Now that SoundCloud has agreed in principle to a licensing deal with Universal Music Group (UMG), the company appears to be on the road to take on Spotify, Pandora, Apple Music, Tidal and other streaming subscription services in the fierce war for music streaming dominance. Can SoundCloud really compete?
Last year, SoundCloud, the Berlin-based music streaming service essentially became a victim of its own success. Previously under the radar, the streamer hit it big, doubling the number of year-on-year streams accessed by listeners in 2015. The big three major music labels took notice and applied serious pressure on SoundCloud to ink licensing deals or face their legal wrath.
The first of the big three to come on board was Warner Music Group (WMG), way back in November 2014. Those negotiations were facilitated by the fact that one of SoundCloud's chief executives was a former WMG bigwig, and the two sides quickly struck a deal that included a 5 percent equity stake for the label.
Talks with UMD and Sony didn't go as smoothly, however, and last year the latter began actively removing its content from the service, including songs that were uploaded by Sony artists themselves. Meanwhile, UMG applied extra pressure on SoundCloud toward the end of 2015, threatening legal action if a deal wasn't done.
Now UMG is finally in the fold, reportedly complete with an equity stake. With all the major publishers and big indies on board as well, Sony remains the lone holdout. Alexander Ljung, SoundCloud co-founder and CEO, says "we have no deal today with Sony and no timescale for when we will."
Assuming a deal is eventually reached, the question is still "What's next for SoundCloud?" The company has experienced exponential user growth, but the same can't be said for its financial position, as it continues to bleed money.
The plan is to launch a subscription service and to introduce advertising to the platform. But will SoundCloud's users accept the commercialization of a service that built its reputation by functioning as an artist-friendly underground music community?
The company has already alienated many of its core users through its 2015 purging of content for licensing reasons. The move, however, seemingly overreached into recordings that were fully owned by the posters themselves.
Some of those users have already turned to alternatives like Mixcloud, and once the big three labels start making changes, it appears that the underground electronic dance music (EDM) community - who arguably put SoundCloud on the map - may abandon ship and move en masse to a less commercial, and probably less legally sound alternative.
Will listeners be willing to pay for a service they have grown accustomed to receiving for free? While subscription services receive a lot of media attention, the reality is that paid music streaming only accounts for a mere 6 percent of all current music listening.
SoundCloud listeners are an especially tech savvy and active listening group. It appears that SoundCloud has a huge challenge on its hands, balancing the interests of various corporate entities without alienating its current user base, whose fickleness has left former Web giants like Napster and MySpace in the dust for the next big - or free - thing.