Thursday, July 24, 2014

Major Labels Buying Into Soundcloud Sets It Up For Acquisition

Twitter - Soundcloud deal image
There are multiple well-founded rumors abounding that the three major record labels will soon purchase anywhere from 9 to 14 percent of the Soundcloud streaming music service. On the surface this might seem like a natural progression for both Soundcloud and the labels (who have done this sort of thing before), but there’s more here than meets the eye.

First of all, it’s nothing new for the major labels to invest in a distribution network that they have at their mercy. The majors received a piece of Spotify in the deal that allowed it to open shop in the US, and there are reports that they’re currently pushing for its sale at a price as high as $10 billion (good luck getting that price). Then you have the case of Universal Music, which had a 14 percent stake in Beats Music that resulted in a cool $400 million or so payout when it was acquired by Apple

These kinds of investments are potentially more profitable than the labels core business, at least in the short term. Streaming services need licenses from the labels to operate; the labels oblige in exchange for some cash and a piece of the action, then cash out when the service is sold to a bigger fish down the line. The best part (at least for the labels) is that most of that money heads to the label’s bottom line. The artists who’s music makes this opportunity possible in the first place do see some reward, but it’s pennies on the dollar compared to what their labels pocket.

So here we have Soundcloud, which has gone from a place where indie musicians can store their song mixes for easy fan playback, to a much larger entity currently filled with cover songs and copyrighted loops and samples. The problem is that the company has no license agreements with the majors in place for this content, and have drawn their wrath as a result. Read more on Forbes.

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