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Soundcloud goes legit, signs licensing deal with Warner ahead of subscription service

Everybody has to grow up sometime, and for Germany-based streaming service Soundcloud, it appears that time is now. Broken first by the Wall Street Journal, Soundcloud announced today a new deal with Warner Music Group, marking its first licensing contract with one of the major music labels.

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Under the terms of the deal, the site will reportedly pay royalties to Warner for each song from Warner’s catalog that is streamed on the ad-supported version of the site, as well as working towards a deal for a piece of each song played on Soundcloud’s forthcoming music subscription site which will launch next year in the ilk of more traditional streaming sites like Spotify, Pandora, and Beats Music.

While Soundcloud is often primarily known as a platform for independent artists and content creators looking to show off their latest creations, it also hosts a deluge of copyrighted content loaded by users, including a high volume of regular licensed tracks, as well as DJ mashups of licensed music, most of which has been allowed to remain on the site by music labels up to this point.

Colloquially referred to as the YouTube of music, Soundcloud has thus far operated in that nether world between a legit service and an under-the radar startup as it gained steam, with an eventual aim of signing deals with each of the big three major labels, Sony, Universal, and Warner. After adding advertising over the summer, the Journal reports that a guaranteed launch of Soundcloud’s forthcoming subscription service clinched the deal with Warner. The site’s swelling user base of a reported 175 million monthly visitors probably didn’t hurt, either.

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Just how much Warner will take home from Soundcloud is unknown, though the Journal reports the company will take around a 3-5 percent stake in the company as part of the deal. Like even the most successful pioneers in the highly volatile streaming music landscape, Soundcloud has thus far had a hard time turning a profit. The company posted a $29.2 million loss in 2013, but it’s hoping to see a turnaround thanks to its ad and subscription-based models. According to a statement from Soundcloud to Venture Beat, the service also hopes to generate “additional revenue from user-generated mixes and mash-ups of WMG music.”

Warner is so far the only label to reach out to Soundcloud, according to the report, with Sony and Universal still waiting cautiously in the wings.