Reporting on SoundCloud
In the years since the rise and subsequent fall of Napster, the distribution of recorded music has, for better or worse, become primarily about maximizing exposure. Many of today’s artists look to have their music on as many listening platforms as possible—a difficult task in and of itself given the seemingly constant stream of new music industry startups. Some come to these platforms looking to somehow make a living off their per-play pittance, but many view them as merely one piece of the puzzle; a tool for acquiring career-sustaining super-fans, for connecting them with the perfect producer or tour mate, and most often for helping them catch the attention of the label, publisher, or brand that they feel will allow them to build the career of their dreams.
In the seven years since its inception, SoundCloud has worked to build the ideal platform for maximizing exposure and connections for musicians, and, in doing so, has dramatically changed the music industry.
History
The company was founded in late 2006 by Alexander Ljung and Eric Wahlforss in their native Sweden, however it wasn’t until the duo moved to Berlin in 2007 that SoundCloud began in earnest. Both Ljung and Wahlforss had worked with audio all their lives, and felt frustrated by what they viewed as a lack of adequate tools for sharing sounds on the Internet. They looked at the success of photo sharing site Flickr and decided to build a platform that would create the same community around audio that Flickr created for photography—an idea that ultimately gave birth to SoundCloud. Prior to the official launch of SoundCloud, Ljung and Wahlforss gave free accounts to several prominent producers and DJs, most of whom created EDM, in the hopes that they would upload some of their tracks, and bring with them a large group of colleagues who shared the ideals that had led to the creation of SoundCloud. The move paid off, as SoundCloud grew rapidly, and today has a monthly listener base of roughly 175 million.1
During its meteoric rise, SoundCloud grew from a community of producers into one for all creators of music, from bedroom DJs and songwriters to some of the biggest producers and bands in the world, where they could share their music with colleagues and fans alike. Perhaps the most significant element in their development as a social network for music was their inclusion of a comments feature. This feature allows listeners to pinpoint a section of a track and provide praise or feedback for the artist. SoundCloud’s wealth of undiscovered talent has made it a significant tool for those on the business side of the industry, with A&R employees at record labels sometimes spending hours searching for potential new artists.
Legal Issues
SoundCloud, much like YouTube, is a platform made up of user-generated-content, and like other UGC sites it requires users to certify that they have obtained all rights necessary to upload their content. Many users, however, have not done so, and are uploading content that infringes on the copyrights of others. This is a particularly big problem for a platform like SoundCloud, which is known for its abundance of remixes and sample-heavy songs, many of which are unlicensed.
To add to the problem, in the beginning, SoundCloud took a fairly relaxed approach toward infringing material, resulting in quite a bit of criticism as well as threatened lawsuits. It is important to note that under the terms of the Digital Millennium Copyright Act, SoundCloud is not required to monitor user-generated-content for infringing material, but must respond quickly to takedown notices, and must terminate the accounts of repeat offenders. To save themselves from an onslaught of lawsuits that likely would have spelled their end, SoundCloud opted to become more compliant with DMCA requirements, and in 2011 introduced a content identification system similar to the one used by YouTube.
SoundCloud’s identification system, which was intended to be more accessible to independent artists than many of its counterparts, was a big step forward for infringement monitoring, but it has not been without its shortcomings. SoundCloud has faced a lot of criticism for the apparent lack of transparency in their trusted sender program with Universal Music Group. Trusted sender programs allow groups like Universal to issue takedowns directly and in bulk. While this system creates great efficiency, it is necessary that it be highly transparent to ensure accountability on all sides. This lack of transparency was revealed this past summer when a series of emails between a DJ named Mr. Brainz, whose SoundCloud account had been deactivated after multiple takedowns notices by Universal, and a SoundCloud representative was published. It is revealed in the exchange that the Universal takedown notices only stated that unlicensed Universal material had been used, but not exactly what the infringing material was. This left the DJ unable to fix the problem by either obtaining a license or replacing the infringing sample.2
While this is certainly unsettling, critics of the program have blown it a bit out of proportion. Some have claimed that SoundCloud is allowing Universal to issue takedowns indiscriminately, and while there may be some abuse on the part of Universal, it is unlikely that the issue is more than just a lack of communication between the label and SoundCloud users. Others have stated that SoundCloud’s enforcement policies go against their artist-centric image. However, it seems foolish to suggest that monitoring copyright infringement goes against the best interests of artists.
The Future of SoundCloud
As SoundCloud works to solve its legal issues, it faces an even harder challenge: how to make money. SoundCloud has traditionally been a free service, which has contributed in part to its massive growth. Users could upload a fairly large amount of content for free, and all listeners could enjoy the free content without any advertisements. The only reason this was at all possible was SoundCloud’s terms of use. Users, i.e. uploaders, agreed to forgo royalty payments. A relatively small number of high volume users did pay for unlimited uploads, and that, combined with investments from a variety of venture capital firms, including Union Square Ventures, allowed SoundCloud to cover operating expenses and stay afloat.3 Now, however, investors, along with the major labels, have become impatient. SoundCloud needs to strive for a payoff and that involves working with the labels. Warner Music Group recently made a deal with SoundCloud, accepting a 5% distribution from SoundCloud’s revenue and royalty payments for its artists.4
To accommodate the demand for profits and the new promise of royalty payments, SoundCloud has had to restructure their set-up considerably. For users, there will now be four tiers of subscription. The free tier, called a “Partner” account, gives access to 3 hours of uploads, basic metrics, and customer support. A“Pro” account costs $55 a year and gives the user 6 hours of uploads, access to listener demographics, comment free posting in “quiet mode”, and the ability to choose which tracks appear at the top of their page. The “Pro Unlimited” account, which costs $135 per year, provides the same features as “Pro”, but with unlimited upload time.
The hallmark of the new SoundCloud will be SoundCloud Premier, an entirely new level of membership that will function essentially as an artist development program. The invite-only program will give artists access to all of the features of the Pro Unlimited account, in addition to in depth metrics, a highly customizable “visual profile”, promotion of their tracks and profile, a share of SoundCloud’s revenue, and the ability to place advertisements on their content—a first for SoundCloud.5
This is a radical shift for a company that made its name on no cost, ad free music sharing, and is likely to turn it into a platform that more closely resembles other interactive streaming services like Spotify and Beats. In effect, SoundCloud’s user base will be segregated into those who get paid and those that have no opportunity for profit.
It could be argued, of course, that the company’s hands were tied. SoundCloud could not continue to hemorrhage money, and a sudden shift to a fully advertised set-up, which would have been necessary if they had wanted to pay royalties to all users, would almost certainly have resulted in a decreased user base.6 But it is unlikely that the turnaround will surprise SoundCloud’s founders and investors too much. For them, SoundCloud’s current predicament is probably part and parcel of the big money stakes that pioneering music companies eventually find themselves in.
By Griffin Davis
1. Sisario, Ben. “Popular and Free, SoundCloud Is Now Ready for Ads.” The New York Times. The New York Times, 20 Aug. 2014. Web. 24 Nov. 2014.
2. “Soundcloud Boldly Releases New App, Allows Universal to Flag Your Account, and Quietly Announces Data Mining, All in One Month.” Do Androids Dance? 27 June 2014. Web. 24 Nov. 2014.
3. “SoundCloud.” CrunchBase. Web. 24 Nov. 2014.
4. Sisario, Ben. “SoundCloud Signs Licensing Deal With Warner Music.” The New York Times. The New York Times, 4 Nov. 2014. Web. 23 Nov. 2014.
5. “On SoundCloud-Overview.” SoundCloud. Web. 24 Nov. 2014.
6. Resnikoff, Paul. “SoundCloud Is a Financial Sinkhole…” Digital Music News. 13 Oct. 2014. Web. 26 Nov. 2014.
