SoundCloud is avoiding lawsuits by cutting record labels in

SoundCloud, the Berlin-based audio streaming site, is getting worried about copyright violations on its site. SoundCloud is like YouTube for audio; it allows anybody to upload any kind of audio. This naturally opens the door to people uploading copyrighted audio. Just as YouTube has had to do, SoundCloud now wants to work out agreements with copyright holders over what to do when this happens. A Bloomberg report today says SoundCloud, which has 250 million users per month, has been talking to Universal Music Group, Sony Music Entertainment, and Warner Music Group to get licenses so it can legitimately stream songs owned by the labels. Bloomberg says people close to the situation report that SoundCloud has offered the labels equity in the company in exchange for a promise that they won’t sue for copyright infringement. SoundCloud is offering each of the label groups a three to five percent stake, the people said.

The largest record labels are closing in on a deal for a stake in buzzy digital-music service SoundCloud Ltd., in exchange for an agreement not to sue the startup for copyright violations, according to people with knowledge of the plans. SoundCloud, a Berlin-based company with more than 250 million listeners a month, is negotiating withUniversal Music Group, Sony Music Entertainment and Warner Music Group for licenses to continue playing songs from the biggest labels and avoid potential legal disputes, said people familiar with the talks. In return, SoundCloud is discussing giving each record label a roughly 3 percent to 5 percent stake, along with a percentage of future revenue, said the people, who asked not to be identified because the talks are private. An agreement would value SoundCloud at $500 million to $600 million, two people familiar with the talks said. The company was valued at about $700 million in an investment round earlier this year, said one person, a discrepancy that could be attributed to the licensing deals being different than a traditional venture capital-like investment. The timing of an announcement with the labels is in flux because some of the music companies are closer to a deal with the startup than others, two people said. Representatives from SoundCloud, Universal Music, Sony Music and Warner Music declined to comment.

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