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SoundCloud reportedly readying label deals in quest to compete with YouTube

soundcloud-logo 200wBloomberg is citing unnamed sources in a report that SoundCloud is near to closing deals with record labels for their content to appear on the popular crowdsourced listening platform. If the report plays out as fact, Soundcloud will gain needed elbow room to compete with other music services, unhindered by legal distractions that have troubled SoundCloud recently.

When SoundCloud obtained $60-million of new funding in January, one of its investors (Institutional Venture Partners) claimed its aspiration for SoundCloud to become “the YouTube of audio.” At the time, RAIN noted that YouTube was already the YouTube of audio, but we got the point that SoundCloud offered a differentiating audio-only crowdsourcing platform.

SoundCloud’s audience of 250-million users is a fraction of YouTube’s billion-plus audience, but nonetheless an impressive accomplishment that compares directly with Pandora‘s 250-million registrations.

One important business-model difference between SoundCloud and YouTube has been SoundCloud’s lack of licensing agreements with major labels. Operating with out those licenses puts SoundCloud in the awkward position of relying on protection by the Digital Millennium Copyright Act (DMCA) — defining SoundCloud as a service provider that must respond to takedown notices from owners of uploaded content that infringes copyright. In plain language, that means that if a user uploads a hit song, the label or artist owner of the recording can petition SoundCloud to remove it.

Recently, Soundcloud endured some negative PR swirl when a report surfaced that Universal Music Group had been granted direct access to remove infringing tracks from SoundCloud. The report was disputed by some, but Soundcloud’s public statement did not exactly deny it: “As a responsible hosting platform, we work hard to ensure that everyone’s rights are respected. In the case of rights holders, that means having processes in place to ensure that any content posted without authorisation [sic] is removed quickly and efficiently.”

At best, dealing with takedowns is an operational hassle that can consume enormous resources as use of the platform scales upward. Acquiring performance licenses from labels would free SoundCloud to deploy broader content and potentially attract a wider audience.

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