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PRS sues SoundCloud

By Chris Cooke | Published on Friday 28 August 2015

So, in what was threatening to be a quiet news week, PRS yesterday informed its members that it was suing SoundCloud. And so, boom, things got all kinds of interesting.

Like with YouTube, the music industry has had something of a love/hate relationship with SoundCloud for sometime, though unlike YouTube, until very recently SoundCloud was a no-royalty rather than low-royalty service.

And while most artists and labels like the SoundCloud interface, and want to reach the massive audience of music fans SoundCloud has amassed, as the years went by resentment grew that there was no way to monetise content on this platform, whether it was uploaded by creator or fan. And for years the digital start-up didn’t seem to have any ambitions in the content monetisation space; it was simply a digital distribution service for creators, which made its money charging content producers subscription fees.

But in more recent years, and especially the last eighteen months, SoundCloud has shifted its business plan somewhat and started to engage with rights owners about how they might monetise content on its platform, through both ads and subscriptions. This shift might have been in response to several years of pressure from the labels, though it seemed to be more a result of investors demanding that the company find new ways of making revenue beyond charging content producers fees for hosting and streaming their audio files.

Some labels, pissed off that their various attempts to discuss licensing deals had been ignored for several years, were initially resistant of SoundCloud’s new approach, especially as it became clear it was interested in a licensing model more akin to YouTube than Spotify.

But at the same time, those labels knew SoundCloud was a great marketing platform, a popular service with artists and fans, and had access to a massive community of music consumers. And if there was now an opportunity to monetise all of that, well, you’d be mad to turn that down. And so a deal with Warner Music was announced, and then with indie-label repping Merlin. Plus an agreement with Universal is seemingly imminent, though Sony Music is still holding out for a better offer.

But what about the bloody publishers? Well, SoundCloud has been speaking to those who control the song copyrights as well as recording copyright owners, and it reached a deal with the National Music Publishers’ Association in the US back in May, seemingly providing a template to cover the mechanical rights of the group’s indie members. But back in the UK it seems negotiations have not been going so well.

In its memo to members yesterday, PRS wrote: “After careful consideration, and following five years of unsuccessful negotiations, we now find ourselves in a situation where we have no alternative but to commence legal proceedings against the online music service SoundCloud. Launched in 2008, the service now has more than 175 million unique listeners per month. Unfortunately, the organisation continues to deny it needs a PRS For Music licence for its existing service available in the UK and Europe, meaning it is not remunerating our members when their music is streamed by the SoundCloud platform”.

It is important to note that the PRS memo doesn’t actually talk about the new SoundCloud business model – or sharing in ad revenue and licensing the new subscription service – but instead expresses frustration about the current SoundCloud business, and the fact the digital firm “continues to deny it needs a PRS For Music licence” at all. Which means that really this is a safe harbours case that – if it got to court – would test some important elements of copyright law, which SoundCloud would probably rather not be tested.

The safe harbours contained in US and European copyright law have come under increased scrutiny this year, and for a full primer on all that check out this CMU trends article, which we just made free-to-access for all. The safe harbours assure that internet service providers and server hosting companies are not liable for copyright infringement if and when their customers distribute or store copyright material without permission; they get the protection providing they have a system in place for removing infringing content from their networks when made aware of it by a rights owner.

But plenty of services beyond ISPs and server hosting firms utilise these safe harbours, with MegaUpload, Grooveshark, YouTube and SoundCloud amongst those claiming safe harbour protection. Which is how SoundCloud can say it didn’t need a licence from any label, publisher or collecting society up until this point. It never uploaded any of the content that appears on its platform, and it was always happy to remove any recordings containing PRS-controlled songs, if only PRS had asked.

As it does proper deals with the labels – safe harbours or no safe harbours – SoundCloud needs to woo the publishers, because no label wants to pump all its content into a streaming service and then see it all taken down at the request of whoever controls the publishing rights. And, of course, most labels are also publishers, so will usually insist digital service providers also license any songs they stream (even if the labels have, by this point, taken more than half the available money, meaning the songwriters and publishers will always see much less cash).

Now, SoundCloud has no problem wooing publishers for its new ad and subscription funded services – as it did in the US – but it seems that, with PRS at least, it is facing problems putting aside the issue of the service it is offering as of now, and has been for the past few years. “Where’s our royalties for all the songs you’re exploiting right now” the songwriters and publishers are saying, “and for the songs you exploited yesterday and three years ago?”

For it’s part, SoundCloud calls the newly announced legal action “regrettable”, insisting that talks are ongoing with PRS about its service moving forward, and that going legal in this way is counter-productive for everyone. Though for PRS there is a point of principle and precedent here, the society does not want to change its position that SoundCloud has required a songs licence from day one and has been infringing copyright ever since.

“It has been a difficult decision to begin legal action against SoundCloud but [it is] one we firmly believe is in the best, long-term interests of our membership” PRS said in its letter yesterday. “This is because it is important we establish the principle that a licence is required when services make available music to users”.

It will be fascinating to see what happens next. PRS says it provided SoundCloud with a list of 4500 songs it controls currently streaming on the platform, of which the digital firm has so far removed just 250. It could now takedown the rest, and any other PRS-controlled songs that it is made aware of.

Though – in the same way GEMA’s stand-off with YouTube in Germany has greatly restricted that platform’s position as a music service in the country – if SoundCloud were to start removing all PRS-repped songs it would have a massive impact on its ability to operate in the UK, just as it’s trying to get its all-new business model off the ground.

So it seems unlikely it will go that route, unless it feels doing so would annoy enough singer songwriters who use SoundCloud that they’d put pressure on their collecting society to backtrack. Though at the moment there seems to be enough support for PRS’s litigation in the songwriting and publishing community that that would be a dangerous tactic.

Presumably the digital firm hopes that it can still do a licensing deal with PRS for the future, and in doing so write off the past. PRS would also presumably prefer to not have to see this through to court. Though if it did, it would put safe harbours properly under the judicial spotlight, just as the music industry is busy trying to have those laws rewritten anyway.

So, as I say, things got all kinds of interesting.