The newest Leaked Soundcloud Contract Shows the music streaming giant has new plans, Ad-Free Subscriptions & Paying record labels.
Many DJs have used Soundcloud to host their remixes ,originals and mashups, with some DJ sets including copyrighted material. Abrupt take downs of this content have frustrated many of Soundcloud’s most loyal users, including the DJs who pay for the premium Soundcloud Pro subscriptions.
SoundCloud is desperately trying to go legal and pay royalties before labels pull their music from the streaming service. A contract for legal licensing with independent music publishers shows just how much that could cost the Berlin-based startup. Though this copy of the contract is unsigned, the National Music Publishers’ Association and Soundcloud last month announced they had struck a deal.
SoundCloud would pay 10.5 percent of its revenue including ads or about 22 percent of what it makes on sound recording rights — whichever is higher, according to the contract. The document proposes a deal for the aggregated independent labels, and implies similar deals could be reached with each of the three major record labels: Warner Brothers, Sony and Universal. A Most Favored Nation clause could keep compensation to the NMPA publishers equal to any deals with the majors once market share is taken into account.
The contract also lays out plans for two potential premium listening tiers to be launched in the future to complement its ad-supported free tier.
One tier, codenamed “Additional Services,” would let users pay for an audio and visual ad-free experience and download a limited amount of music, presumably similar to syncing options from services like Spotify. Labels could take $0.18 per Additional Services per user per month if it’s higher than the revenue or sound recording rights income for this tier.
However, this would still only offer access to a limited catalog of music. A “Soundcloud Full Catalog Subscription Service” would offer paid access to an even wider array of music. Labels could get $0.80 per user per month for this tier if it’s higher than the other compensation arrangements.
To seal the deal, Soundcloud would pay the group of independent music publishers a $350,000 advance on the compensation explained above, split between them based on market share of the independent music listened to on the service. Under the terms, Soundcloud would continue to offer a free ad-supported tier, and wouldn’t pay additional royalties beyond it on free trials designed to upsell users to premium subscriptions.
Soundcloud has a lot to do make good on its massive funding. It needs to get these deals in place and pay labels so they don’t pull their music. It must strike the right balance around monetizing remixes and DJ sets, content absent from Spotify and other competitors, so that the music that serves as the foundation of its unique value-add doesn’t disappear. And it needs to launch its ad-free subscription plan so it can squeeze more revenue out of its most loyal users.