Warner Music is first major label to sign licensing deal with SoundCloud

November 4, 2014, 11:09 PM UTC
Kiedis and bass player "Flea" of the rock band Red Hot Chilli Peppers perform at the Rock in Rio Music Festival in Rio de Janeiro
Anthony Kiedis (L) and bass player Michael "Flea" Balzary of the rock band Red Hot Chilli Peppers perform at the Rock in Rio Music Festival in Rio de Janeiro September 24, 2011. REUTERS/Sergio Moraes (BRAZIL - Tags: ENTERTAINMENT) FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS - RTR2RT0Q
Photograph by Sergio Moraes — Reuters

Warner Music Group became the first major record label to strike a licensing deal with SoundCloud, the German audio streaming website.

The alliance, announced Tuesday, is a major victory for SoundCloud, which is hoping to build up a catalogue of major artists to attract listeners to both its existing free service and a subscription service it plans for next year. Warner Music fits the bill with a big stable of stars like Bruno Mars, The Black Keys, Flo Rida and Red Hot Chili Peppers.

Warner’s music will be available through SoundCloud’s free ad-supported service and its planned paid streaming service, although the record label will not necessarily make its entire catalogue available. As part of the deal, Warner will reportedly take a small stake in SoundCloud of 3% to 5%, according to The Wall Street Journal, which cited anonymous sources.

Warner will receive a share of ad revenue when songs that the record label has made available stream on SoundCloud. Warner will also be paid when its songs are cut up and worked into remixed audio that users post to SoundCloud, the companies said.

Warner Music, which is owned by billionaire Len Blavatnik’s Access Industries, will also get a share of the revenue from SoundCloud’s new subscription streaming service, which plans launch in the first half of 2015. SoundCloud plans to compete in a category that is already filled with rivals like Spotify, Pandora, Rdio and Apple Beats.

The list is about to get longer with entry of Google’s YouTube, which has already signed licensing deals with the three major record labels, including Warner Music, as well as Vivendi’s (VIV) Universal Music Group and Sony’s (SNE) Sony Music Entertainment.

Alexander Ljung, SoundCloud’s founder and chief executive, said in a statement that he expects SoundCloud will help “generate significant revenue for Warner and its artists” through the partnership.

SoundCloud’s free, ad-supported streaming service attracts roughly 175 million unique listeners every month, according to the company. The ads started appearing over the summer, although the company also makes money from unrepresented musicians and DJs uploading their songs to the service in the hopes of gaining a following.

In addition to generating streaming revenue, Warner Music said it also expects to use the partnership with SoundCloud as a promotional tool for some of its up-and-coming artists. “SoundCloud is a platform built on music innovation and it has a rare ability to drive music discovery while enhancing the connection and collaboration between an artist and their following,” Rob Wiesenthal, Warner Music’s chief operating officer, said in a statement. “Our deal will foster that relationship, while providing a powerful range of income opportunities for WMG’s artists and songwriters.”

In the past year, Warner Music has partnered with radio company Clear Channel Communications and music identification service Shazam.