Crucial negotiations with the world’s three biggest record companies, Universal, Sony, and Warner, have lost momentum, putting a grinding halt to SoundCloud’s efforts at a sustainable business model. The companies declined SoundCloud’s proposal to license their music and are waiting for offers of better terms, according to people close to the talks. In Universal’s case, discussions reached an impasse weeks ago and the two companies are no longer in active negotiations.
This is bad news for SoundCloud, which needs to obtain licensing agreements from music rights-holders to be able to make money from streaming the audio files in which they hold the copyright. Earlier this year, the company raised $60 million in a funding round that valued the company at about $700 million. In August, under pressure from both investors and record labels to start generating revenue, SoundCloud started to introduce advertising on the platform with a view to sharing the advertising revenues with rights-holders. But the major record labels are yet to sign up – contrary to reports this summer that they were close to doing so.
SoundCloud, with 175 million-plus visitors each month, has come to play an important role in the music industry, as a place where record labels can find new talent as well as promote their own artists. Universal, Sony, and Warner are keen to find a way to work with SoundCloud, viewing it as a potential source of revenue that is currently providing none (much to their annoyance!). Although SoundCloud attempts to police, there is still a large amount of unlicensed content available on the site that is in violation of copyright laws.
SoundCloud declined to comment on the negotiations.
Is SoundCloud’s aggressive style of negotiating with record labels going to put it ahead or in a corner without options?
Earlier this year, Twitter was in talks to acquire SoundCloud, but discussions were abandoned after internal disagreements at the US social network over the profitability of audio advertising and concerns over potential copyright lawsuits.
The talks come at a time of rapid growth in digital music streaming. Google, Apple and Amazon have all launched music streaming services in recent years, throwing them into competition with specialists such as Pandora and Spotify. Pandora makes some revenue from advertising, as does Spotify and other online streaming services. The streaming music industry is growing, but profits are not climbing fast enough for just about everyone. It remains to be seen whether streaming music will become a profitable industry.
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