Do These Current Music Industry Signs Point to SoundCloud Eventually Monetizing Their Streams?

Image via SoundCloud
Image via SoundCloud

Well, it was only just a matter of time. That’s all that can really be said regarding the latest announcement by Sony/ATV Chief Executive Martin Bandier that he might pull out of existing label agreements with ASCAP/BMI to better fight for higher streaming royalties. The digital revolution in music has certainly hurt independent artists (especially in our beloved EDM scene). However, when legendary singer/songwriters like Linda Perry only see a $349 check after her hit-making turn for Christina Aguilera single “Beautiful” is streamed 13 million times in three months, major labels (of which there are now only three remaining–Universal Music Group, Sony/ATV, and Warner Music) cry foul and have definite reason to seek alternate plans. In contemplating that those plans could revolve around SoundCloud, a key piece in understanding the future of the industry of music makes itself clear.

To truly understand just how mind-bending all of these announcements are, understand that this all loops back to Soundcloud being valued at $700 million in January. Of course, that valuation immediately made SoundCloud a hot commodity on the tech acquisition market. However, what negated Twitter’s initial interest in SoundCloud may have actually spurred the current interest in buying into SoundCloud by the three major labels, interest that would allow Bandier to act bullish towards Spotify’s paltry payouts.

According to the Wall Street Journal, one of Twitter’s main concerns with SoundCloud was that the service had a “lack of licensing agreements with music labels that permits them to stream copyright material.” Even further, the fact that “most of the tracks are from amateur musicians” was problematic, too, in the sense that there is a lack of quality control that could potentially lead to unlicensed remixes that would cause issue in Twitter’s desire to use SoundCloud integration as a way to increase Twitter usage. Of course, given that Twitter is now officially integrated with the Billboard charts, the idea that a label would possibly not be able to see the financial benefit stemming from an EDM DJ’s SoundCloud-uploaded bootleg of a top-40 track more than likely played a role (of many issues playing roles) in the deal dying before it ever truly lived.

One thing is clear, though. SoundCloud’s owners and stockholders are ready to sell. The company is valued at $700 million, which for a music start-up in the tech sector is quite the impressive return for time invested in marketing, branding and technology development. Whereas Twitter found an issue with SoundCloud’s lack of licensing agreements, major labels (now looking for any and every way to put a dent in what must now be truly depressing profit-loss statements) clearly see an opportunity–by buying into SoundCloud–to eliminate a potential loss leader, and even further, possibly monetize SoundCloud streaming to cut into Spotify and Pandora’s stranglehold on the streaming marketplace.

How would SoundCloud work in a future where labels are in control and get a higher cut of streaming? Well, if the labels own SoundCloud, then SoundCloud clearly isn’t getting the lion’s share of streaming revenue. SoundCloud is just the technology end, so they would likely get paid enough to manage the technology that aggregates streaming numbers for payments. As far as producers wanting to make remixes? Well, if using stems, instrumentals and acapellas that are not official, that would ultimately come to an end. The protections being implemented by SoundCloud now include its potential major label owners being able to pull illicitly created remixes at will. As an olive branch to producers, it’s entirely possible that for a nominal fee that the stems would be made available for “official” remixes. Of course, this is a situation that ultimately benefits the label prohibitively more than the producer–however, one must realize that this is clearly a situation where the labels are obviously looking to flex muscles, restructure their commercial model of operation, and remain financially solvent.

As the digital era democratizes the music industry, it’s impressive to note the unapologetically capitalistic desires of the musical mainstream in response. Of course, given that record labels as evolved and adapted over the past 85 years, the idea that they’d yet again evolve and adapt to last 85 more isn’t surprising. However, it’s the nature of a perfect storm that’s created a rising tide that only lifts three boats that’s stunning, possibly concerning, but overall just another sign of the times.