The saga of SoundCloud, and how streaming may become less and less free

SoundCloud occupies a unique but critical space in the online music sphere. It’s where Meek Mill dropped, then deleted, his Drake diss track; where EDM legend Aphex Twin moved the contents of his sounds landfill (then just as soon removed some of them); and where Chicago’s The Hood Internet stole the world mashup mantle from Girl Talk.

So perhaps it’s not surprising that such an unusual service seems to be going through some existential growing pains.

In May, Sony began issuing takedown notices to users who’d uploaded clips that contained songs by Hozier, Adele, Miguel, and others, citing what Billboard’s Andrew Hampp described as “a lack of monetization opportunities” on the platform. The record company continued to issue rights violation warnings for the next few weeks, hitting two different music magazines’ channels, as well as entire labels and radio stations.

The reaction among some of the most popular SoundCloud artists was strong.

Sony’s response was that SoundCloud is not paying artists enough—if at all—for streams. Right now, SoundCloud’s revenues come from ads (which were only introduced a year ago, seven years after the site was created) and premium subscriptions for music uploaders. While SoundCloud streams have been climbing according to this chart from NextBigSound…

…they are only reportedly paying out around $166,000 a month in royalties.

“I think that SoundCloud is fantastic because there are 100,000 creators uploading new music to [the platform] every night,” Patrick Moxey, the head of Sony EDM label Ultra Music, said at a May conference in Ibiza. “But what do they pay artists and writers right now? Little to nothing. Will they pay anybody anything in the near future? Not really.”

But while major labels (and artists!) continue to have problems with streaming services, they don’t actually seem to be interested in permanently killing them off. Just as Sony’s takedown wave appears to have crested, MusicBusinessWorldwide’s Tim Ingham reported Monday that SoundCloud is on the verge of signing a licensing deal with Universal Music Group:

SoundCloud’s investors are believed to have become spooked by Sony’s recent actions, and have been pushing for loss-making SoundCloud to reach agreements with major rights-holders before any more capital is made available.

An insider told MBW: ‘Universal had a couple of aggressive choices: they could either sue SoundCloud, which wasn’t off the table, or refuse to play ball with them and watch them slide out of existence as money ran low.

‘But Universal knows that a world with a SoundCloud that it can control is better than a world without SoundCloud full stop – especially if that leads to a hundred clones popping up online.

A source told Billboard’s Andrew Flanagan that talks with UMG are ongoing, but notes that Sony would have just as great an interest in keeping SoundCloud around:

It may appear that Universal likes SoundCloud and Sony doesn’t, but reductive conclusions like that rarely approach reality. Just because one label is being more aggressive doesn’t mean they don’t want SoundCloud to succeed. At this point, every label has a good reason to want SoundCloud to thrive; its technology is robust, its users love it and use it a lot, it has implemented copyright protocols and it is further down the road of figuring out monetization than similar platforms like Mixcloud.

As it turns out, SoundCloud has also signed major licensing agreements with Warner Music Group last fall and a large independent label group this spring.

But all these agreements hinge on one thing: The advent of a paid subscription model for listeners, like the ones Apple and to a lesser degree Spotify have introduced. The Wall Street Journal reported last month that such a plan is in the works but the details were still being worked out. A draft contract of what it could look like was leaked on Digital Music News (DMN) in June, showing details about how much labels and publishers would get paid. It did not state how much the service would cost users, but indicated they’d be able to download content from SoundCloud onto their computers, something you can now only do in extremely limited circumstances. A SoundCloud declined to comment on the DMN report.

The bottom line of the SoundCloud saga is that music on the internet is going to become less and less free. Digital Music News also reported, citing anonymous sources, that Spotify is considering making peace with artists like Taylor Swift and restricting its “freemium” model—where subscribers can enjoy an ad-supported version of their service—to just three months, a la Apple Music. Spotify declined to comment.

It’s clear music labels (though not necessarily the artists, many of whom remain bound by contracts, the contents of which they may have little knowledge of) are attempting to regain control of how music is distributed. The days of being able to listen to any music anywhere without ads or a subscription appear to be numbered.

Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.