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Music

What SoundCloud’s Deal with Warner Music Really Means for Its Future

Don't be surprised if Twitter comes knocking again.

Big things are happening in the world of SoundCloud. After months of tough negotiations, the audio-sharing service finally signed a deal with its first major label, Warner Music. Under this new deal, Warner will own a 3% to 5% stake in SoundCloud, and get paid royalties every time you play one of their songs, including remixes and mashups. However, the deal doesn't require Warner to share its entire catalog—which includes artists like Skrillex, Moby, Tiësto and Madonna.

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But aside from making a bunch of rich guys in suits very happy, what does this milestone really mean? How does this deal affect the future of everyone's favorite music streaming service? Here's what we think.

Tech giants will come knocking (again). 

Earlier this year, in May, Twitter stroked its chin and considered buying SoundCloud. On the surface, this seemed like a really good idea. After all, Google has YouTube, and Apple has iTunes. The acquisition would allow Twitter to gain more users, raise its stock prices, and finally break into the music industry. But in the end, Twitter got scared off by SoundCloud's lack of licensing agreements. Well, the Warner Music deal is giant step in the right direction, and we wouldn't be surprised if Twitter, or other tech giants, start flirting with the idea of buying SoundCloud again.

SoundCloud finally has a sustainable business plan.

The beauty of SoundCloud used to be that it was free, and didn't totally harsh your vibes with blabbering ads—unlike YouTube, Spotify, Pandora, or any other major music platform you can think of. Well, as they say, good things don't last forever. As we recently pointed out, SoundCloud started using pop-up audio ads to generate revenue for licensing deals like this one. But ad revenue isn't enough. The only reason why Warner got on board is because SoundCloud pinky promised that it will launch a subscription service in the first half of next year. The service will likely be a tiered system, with different levels of access for different monthly prices.

But this is not totally a bad thing! Advertising + a subscription service = a sustainable business model, which is something SoundCloud has been lacking since day one. This means it will be able to keep growing, while chipping away at the $29 million in losses it reported this year. (Yikes.) If we want SoundCloud to stick around, it's going to have to start making some dough.

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Annoying copyright notices will be a thing of the past.

Everyone and their moms looove SoundCloud, but the business side of the music industry has been slower on the uptake. The problem was that—until now—SoundCloud didn't license any of the tracks uploaded to its site. It just kind of let them… chill there, in a legal grey zone, until someone (most likely an artist) complained. Or one of their bots flagged copyrighted material during an auto-sweep. Then, you'd get a takedown request from the label, letting you know that unless you removed the track, your account could get terminated. The only way to get out of this mess was a wild goose chase that was usually more trouble than it was worth—just ask the popular mp3 blog ThisSongisSick.

Thanks to this deal, music owned by Warner is now properly licensed by SoundCloud, which will play royalties to the label every time one of their tracks is played. Warner's endorsement also paves the way for other labels big and small to do the same. In this case, getting on the bandwagon is a very good thing.

Michelle Lhooq is the Features Editor of THUMP - @MichelleLhooq