FACT:
The Performing Rights Society for Music has taken legal action against (SoundCloud).
In an email sent out to PRS members, the body explains that “after careful consideration, and following five years of unsuccessful negotiations, we now find ourselves in a situation where we have no alternative but to commence legal proceedings against SoundCloud.”
PRS is responsible for collecting publishing royalties for musicians, for radio plays, public performances and more. Its issue with SoundCloud stems from the fact that despite having over 175m unique listeners per month, SoundCloud “continues to deny it needs a PRS for Music licence for its existing service available in the UK and Europe, meaning it is not remunerating our members.”
Now here’s a thorny situation for SoundCloud to address, especially if other PROs (BMI and ASCAP especially) choose to follow in PRS’s lead. There are rumblings that indeed these US counterparts are also considering action. I’m thinking an amicable resolution is required as part of SoundCloud’s impending alliances with the three majors (see below) but, if not, is it a realistic possibility that litigation from the publishing royalty collectors could finally bring the site down, Grooveshark-style? Do the majors, with their shiny new percentage stakes in the company and cash advances, even care?
Let’s reminisce about the early days of SoundCloud, pre-2010. It was a godsend to producers and musicians, promising a social network where they could not only post and share their own material, but also create embeddable players for their own sites. I know I was excited and, like many, ponied up the $500+ a year fee for the convenience and potentially powerful new avenue for self-promotion. I believe this was the early intention of SoundCloud: a place for audio content creators to share and promote their own material, and royalty and rights weren’t a concern. The fact that we’re uploading our own material implies compliance, and how easily we can spread our SoundCloud players was an agreeable trade-off.
Of course, SoundCloud’s growth seems to have gotten in the way of that good thing we took for granted. Remember the numerous times the site was down five years ago? Running all those audio streams isn’t cheap, and I’m figuring the powers that be saw mainstream adoption as a way to solve revenue drought. The nearly $1000 a year ‘Pro’ accounts suddenly were reduced to about $99. SoundCloud was becoming less of an exclusive club, and it seems a lot more users – and not just ‘content creators’ – came on board. (Side note: I remember, a mere few years ago, telling a friend to check out my SoundCloud account for my new music. This friend – not a musician, but probably a bigger, more obsessed music fan than me – had no idea what SoundCloud was. Never heard of it. It was an interesting realization that SoundCloud was kind of this insular club house, and this was probably the root of its woes at the time.)
As SoundCloud’s earliest adopters were electronic musicians (who, more often than not, double as DJs), DJ mixes have always been a major part of the offerings on the site. Growth meant that DJ mixes were becoming more commonplace, especially as mixes were the sole offering of many accounts (it would be interesting to know how much DJ mixes make up the total percentage of site content). The issues with these mixes weren’t completely under the radar in the early days – I received a take-down notice for a DJ mix containing a Marvin Gaye track about four or five years ago – but there certainly seemed to be a permissiveness, or at least a fingers-in-ears “nah nah nah” approach to the problem. PRS, in the article above, claims to have been speaking with SoundCloud about this for five years … probably mainly about their represented tracks included in DJ mixes.
It’s far too late, but it would be great to see SoundCloud try to pivot back to their content creator-focused days. Perhaps they can have a two-tiered system – a paid option for musicians to post and embed their own work without the hassle of advertisements, and then one for the DJ mixes and whatever else is being posted outside of the uploader’s copyright authority. I can’t imagine this happening … now that the majors are stake holders I’m not sure that they would like to see SoundCloud re-focus back towards independent and unsigned artists.
But it’s not all bad news for SoundCloud … or is it?
Universal Music Group and SoundCloud are now ‘days away’ from finalizing a momentous agreement, with sources close to the negotiations pointing to a pact potentially by the end of this week. The deal follows a massively-protracted, multi-year and cantankerous tug-of-war over licensing costs and a range of other issues, with critical financiers and a stable of lawyers hovering on the sidelines.
According to key sources with knowledge of the negotiations, the deal with Universal contains a substantial percentage stake in SoundCloud, with a significant upfront payment likely but not confirmed. That bears similarity to ongoing major label licenses with mega-streamers like Spotify, and reflects an interest in capturing an elephantine payout around a ‘liquidation event’.
“The majors are getting more interested in making money around the acquisition or IPO,” one industry lawyer told Digital Music News. “That’s more important than the huge advance but a lot of times they’re getting both.”
Indeed, we may be looking at the beginning of an entirely different SoundCloud, one that would replace billions of unpaid streams with actual payments to rights owners. Great news for artists, right?
Not exactly. Fast-forward a few months, and a fully-licensed SoundCloud is likely to replicate the problems currently dragging rival Spotify, with artists seeing tiny micro-payments while labels hoard gigantic lump sum payments. That includes proceeds from a massive acquisition or Wall Street IPO, something the largest rights owners will now enjoy as part owners.
The entire Digital Music News article is worth reading, as it goes into great detail about these sorts of deals and the aggressive maneuvering of the major labels. As a music publisher myself, I certainly know and applaud the benefit of royalties accrued from DJ mixes – especially those reaching thousands of plays – but I’m not certain that the deals that are being made will deliver for songwriters, especially independent ones. These agreements aren’t being made with the artists in mind, as evidenced by the lack of distribution of the upfront cash payouts (at least the PRS grievance is legitimately in representation of affiliated songwriters). Instead, my concern is that SoundCloud will become crippled or useless as a ‘level playing field’ promotions platform, and we’ll look back wistfully at the site’s golden days as we receive yet another tiny ‘micro-payment’ for our trouble.
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