SoundCloud is an online audio distribution platform founded in 2007 by two Swedish artists, and has since gained over 250 million users. This German company initially started as a means for new artists to share their music, receive feedback, and communicate with their fans, but is expanding to include popular mainstream artists as well. It wants to become the YouTube of music, but unlike YouTube which can play music by major recording labels due to multiple licensing deals, SoundCloud has to take down such content. Although SoundCloud has a copyright do’s and don’ts list on its website and removes infringing content after providing Takedown Notices for copyright infringement, they do not want to have to provide such notices as they grow.
To prevent such a situation last week it entered negotiations with major record labels Sony, Universal, and Warner. In exchange for 3-5% of equity each and a share of future earnings, the record labels shall relinquish all rights to bring copyright violation charges against present infringements while providing licenses for their chart topping songs. Access to mainstream hits will expand SoundCloud's stagnating user base and allow them to gain advertisement revenue.
SoundCloud was in talks with Twitter a while back but the deal did not reach fruition due in part to the dicey licensing situation SoundCloud has been in thus far. Namely, it has no licenses. The agreement values the company at around $500 to $600 million, which is significantly less than the $700 million it was valued at following its last funding round. Although this move will quell the minds of its shareholders as well as entice technology giants to acquire the company, it also opens the floodgates for smaller indie labels to pursue a licensing deal for their own artists.
This is a prime example of how important keeping your IP portfolio in order is in case you are seeking investment or looking to be acquired. No one wants a risky investment if the risk involves legal disputes and possible ban on what made the acquired company valuable in the first place.
This is not to say firms will not invest in risky ventures, on the contrary it happens all the time. But then the investment has to be disruptive enough to warrant such a risk. It is just one more reason weighing against investing in your startup. You can easily shift the odds in your favor by regularly conducting IP audits and ensuring your IP portfolio is up to date. Make sure all technology and content that forms part of your entrepreneurial venture is either original or licensed. Keep your eyes on SoundCloud; copyrights in technology and this deal will definitely pave the way for a future big tech acquisition.
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