SoundCloud Licensing Deal Rumored With Record Labels

Music streaming service SoundCloud is rumored to be nearing an agreement with major record labels for a licensing deal that would avoid potential copyright infringement lawsuits.

According to a report on Thursday by Bloomberg, the popular Berlin, Germany, music streaming website is in negotiations with Sony Music Entertainment, Universal Music Group and Warner Music Group to obtain licenses for the labels’ songs to avoid legal issues with the labels.

In exchange, SoundCloud may give each label a 3 to 5 percent stake in the streaming service plus a portion of future revenue, according to unnamed sources who spoke to Bloomberg.

SoundCloud was recently valued at $700 million during its latest round of funding in January, which raised $60 million.

Bloomberg reported that such a deal with major record labels may reduce SoundCloud’s valuation by $100 million to $200 million.

According to Crunchbase, the German startup is backed by several venture capital firms, including but not limited to Institutional Venture Partners, The Chernin Group and Index Ventures.

SoundCloud has grown from a grassroots music streaming site established in 2007 to a behemoth that attracts more than 250 million listeners a month. The music streaming site has been particularly popular among independent musicians and electronic dance music (EDM) producers, such as Hardwell, and their millions of followers.

Unlike larger music streaming offerings from Apple Inc.’s (NASDAQ:AAPL) iTunes Music, Spotify and Pandora Media Inc. (NYSE:P), SoundCloud’s catalog is entirely dependent on what’s uploaded by its users. SoundCloud’s revenue has been mostly limited to subscriptions to pro accounts by artists who upload more than two hours of music to their accounts.

However, that may change with future advertising deals. SoundCloud isn’t alone in the struggle to find revenue in the streaming music market. Music streaming competitor Spotify announced in May that it had reached 10 million paid subscribers, but high royalty rates that the service pays raised doubts about its ability to continue its revenue growth.

Twitter Inc. (NYSE:TWTR) was rumored to be in talks with SoundCloud in May for a potential acquisition, but the deal never materialized.