Ahead of YouTube Music launch, SoundCloud signs licensing deal with Warner

Updated at 1:10 p.m. PST with confirmation from SoundCloud that it has signed a licensing deal with Warner Music Group. Also added details about the deal itself.

Streaming music service SoundCloud has signed a new licensing deal with major music company Warner Music Group, the startup announced today. The move could give the startup a huge boost as it faces future competition.

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The licensing deal involves SoundCloud paying WMG any time one of its songs was played via its ad-supported streaming platform as well as when songs are played on SoundCloud’s forthcoming subscription service, according to the Wall Street Journal, who first reported the news. VentureBeat has also learned that WMG will also be taking a cut from advertising revenue generated from songs being played.

Here’s a statement from SoundCloud about the new agreement:

The landmark partnership will create new commercial and promotional possibilities for WMG’s roster of established and emerging recording artists as well as songwriters signed to WMG’s music publishing arm, Warner/Chappell Music. Further, the deal includes innovative licensing terms that will provide WMG and its artists greater ability to manage the availability of content, while providing a path towards delivering additional revenue from user-generated mixes and mash-ups of WMG music.

WSJ’s report also states that WMG will take a 3-5 percent stake in SoundCloud as part of the deal, which would be similar in scope to what Spotify has done in the past with major record labels. However, the startup did not disclose any financial terms of the deal in its official announcement.

Right now, SoundCloud has survived by being the place indie labels and unrepresented artists go to upload, sell, and share their music with fans. Thus far, the startup hasn’t had any support from the major labels, which would almost be necessary for its upcoming subscription service to be competitive with rivals.

But the largest reason this is a big deal for SoundCloud comes down to making itself more competitive with YouTube, which is also planning to launch a paid streaming music service in the near future. YouTube has licensing deals already in place with much of the music industry, stemming from prior deals its made for music videos.

And although SoundCloud recently rolled out an ad platform and raised new funding, it’s still in for quite a fight with YouTube.