering entrepreneurs and innovative services such as SoundCloud,” said Lucian Grainge, Chairman and CEO of Universal Music Group, in a statement. “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. We look forward to working with SoundCloud and supporting the company’s evolution into a successful commercial service.”
It could help SoundCloud with something else too: a potential exit in the future. Back when there were rumors that Twitter was supposedly looking at SoundCloud, we’d heard from sources that one of the gating factors was the potential for legal problems around unlicensed content on the platform. Inking agreements with labels now could help the startup work around such issues were they ever to come up in another negotiation.
But there are still many rivers to cross
Universal’s agreement is SoundCloud’s third large label deal, in what has been a fairly slow-moving process.
SoundCloud, which was co-founded seven years ago by Ljung and Eric Wahlforss, inked its first partners deal in August 2014 when it launched On SoundCloud. It announced its first big label deal only in November 2014, with Warner Music. An agreement with Merlin — which represents some 20,000 independent labels — came in June 2015.
But still to come is a deal with Sony Music, the world’s largest music publisher. Sony has had a longstanding agreement with Spotify, and very recently Sony/ATV finalised a deal with another streaming service, the online radio Pandora, which recently acquired Rdio assets.
Beyond this, SoundCloud continues to work through a series of products for its platform that will eventually include paid subscriptions and advertising across the whole of its global footprint. To date, the company has rolled out ads in one market only, the U.S.
As for when the rest of these products will go live and what they might look like, the answer is somewhat vague: “Later this year,” said Alexander Ljung, co-founder and CEO of SoundCloud, in an interview with TechCrunch.
One big challenge for SoundCloud will be how the platform adds all of this without compromising itself. As is often the case for sites that are not initially built around monetization and gather strong and loyal followings, adding in revenue-generating features could come at the expense of the current user experience, which is indeed unique.
Like YouTube, SoundCloud puts a big emphasis on user-generated content. That could include budding musicians, other creators or full-on professionals uploading their music or other audio content, or special variations of it; or the audio content of others. Creators develop followings of people who use a very cool feature to annotate comments on music in line with the music itself (not unlike the aural equivalent of what Genius does for written word, or now is doing with Spotify with new service Fact Track).
Indeed, the fact that there may be others creeping in to offer some (or all) of the same features that have helped SoundCloud make its name could potentially pose a threat to the company still finding its business feet.
In the meantime, the company has been quietly working on financing itself to continue operating to stave off a business that otherwise tends to big losses. Earlier this week, it emerged that SoundCloud had raised some €32 million in debt financing, although Ljung confirmed today that this dates back to early 2015. Although the startup in December 2014 was reportedly looking to raise $150 million at a valuation of $1.2 billion, we haven’t heard any more about that effort since then.
Below is the full (and brief) conversation I had with Ljung earlier today in the wake of the UMG news, where I asked him for more details about the record deals, its future money-making services and how it’s funding itself. (Spoiler alert: he’s pretty reticent on the latter two.)
Why was there such a long gap — over a year — between the Warner and UMG deals?
Llung: I think if you look at SoundCloud generally it’s the first time someone has tried to do something of this scale. We have over 100 million tracks on the platform and play over 10 million artists in a given month. We are really trying to create a plaform that embraces all kinds of creativity, something that never existed before. There is no off-the-shelf solution for licensing for this. We had to work with the whole music industry to create something that never existed before, and that takes a little bit of time.
When can we expect a deal with Sony?
We have two of the three major record labels and all of the publishers, as well as all of the large indie bodies. Pretty much most of the music industry is already using SoundCloud and recognising the value of monetising content there. But we have no deal today with Sony and no timescale for when we will.
How about paid services on SoundCloud? I have heard this is something that the labels are interested in seeing come to light.
There are a couple of parts to the deal. Part one is that this covers both artists and publishing, the ability to monetise content they already have through advertising, in the U.S. now and through a paid subscription offering launching later this year, with both also coming to other territories.
The second piece is it builds a framework with the record industry for being able to drive revenues from user-generated content and remixes. What we’re doing is building up this ecosystem where you have a lot more creative freedom around remixes and UGC and sources of revenue for existing artists. So all together: advertising, subscriptions, original content and remixes.
We are going to launch subscription services later this year. No details to share on that yet other than I would think of it as an add-on rather than a change to the existing service.
What about fundraising, what about the $150 million you were reportedly raising in December 2014 or the debt round reported last week?
No comment on funding. That debt round was early 2015, but we don’t think that funding is really that interesting and that’s why we keep it private and why the debt news is old.
How about Twitter and acquisition rumors?
Again, no comment. We’re an independent company growing like crazy and building one of the biggest companies in music and we’re quite happy doing that.
And what about video? (SoundCloud is sometimes called the YouTube for audio, but could it ever add more YouTube style video content itself?)
No comment on video either right now, sorry. [ed: right now??]