Warner signs deal with Soundcloud

As reported on the Wall Street Jounal today – Warner Music Group has signed a deal to license its music to SoundCloud Ltd., the companies said, making Warner the first major record label to start earning money from the German audio-sharing website. SoundCloud will pay royalties to both Warner Music and its publishing division, Warner/Chappell Music, each time one of the songs they’ve opted to monetize is streamed on its free, ad-supported service, as well as for songs played on a new subscription service, according to a person familiar with the matter.

SoundCloud plans to launch the subscription service in the first half of next year, said SoundCloud Chief Executive Alexander Ljung. The record company’s decision to sign the deal had hinged upon the guaranteed launch of the paid subscription service, which will likely offer consumers different levels of access for different monthly prices. SoundCloud will continue to offer a free listening option as well, Mr. Ljung said.

Currently SoundCloud is free for listeners, about 175 million of whom visit the site each month. Internet radio company Pandora Media Inc., by comparison, has nearly 80 million active monthly users, while on-demand music service Spotify AB has 40 million, about 10 million of whom pay for $10-a-month subscriptions.

Musicians and DJs who want to upload songs, mixes and mashups onto SoundCloud in significant volume pay a monthly fee. As of now, record companies don’t earn money from the site, nor do artists, music publishers or songwriters. Any such copyright holders can request to have their content removed from the site if users put it up without their permission. Record labels have allowed much of their content to remain on the site, however, on the theory that the exposure might help drive sales or listening on other services that do pay. Most commonly, labels remove music that has been leaked prematurely, or at the request of a particular artist.

SoundCloud started advertising on the site this summer to bring in revenue that could pave the way for licensing deals. It is already sharing revenue with about 40 partners, from independent labels to individual artists, but Warner Music is the first major label to sign on. The deal doesn’t require Warner Music, the smallest of the three global music companies, to license its entire catalog to SoundCloud. That is because SoundCloud users visit the site mostly to discover underground artists or hear fresh remixes of popular tunes, so the service doesn’t feel compelled to maintain the kind of 25-million-song library offered by unlimited-subscription streaming companies such as Spotify and Apple Inc. ’s Beats Music.

Warner, whose roster includes the Red Hot Chili Peppers, Bruno Mars and Led Zeppelin, will also earn royalties when bits of its songs are spliced into mashups, not just when its songs are streamed in their entirety. Warner is owned by billionaire Len Blavatnik ’s Access Industries Inc. As part of the deal, Warner will also take a stake in SoundCloud, according to people familiar with the matter, in line with the 3% to 5% slice that record labels had discussed taking earlier this summer. Spotify gave major labels equity several years ago as part of a deal to get that service licensed in the U.S.

Warner Music Chief Operating Officer Rob Wiesenthal said it was difficult to say how much revenue SoundCloud could ultimately generate for the label, but added that the site has a particularly “passionate following” compared with other digital music services.

Warner Music’s rivals have taken a cautious approach to dealing with SoundCloud. Interviewed at The Wall Street Journal’s WSJD Live technology conference, Lucian Grainge, chairman of Vivendi SA ’s Universal Music Group, said last week there is an “opportunity for SoundCloud to create incredible revenue.” But, he added, he would first need to hear “what the business plan is going to be.” He added that he doesn’t believe advertising alone generates sufficient revenue to adequately compensate music companies or their artists. He indicated that subscription services that charge users recurring fees are more acceptable. Neither Universal Music nor Sony Corp.’s Sony Music Entertainment have moved any closer to licensing deals with SoundCloud in recent weeks, according to people familiar with the matter.

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by Damion Pell

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