SoundCloud nearing deals with record labels

SoundCloud is offering a three per cent to five per cent stake to companies as well as a percentage of future revenue.

Online music sharing service SoundCloud Ltd, a Berlin-based company with more than 250 million listeners a month, is close to a deal with the largest record labels Universal Music Group, Sony Music Entertainment, and Warner Music Group for licences to continue playing their songs and avoid potential legal disputes, Bloomberg reported citing people with knowledge of the matter.

The labels have maintained a good relationship with SoundCloud and plan on getting the deals completed, revealed two representatives of the industry. Record labels have used SoundCloud as a marketing tool to get new music to a wider audience. SoundCloud’s rapidly exapnding user base is a key reason labels haven’t attempted to shut the service down, even though the startup doesn’t have the licensing deals required to play the tracks.

SoundCloud is in return negotiating offering a three per cent to five per cent stake to the companies as well as a percentage of future revenue, reported Reuters.

SoundCloud is a platform that enables people to upload, record, promote, and share their music and other audio files.

If the deal goes through, SoundCloud would be valued between $500 million and $600 million, Bloomberg reported.

The service will pay the record labels based on how many times a song is played until the company’s revenue crosses a certain threshold, the report said.

SoundCloud, backed by Silicon Valley venture capital firms including Institutional Venture Partners and Kleiner Perkins Caufield & Byers, has been likened to Google Inc. (GOOG)’s YouTube for audio. The startup provides a way for people to quickly upload music, podcasts or other recordings online and then post that material on other websites. Twitter Inc was also in talks to acquire the Berlin-based startup earlier this year as it sought to add a music service to its offerings.

Swapping licensing agreements is proving to be a lucrative business for music companies that haven’t been too pleased with a drop in album sales over the past decade. With new companies such as Spotify emerging and people resorting to downloading music online, the record labels have been using copyrights and threatening with legal action to gain pieces of the young businesses.

The world’s biggest label, Universal Music, had a 14 per cent stake in Beats Electronics LLC before Apple offered to buy Beats for $3 billion, earlier this year. Jimmy Lovine, the top Universal executive who co-founded Beats, is now working for Apple. Universal also controls a five per cent stake in Spotify, and a 47 per cent piece of music-video service Vevo LLC.

Warner Music also held stakes in Spotify and Beats, including investments made by owner Len Blavatnik, said a person familiar with the company. Several of the labels also owned a piece of YouTube before it was purchased by Google in 2006.

SoundCloud and Sony Music, a unit of Sony Corp, could not immediately be reached for comment outside regular US business hours. Warner Music, a subsidiary of privately held American conglomerate Access Industries and Universal Music, the music entertainment arm of Vivendi SA, could also not be reached for comments.

Published in The Express Tribune, July 14^th, 2014.

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