Warner Music Group recently inked a deal with SoundCloud to license its music to the free online streaming website, making Warner the first major record label to do so. Essentially the deal will allow Warner to receive royalties each time one of their artist’s songs is streamed on SoundCloud or a portion of their songs is sampled without clearance. Clearance comes from a record label approving a sample from one of their artists’ songs to be used in a different way.
A pivotal point for signing of the deal was that SoundCloud roll out a level-based subscription service to create additional revenue on top of their current advertising based model. This situation has been brewing for a number of years since SoundCloud has blown up and differentiated itself from other streaming sites like Spotify and Pandora. This raises a few questions to be answered concerning the ethicality of how SoundCloud is running their company. The first of these questions would be whether or not the record labels are stakeholders in SoundCloud? The fact is that all record labels, no matter their size are primary stakeholders in SoundClound. Their music is being posted and streamed for free. To put it in perspective, a record label is basically a distributor to SoundCloud, while SoundCloud is a channel of distribution. So why SoundCloud isn’t considered free advertising for record labels’ artists is unclear to me.
The music industry has been rapidly moving towards streaming as the primary channel that consumers listen to music. This has cut into record labels’ profits of selling songs and albums. The solution to this problem is not a clear one; moral uncertainty has been created by SoundCloud effectively changing the norms of how record companies generate their revenue. They have created a gray area for moral standards in the music industry by allowing listeners to stream free music on their phones and laptops. People recognize that they no longer have to purchase music to listen to it whenever they want, so is streaming morally correct? Music consumption is clearly moving towards the streaming market, making it clearer than ever just how behind the curve record labels have been. In my opinion, it is not SoundCloud’s concern that record companies are not able to keep up with the industry’s progression.
SoundCloud being forced to dumb down their product to a subscription service to fit record companies’ faulty business models is the true ethical breach in this situation. It is clear to me that record companies’ denial of innovation is the true breach of stakeholders, namely consumers of music. SoundCloud found a way to innovate an industry stuck in its old ways, and is now being tied down by technicalities of music ownership. If I was SoundCloud I would fight for not only the stakeholders in the music industry, but for my own well-being as a company. SoundCloud switching to a subscription service could sink their company and leave all stakeholders at a loss. In conclusion, this is not going to be an easy battle for SoundCloud to win, but it is a necessary battle to fight.
Karp, Hannah. “Warner, SoundCloud in Deal.” The Wall Street Journal 5 Nov. 2014, Corporate News sec.: B3. Print.