Merlin's Charles Caldas on Partnering with SoundCloud and the 'Imbalance of Power' That Threatens the Market

John Sciulli/Getty Images for T-Mobile
Merlin BV CEO Charles Caldas speaks at the the Launch of Google Music at Mr. Brainwash Studio with partner T-Mobile on nov 16, 2011 in Los Angeles, California.

This week saw global independent rights group Merlin become the latest organization to partner with SoundCloud, following previous deals the streaming service had struck with Warner Music Group and the National Music Publishers Association.

 
The deal enables Merlin’s 20,000-plus label and distributor members, including Beggars Group, Domino, Ninja Tune and Warp, to tap into various revenue streams within the On SoundCloud program, ahead of the platform’s planned subscription service launch later this year. Billboard spoke to Merlin CEO Charles Caldas to discuss the potential benefits to its members, SoundCloud’s long-term proposition, as well as some of the wider issues facing the independent sector. “Services that construct themselves around the constraints placed upon them by rights holders are bound to fail,” states Caldas from Merlin’s London office.     
 
Billboard: What were your principle aims and objectives in striking this deal with SoundCloud?

Charles Caldas: The interesting thing about SoundCloud is that it’s carved a particular niche in the streaming space. It’s not an all-you-can-eat ubiquitous streaming service in the way that [other] full catalog audio streaming services are. It’s built its listenership in a particular niche part of the market and has attracted a lot of loyal and very active music users. The opportunity here is for labels to take that particular segment of the market and target it in new commercial ways that actually brings value back to the artists. In some ways, it’s a whole new segment of the market to monetize, and offers a range of really interesting possibilities in terms of how people interact with those early adopters and how they monetize their usage.
 
What does this deal mean for Merlin’s 20,000 labels and distributor members? 

The previous arrangement was really about making your content available, promoting it and having the tools to manage the usage of it and see what user uploads were happening. It was a non-commercial agreement. What this new agreement does is open the [door] for labels to now deliver content for monetization specifically. So to look at particular releases, particular artists, particular initiatives that they want to run and chose to make that available commercially on the platform and build value around that. In the short term, it creates commercial opportunities within the SoundCloud platform that never existed before. Longer term, [it provides] a path up to a subscription tier where people have a better experience with more functionality to encourage them to pay.

How are payment terms structured?

It’s an immediate per usage monetization. If a label chooses to monetize a particular release or a particular artist and put it into the On SoundCloud programme, it will be revenue bearing and royalty bearing. In the context of the overall market we wouldn’t do a deal that we didn’t think delivered appropriate value for the streams. It’s a multi-layered deal that definitely puts the royalty bearing part of it in line with similar players in the market place.  
 
What does this deal do for SoundCloud’s offering and its attempts to establish a licensed music service?

I think it provides a whole new path for SoundCloud to take its business down. To establish its niche within that kind of creative, promotional side of the business. It now has all sorts of opportunities in front of it in terms of how it can commercialize the [service] to become a royalty bearing platform for the artists that are on there. The appealing thing is that this is a very particular market segment that we perform particularly well on, and it provides some new avenues to monetization. It’s not just another all-you-can-eat full catalogue streaming service that’s seeking to compete with everyone else in the market. It’s coming from a slightly different angle and that makes it interesting.
 
Merlin recently signed a licensing deal with Asia's leading music streaming service, KKBOX. How important are emerging, non-traditional markets to Merlin’s revenues? 

The non-major music markets are very interesting to us at the moment. We’re in business in a lot of those territories via our existing partners, but if you look at someone like KKBOX they have built a substantial business across the region with a much more localized focus. So for us the KKBOX deal is the ability to tap into an established successful local service. The spreading of the streaming subscription space in Southern and Central America, South East and Central Asia and into Eastern Europe even is a really interesting market development. From what we have seen so far we’re really encouraged by the revenues there. We’re encouraged by the amount of our music that’s being consumed in those markets and creating those opportunities to be in business with those local platforms is an important part of the broader evolution of the digital market.
 
In a 2014 op-ed for Billboard, you wrote about how Merlin’s status as a major indie rights organization should place it “among the first to the table when it comes to negotiating with streaming services,” yet rarely did. Has this position changed in the past year, as independent’s stock has risen in the streaming space?
 
It has and it hasn’t. We’re still occasionally disappointed by conversations that we have with services. But on the other hand, the more the market matures and the more that people understand the driving factors for success in this space, the harder it’s going to be to ignore the fact that this music should be front and centre of any streaming platform. Not off to the side. 

From an independent perspective, what do you consider some of the main challengers and obstacles as the digital market evolves?

One of the key challenges we see is the imbalance of power and incentives, between the two largest majors in particular, and the rest of the market. There is the potential with an effective duopoly for services to be forced into constructing their offerings to suit the needs of those two companies, as opposed to the consumer. I think consumers are more sophisticated than they are given credit for. Services that construct themselves around the constraints placed upon them by rights holders are bound to fail in favour of services that are focused on giving consumers access to the best possible music in the most compelling way.  
 
Artist exclusives look likely to be a key future component in how digital services try to differentiate themselves and gain market share. What’s your stance on the matter?

I don’t like the idea of market exclusives. Consumers should have access to all of the music once they have paid for it. It makes no sense to me that if I have paid my ten pounds or ten dollars to a service that I can’t get access to a few artists because they have given exclusive rights somewhere else. It just confuses the consumer and makes for a bad experience. It’s a particular strain of the market that makes very little sense to me.
 
This time last year at the A2IM convention in New York, you projected Merlin’s revenue to exceed $160 million within 12 months. Has the company reached that target? 

I think we’ll be right on that. Maybe a tiny bit under because a few services went under last year that we didn’t expect to disappear -- Sony Music Unlimited, Bloom.fm and the Cricket service in the U.S. But I think we’ll be very close to that figure.  
 
Are you optimistic for the future of the music industry? 

The level of activity and investment is encouraging and I think we have to be pleased at the fact that the streaming market is growing at the pace it’s growing and it’s clearly attracting investment and interest from a broader range of companies. We’re at a crucial time in the evolution in the digital market. My hope is that we and the industry can harness all of that energy and all of that possibility into actually creating services that are great for the consumer and actually incentivize people to pay for stuff -- that we don’t get caught into this corporate war of exclusives and people trying to outdo each other on silly things to try and keep the industry happy. Giving consumers fantastic music services that they’re happy to pay for is what this is really about.