As indie artists escape predatory label contracts, streaming services may be offering something just as bad

SoundCloud has been trying to reposition itself as a creator-first community ever since new CEO Kerry Trainor was brought on last year. The past month in particular has seen a rash of announcements tailored specifically to DJs and indie artists: the platform integrated in popular DJ software, partnered with rights clearance startup Dubset, and finally made SoundCloud Premier public after four years.

Premier is a new kind of monetization program, letting artists upload and make money from their content without having to sign a deal with a record label or aggregator. This new monetization option allows musicians to directly make money from streaming, setting SoundCloud up as a major competitor to the entrenched label system. Spotify has a similar system, currently called DRCT Beta.

But while self-monetization purports to offer a more fair alternative to the traditional label system, SoundCloud’s deal pushes artists into restrictive terms, with ambiguous payment dates and payout percentages that can change at any time. Even worse, artists are asked to sign away all rights to sue the company, giving them no good options for contesting the deal.

The terms are written into the content license agreement for SoundCloud Premier, which launched publicly last week. The contract, which was given to The Verge by an artist and DJ named Sweeps, details how much artists get paid, when and how they receive payment, and provisions for potential instances of copyright infringement. It also contains several clauses that protect SoundCloud in the event of a conflict with an artist participating in Premier.

Most notably, SoundCloud’s agreement includes the broad release of all claims against the company (called a “covenant not to sue”) and a mandatory arbitration clause. Artists who sign this agreement agree to never sue SoundCloud or even assist in someone else’s lawsuit against SoundCloud, and to take any disputes to arbitration instead of court.

If, for example, an artist signs this agreement and finds that SoundCloud had been illegally using their recordings in the past, they would be unable to sue SoundCloud to recover royalties. The agreement explicitly says artists “forever discharge us and our related parties from all claims … including any and all actual or alleged acts of copyright infringement.” That is a terrific deal for SoundCloud, which has faced a wide variety of copyright issues. Given the tiny sums most artists can expect to be paid from streaming services, the net result is that Soundcloud is buying almost complete immunity from lawsuits for what amounts to pennies.

SoundCloud spokesperson Sheri Ladner told The Verge that “the clause only applies during the term of the commercial deal.” But the contract itself states that this covenant not to sue will be upheld even if an artist stops being a part of the Premier program or leaves SoundCloud altogether. “The following named sections survive termination or expiry of these Terms and Conditions,” the agreement reads. “RELEASE OF CLAIMS AND COVENANT NOT TO SUE.”

Jeff Becker, an entertainment and media attorney at Swanson, Martin & Bell, who reviewed the contract for The Verge, said it was “unusual, at best, for a platform to open their terms and conditions with a provision that requires the artist to entirely release it of all prior violations and infringements committed by that platform.”

“This agreement,” Becker says, “will allow artists to monetize the exploitation of their music on SoundCloud only if the artist agrees to forego all existing claims he or she may have against the company.”

SoundCloud did not contest the authenticity of the document. Instead, the company emphasized that the agreement was easily accessible to anyone participating in the program. “Those who are eligible to participate in SoundCloud Premier can access the agreement at any time by visiting soundcloud.com/you/premier/,” said Ladner.

Once the agreement is signed, the full terms are accessible at the URL SoundCloud mentions, along with a bulleted list to the right of the contract labeled “Here’s a summary of what you agreed to.”

But these bullet points do not include the covenant not to sue, or other contentious clauses like the flexible payment percentage and shortened statement challenge period. The contract is also not downloadable or easily shareable. That makes it harder for an artist’s outside lawyers to review it, even though the agreement recommends on the second page that you “consult with your legal counsel.”

SoundCloud further protects itself by insisting on arbitration, which doesn’t make sense for artists, according to Lita Rosario, a lawyer who represents artists like Missy Elliott and Sisqo. “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,” Rosario says. “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.”

Rosario thinks all of this means the contract edges right up against the line of validity. “I think the broad release of claims and covenant not to sue will be challenged in court,” says Rosario. “The language is much too broad.”

Other companies like Tunecore and YouTube have controversially incorporated similar terms into their agreements, often with little pushback from the artists themselves. Because of the power imbalance between smaller independent artists and platforms, artists have few options but to accept these terms if they want to get paid.

Not all platforms demand such strict terms. The licensing agreement for Spotify’s self-upload program, known internally as DRCT Beta, was also obtained by The Verge. It contains no such covenant not to sue or arbitration clause.

SoundCloud’s agreement also allows the company to make drastic changes to the payment program at any time without advance notice. That could include changes to payment rates, administrative fees, or even shutting the program down entirely. And artists don’t get to negotiate these changes — according to the contract, simply remaining in the Premier program counts as agreeing to the changes. SoundCloud won’t even promise to notify artists of changes. “It is Your responsibility,” the agreement says, “to check these Terms and Conditions on the Platform from time to time for updates.”

There’s also ambiguity in Premier’s schedule for paying artists. SoundCloud’s promotional pages for Premier say artists will be paid “each month,” but the contract reserves the right to pay artists only when they reach $100 in revenue. If an artist’s accrued revenue is less than $100, “SoundCloud may withhold such amount and aggregate it with future amounts.” As a result, artists can’t count on regular statements.

What’s more, the contract says that “SoundCloud will calculate Your Net Revenues on a monthly, quarterly or another accounting period basis SoundCloud elects to use.” By contrast, Spotify’s agreement has a much clearer accounting schedule and says it will pay artists monthly.

SoundCloud reserving the right to pay out only once an artist generates a certain dollar amount in revenue isn’t completely unusual — lots of labels do this. From the company’s perspective, it doesn’t make sense to cut thousands of checks every month if the majority are only for a couple dollars or less. From an artist perspective, however, it’s an obvious problem to not know when you’re going to get paid.

There are also restrictions with what counts as a monetized stream. SoundCloud previously confirmed that if a song marked for monetization is streamed outside of the nine currently-monetized countries, the song can be played in full, but no payment will be triggered. There’s some language in the Premier agreement about calculating net revenues on a “tier-by-tier basis,” suggesting that not all streams are treated equally. A stream from a free user, for example, could be worth less than a stream from a paying user, similar to Spotify’s system. But there are no further details in the agreement to clarify this.

SoundCloud also makes it difficult for an artist to challenge their statements once they’ve been paid. The contract only gives artists six months to audit or challenge statements after they are issued, significantly shorter than the industry standard of two years. Those challenges are crucial for resolving crediting and financial disputes, like an artist discovering they have a credit on a song they didn’t know about, or that ownership percentages have changed for a released track. Spotify’s contract offers the industry-standard two-year window, but in SoundCloud’s deal, if you don’t contest a statement after six months, you’ve accepted it.

All of this makes the SoundCloud agreement an unfair deal for artists, according to music entertainment lawyer and artist manager Josh Kaplan. “SoundCloud can say, hey we might change this and we don’t have to give you notice other than just posting it on the service,” Kaplan tells The Verge. “Not even an email. You could just wake up and they could say, actually now the share is 25 percent. And if you didn’t check in online on your SoundCloud [account] you would have no way of knowing. How would you know to opt out, until you got a statement? And you don’t know when you’re getting [the statement] because they’re ambiguous about that. It’s up to them when they pay you. And then you get six months to review.”

The terms of the agreement could have repercussions far beyond SoundCloud itself. Companies like SoundCloud and Spotify are setting the terms for a new model that’s an alternative to conventional structure. What they do — and what artists agree to — will set the standards for another way to make money on music outside of the traditional label system. It’s exciting that indie artists can now self-monetize, but the platforms still have more clout than most of the artists opting in to these programs. And as long as artists simply click through and agree, there’s no reason for a company like SoundCloud to change what appear to be extremely unfair terms.

SoundCloud provided the following statement to The Verge: “SoundCloud is the leading platform for audio creators, dedicated to empowering them with the best tools and services to grow their careers. The SoundCloud Premier monetization program operates on a fixed net revenue share of 55% and monthly royalty payments paid net 45 days to creators, which exceeds most other platforms. SoundCloud Premier is completely non-exclusive, the creator always retains all their content rights, and reserves the right to exit the agreement at any time. We are always looking for ways to simplify our agreements for the benefit of our creator community, and will take the opportunity here to avoid future confusion.”

These claims by SoundCloud are contradicted by language in the contract. Regarding the net revenue share, it is currently 55 percent, but SoundCloud reserves the right to change it whenever they like in the Premier contract. “We may, at any time and without liability, modify or discontinue all or part of the SoundCloud Premier monetization program,” the agreement says, and “change, modify or waive any fees in connection with the program; or offer opportunities to some or all program participants.”

SoundCloud’s agreement does say it will provide artists with a statement “Within 45 days after the end of each accounting period during the Term.” But, as already mentioned, SoundCloud does not commit to a regular accounting period because an artist must accumulate at least $100 in revenue before being paid. “SoundCloud will calculate Your Net Revenues on a monthly, quarterly or another accounting period basis SoundCloud elects to use,” states the agreement.

As for retaining rights to your content and the right to exit the agreement at any time — yes, artists can leave Premier whenever they like. But that does not cancel several terms of the contract, most importantly the covenant not to sue.

 

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