With 175 million monthly listeners, SoundCloud is the second biggest streaming music service in the world behind YouTube. Yet it hasn’t paid royalties to the creators and rightsholders of that music for their plays on its site and apps.
Artists and labels that have uploaded songs to SoundCloud have by and large accepted that they’re getting something else out of it: a way to build an audience of fans, and get data on how and where their tracks are being listened to.
But as SoundCloud has grown and raised more funding – its $60m round in January 2014 valued the company at $700m – the company has faced more pointed questions about when it plans to start paying royalties, including from major labels and publishers.
Today, SoundCloud is taking its first step along that road, albeit in a carefully-controlled way with a select group of invited partners in the US for its new “On SoundCloud” initiative.
Those creators will have advertising shown or played alongside their music (or other audio content), and will get “the majority” of the money paid to SoundCloud by that advertiser – it’s a share of revenues rather than a set per-stream payment.
Carefully-controlled? The ads will only be seen and heard in the US for now, on SoundCloud’s own website and mobile apps – not in tracks embedded elsewhere on the web and/or listened to elsewhere in the world.
“We see the program as something for all creators. We’re launching with a small set, but ultimately we want to get all creators, whether music or audio, big or small, all over the world to be able to make use of it,” SoundCloud chief executive Alexander Ljung told The Guardian.
“It’s almost the third chapter for SoundCloud. We started off building great tools for creators to be able to make use of the web, then our second chapter was making it much more accessible for listeners, so those creators could build a much larger audience. This third chapter is about allowing people to start monetising that audience.”
Ljung was keen to stress that the control that creators have under the new program, once they’re part of it: including the ability to turn on advertising for certain tracks, rather than having to have ads on everything they upload.
What will the ads be? A mixture of radio-style audio ads, display advertising on mobile, “native advertising” including promotion of SoundCloud tracks and profiles, and sponsorships and contests where brands work with individual creators. Launch advertisers will include Red Bull, Jaguar and Comedy Central.
“We wanted to avoid this being a bunch of unthought-through ads in your face. You won’t open the site up and see a bunch of banner ads plastered everywhere. It’s elegant,” said Ljung. “Our set of launch advertisers have done a really great job: the experience around the ads feels good.”
Note, introducing advertising will be followed in the nearish future by the introduction of a subscription option for SoundCloud listeners, who’ll be able to pay an (as yet undisclosed) monthly fee not to encounter the ads.
What hasn’t been announced today are any licensing deals with major labels, despite reports in July that Universal Music, Sony Music and Warner Music were all in talks with SoundCloud to take stakes of between 3% and 5% in the company and start getting royalties from streams of their catalogues.
Those talks, it seems, are still ongoing. “We are in a lot of other conversations with both big and small creators, and there will be a lot more that will join On SoundCloud over the next weeks and months,” was Ljung’s comment today.
The challenge for SoundCloud and its music industry partners alike is finding the right balance. On the one hand, there’s the positive and important step of musicians and songwriters getting paid for streams of their work.
On the other, the prospect of the major labels squeezing the company until its pips squeak by taking equity stakes, large “advance” payments and per-stream payouts on top that SoundCloud’s advertising income may not be able to keep pace with.
The latter prospect is clouded further by a growing debate about how (or even whether) advance payments to labels and any profits they make from their equity stakes when these digital services go public or get bought are passed on to artists and songwriters.
According to Ljung, SoundCloud wants to be paying all levels of the music industry, from individual artists uploading their own music through to the largest majors – two publishers, Sony/ATV and BMG, are already partners for On SoundCloud.
“I think this is a huge moment for the industry, and a huge opportunity for the industry to not just reach more people, but to monetise it and make that a core part of the overall business,” he said.
“We’re starting it today with a select group of partners, but it’s clear to everybody that the ambition is to get everyone on there. That would be a huge deal for the industry and for creators.”
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