Sony Music Pulls Recordings From SoundCloud
Andreas Kalogiannides | May 6, 2015
The reason? Generally, a lack of monetization opportunities on the service.
This breakdown in negotiations reveals an intriguing tension between the ideas that SoundCloud is a “creator-driven” service versus its development into a major global streaming service and distribution platform competing with the likes of Spotify and Rdio.
A Simple Place for Great Music
SoundCloud’s accessibility and largely ad-free experience is a big draw to music creators, performers and users. The listening experience is currently free for listeners, although SoundCloud’s relatively new subscription service – On SoundCloud – targets music creators as a way for them to monetize their work through audio ads.
Until about midway to late 2014, SoundCloud made money mostly by charging creators for storage space and the ability to make recordings available for download. This monetization philosophy is aligned with its “raison d’être”: SoundCloud was initially conceived as place where creators can upload new remixes, or sounds. And this user-generated approach has distinguished SoundCloud from other services like Spotify, Songza, and YouTube, contributing to its phenomenal growth.
With Great Power Comes Great Responsibility
However, as it experienced exponential growth, currently maintaining 350 monthly listeners, but with only about 40 million registered users (heavyweights Pandora and Spotify have about 76 million and 40 million, respectively), SoundCloud has become a mainstream music distribution platform and a “go-to” place for consuming and discovering music.
And, of course, this is concerning for the labels and publishers whose works are hosted on SoundCloud. The service has developed largely without a set monetization model and has only recently began paying royalties. In late 2014, it signed a deal with Warner Music Group and Warner/Chappell publishing, and also entered into branded partnerships with 40 large companies, including Microsoft, Jaguar, Sonos and Red Bull (it has reportedly paid out $1 million in ad revenue in six months). Moreover, as of this writing, SoundCloud announced that it reached a Rights Agreement with the National Music Publishers’ Association – great news for SoundCloud because the NMPA sought to sue the service in 2014 due to its use of ads on pages with unlicensed compositions).
Sony Music was supposed to be the second of the three major labels to sign a licensing deal. But perhaps not so.
To Sue or not To Sue…
So it remains to be seen where SoundCloud goes from here. Remember: it’s largely unlicensed. But, it has yet to be sued out of existence a-la Grooveshark (well, that’s not a fair comparison, as Grooveshark egregiously violated copyright laws with little to no real monetization strategy). And, for the record, I doubt that the industry will take legal action against SoundCloud – it’s too vital of a partner given it’s beautiful UI and large following, and, more importantly, it’s not 2007 anymore – the labels are accepting of the digital reality. (Although SoundCloud makes a nice target reportedly worth a cool $1 billion, fresh from a recent 9 figure investment round).
Nevertheless, it is interesting, and somewhat contrary to character, that record labels and publishers have taken SoundCloud’s development in good stride. I posit several reasons for this. From a copyright law perspective, SoundCloud’s [relative] small size and limited resources has meant that it cannot effectively police all content on its servers, which, in turn, has made copyright owners rights less meaningful (i.e. there can be no right without a remedy). Consider the lengths to which YouTube had to go in order to quell the concerns of copyright owners). Also – and until surprisingly recently – SoundCloud has had a perceived innocence as a place where bedroom hip-hop and EDM producers uploaded their new mixes; it was never supposed to become a major distribution platform. But now that artists like Drake and Adele release music on SoundCloud and can get upwards of a million “likes” in a few days, the industry is now paying close attention to how their recordings are being used. Third, SoundCloud boasts a massive online following – because both independent and major artists use SoundCloud to share new music, this is where the fans go for new music. Understandably, labels and publishers now want in.