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SoundCloud Wants To Be The Next Spotify. Will You Pay?

By inking a major deal with Universal Music, SoundCloud is clearing the path toward becoming a music subscription service.

[Photo: Flickr user Eric Golub]

Big changes are afoot for SoundCloud. The user-uploaded music streaming service just signed a major licensing deal with Universal Music Group, allowing it to legally stream songs from the mega-label's massive catalog.

This deal isn't just important because it involves big numbers and even bigger artists. It signifies what's next: SoundCloud is gearing up to become the next Spotify competitor.

For years, SoundCloud's quest to become a freemium music subscription service has been an open secret in the online music world. It's a strategic shift for SoundCloud, which initially embraced the so-called "YouTube for audio" model—allowing users and creators to upload new music, mixes, and podcasts in the hopes of becoming a comprehensive hub for all kinds of listening.

That's a noble goal, but a tricky business model: Free music doesn't generate nearly as much revenue as paid subscriptions, even if "free" is supported by advertisements (SoundCloud's advertising is minimal). To date, SoundCloud's business has banked primarily on the willingness of artists to pay more for added perks like longer upload times, deeper analytics, and promotional tools. But there are only so many artists in the world, let alone those willing to pay $7 (pro) or $15 (unlimited) per month. But there are 175 million active monthly listeners on SoundCloud. Why not hit some of them up for money?

The UMG deal also saves SoundCloud from the looming threat of copyright lawsuits, at least from Universal. Although with so many user-made remixes and "mix tapes" on SoundCloud, it's unclear exactly how this deal will affect that segment of SoundCloud's content trove. It's also not known if this clears UMG content for inclusion on the free version of SoundCloud, although as VentureBeat points out, "UMG will retain control over which of its artists are made available on the free version of the platform."

Unlike Spotify, Deezer, or Apple Music, which launched as on-demand subscription services, SoundCloud would be retrofitting its service for the premium subscription model, which is likely no easy task.

It remains to be seen exactly how a premium version of SoundCloud would look and function. But with so much usage—SoundCloud hit 4.9 billion monthly streams in the middle of 2015, nearly doubling year over year—it's hard to imagine the company messing with the experience of its free users too much, if they can help it.

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