SoundCloud has been on a bit of a winning streak of late, announcing a slew of partnerships and integrations with Instagram, Serato and Dubset, while also expanding its monetization program with Premier. However, its monetization program is now coming under more scrutiny after The Verge got their hands on it and a few big points don’t appear to be great for creators.
Most of the 17 page contract appears to be boilerplate legal speak for a contract of this nature, but there are a few important notes that creators should take note before considering signing. As The Verge notes, the contract is not downloadable or easily shareable, which makes it hard to send to a lawyer, though the second page encourages just that.
One main sticking point is how SoundCloud seeks to indemnify themselves. Once the artist signs the agreement, they have released the company of all claims against it in a “covenant not to sue” for all actions worldwide. They cannot sue SoundCloud or assist in another lawsuit. All disputes will go to arbitration instead of court and arbitration can be more secretive than an open court.
One potential example would be if an artist feels they have not been paid their full amount of royalties, they would be unable to sue. The agreement says artists, “forever discharge us and our related parties from all claims ... including any and all actual or alleged acts of copyright infringement.”
Lita Rosario, a lawyer who represents artists like Missy Elliott and Sisqo told The Verge, “If you find that SoundCloud didn’t send you the amount of money you’re owed, you’re prohibited from suing them for breach of contract. I don’t see how they can have someone agree in advance that they’re not going to be able to sue them for failing to pay an account. Which is probably why they backstrap it with the arbitration clauses.”
Though an artist can opt out of the monetization agreement at any time, this legal point they are bound to.
Another potential issue is with the payout system. SoundCloud allows itself to change its payout system at any time and also contradicts its initial statements about the program. In their initial announcement, SoundCloud said that artists would be paid each month, but in the contract, they reserve the rights to pay artists only when they have accrued up to $100 in revenue. This makes sense in theory if they don’t want to overwhelm their accounting department with $.42 checks every month for artists not making much money, but it also doesn’t show much transparency on the initial announcement and their promo pages. The contract also states, “SoundCloud will calculate Your Net Revenues on a monthly, quarterly or another accounting period basis SoundCloud elects to use.”
SoundCloud allows artists six months to challenge their financial statements once they have been paid out, which is different from the industry standard two years according The Verge. Spotify allows two years. If there are ongoing financial disputes and crediting issues involved with a song you are being paid for, six months may not be enough time to resolve the legal matter and then your financial statement with SoundCloud.
SoundCloud has not denied the veracity of the contract or its contents, instead trying to do damage control on what is inside of it. SoundCloud does point out that you still do own the rights to your tracks, which is a big plus, and they will pay 55% of their ad revenue back to the artist. They promise to “meet or beat any other streaming service.”
So what will happen going forward? The response from artists has not been good, so it may force SoundCloud to tone back some of the language, but if enough people sign up, they may feel this is the path they need to go down.
As of late this morning, right as this was published it appears, SoundCloud has released a statement on their website that seems to right many of the issues in the initial contract.
They are committing to paying artists no matter what they earn, eliminating the vague up to $100 clause, but adding a new time stipulation. Each artist will be "paid for each calendar month within 45 days of the end of that month, regardless of how much you earn."
Also very importantly, they have removed the convent not to sue, which was part of the invite only contract. However, a SoundCloud rep has not explained what will replace it. Existing members will get an email with the new agreement.