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SoundCloud to pay thousands more indie artists

The "YouTube of audio" signs a deal with a group representing thousands of independent music labels to pay its artists whenever their tunes are uploaded or played.

SoundCloud, led by CEO Alex Ljung, has grown into one of the biggest sources for music online -- and one of the most complicated ones for rights holders. Stephen Shankland/CNET

SoundCloud, a popular site for free listening of user-uploaded audio, has signed a licensing deal to work directly with -- and pay -- thousands of independent music labels and artists through Merlin, a major rights agency for indies.

"The indie community has always been very close to our hearts," Alexander Ljung, SoundCloud's co-founder and chief executive, said Thursday in an interview. The addition of Merlin's more than 20,000 members means a huge number of artists will share in revenue and have access to promotional and analytics tools through a program called On SoundCloud, he said. "Many of those artists and labels had been on SoundCloud before, but this gives them a chance to monetize."

Online music companies like SoundCloud have been ramping up ways for artists to access either more data or more sales opportunities through their platforms. With streaming sales on the rise and digital downloads on the decline, the moves are important to how the music business will take shape in the coming years. They're also make-or-break for these young online music companies. As more people stream rather than buy, rights holders like labels are taking a harder line on compensation terms, complicating the future for services that are trying to figure out how to make money themselves.

Streaming services, meanwhile, also are trying to fight a perception that their payments to artists are rip-offs. SoundCloud has been a source of particular tension. It hosts significant music listening: 175 million people visit it every month. By comparison, Pandora has 80 million active listeners and Spotify, 60 million. But SoundCloud is a site where users upload audio -- much like YouTube's role for video -- which gave rise to a problem of unauthorized uploads on a platform that lacked a comprehensive system to pay back artists until the launch of On SoundCloud last August.

"This is a platform that was serving significant amounts of music that wasn't monetized," Charles Caldas, chief executive of Merlin, said in a separate interview. "For us, what was really important was getting interests aligned so we could give labels the opportunity to harness all that usage."

On SoundCloud was launched as a way to work more closely with music rights holders and artists. After rolling out with 20 partners, the program has more than 100 today, including one of the major labels: Warner Music Group. It has yet to strike deals with the other two major labels, Universal Music Group and Sony Music Entertainment.

Ljung said he wouldn't comment on potential negotiations. He also didn't provide figures for how much money SoundCloud has paid out to artists as On SoundCloud has grown. In March, the company said it had paid more than $1 million in advertising revenue to partners.

SoundCloud currently makes money off various formats of advertising and plans to launch a subscription tier as an additional revenue stream. When it sealed its licensing pact with Warner Music, it aimed to roll out subscriptions by July, but the timeline has since been pushed to later this year.