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SoundCloud goes legit, licensing music from major label Warner

The "YouTube for audio" signs its first deal with one of the three major record labels, which will give it access to songs for a subscription-streaming service to launch in 2015.

SoundCloud's deal with Warner starts it on a path to sharing revenue with artists' from advertising, like this 30-second audio ad. SoundCloud

SoundCloud, known for its free-wheeling user uploads of music that often irked the traditional music industry, just got a major label to take it by the hand.

The Berlin-based music and audio-sharing company, often referred to as the "YouTube for audio," unveiled a deal with Warner Music Group on Tuesday. It sets up a licensing framework for music from Warner artists and songwriters to be part of a subscription service SoundCoud plans to launch next year, and it will include Warner content in SoundCloud's emerging system for putting ads with music and sharing the revenue generated from the commercials.

It's SoundCloud's first deal with one of the three major music labels and marks a milestone not only for the burgeoning platform but also the traditional industry's relationship with the digital-music upstart. For SoundCloud, it's a step toward coming of age, showing it can do more than stoke frenzied consumer usage -- it can also work with established players toward making money. For the traditional music industry, Warner's partnership is a recognition that SoundCloud has grown too big as a listening platform -- and marketing tool -- to ignore.

SoundCloud founder and CEO Alexander Ljung said the company expects "to generate significant revenue for Warner and its artists in the months and years ahead," as it rolls out an ad-supported offering and subscription service.

Jonathan Dworkin, WMG's executive vice president of digital strategy and business development, called SoundCloud a "distinctly artist-driven service, with a highly engaged global fan community" and said it will allow the platform to improve its user base and its ability to make money. "It's a win for artists, for rights-holders and for consumers," said Dworkin.

As WMG's head of digital strategy, Dworkin succeeded Stephen Bryan, who left WMG earlier this year to join SoundCloud as senior vice president.

The deal puts SoundCloud on a path to share revenue with Warner artists and songwriters, not only from the listening of artists' own tracks but also from user-generated mixes and mash-ups of Warner content. SoundCloud wouldn't comment on the terms of deal, nor provide any timing details for when these payments will start.

In addition, the licensing part of the deal doesn't mean all of Warner Music's catalog will be included on the coming SoundCloud subscription service -- Warner can select the tracks it wants to make available.

SoundCloud, which lets anyone upload and listen to audio files, has 175 million unique listeners a month and hit its 250 millionth user milestone late last year. By comparison, US-based Pandora -- the Internet's biggest online radio service -- had 76.5 million active listeners at the end of September and also has more than 250 million registered users.

In August, SoundCloud introduced "occasional ads" as a way to drum up revenue, and launched a program called Premier that allows paying uploaders to make money from the tracks they share. Until then, 7-year-old SoundCloud was largely based on a"freemium" model, which had a free tier letting anyone upload and listen to audio files on the site, while a small set of uploaders paid for a higher level of service with added features and benefits, which brought in cash. Last year, the company started experimenting with advertising by introducing "native ads," which essentially stuck a visual commercial next to SoundCloud's audio player.