Photograph by Ole Spata/picture-alliance/dpa/AP Images

SoundCloud’s 175 million users dwarf Pandora’s 76 million and Spotify’s 40 million. But unlike those digital music rivals, SoundCloud had done practically nothing to turn those legions of users into a real business. Now that’s starting to change with its first-ever major label deal, announced on Tuesday, with Warner Music Group.

The agreement doesn’t follow the pattern of previous licensing pacts between a label and a streaming service. Warner will get to place ads on some of its songs and then share the revenue with SoundCloud. About 40 bands and smaller labels are already doing this through a program SoundCloud launched in August, with brands like Sonos, Jaguar, and Red Bull advertising on the site.

Warner is likely to leave many songs up on SoundCloud without expecting anything in return. SoundCloud already has lots of music from major and independent labels, and entertainment lawyers haven’t been showing up at its headquarters with pitchforks even though no one is making money from the site. Digital music is valuable for the music industry even if it doesn’t directly lead to revenue. Getting compensated in hype and exposure instead of cash has been controversial inside the industry, but record executives have tended to accept this logic when it comes to SoundCloud. Many users of the service are looking for obscure or unreleased music rather than hit songs or a single place to find a comprehensive catalog.

SoundCloud Chief Executive Alex Ljung insists any future deals will maintain the flexibility to make money from some songs while leaving many others without ads. “They can start to monetize the things that are there, and they can start letting their artist put more things up,” he says. “It’s not a deal where we say you have to put up your whole catalog.”

SoundCloud still claims it isn’t aiming to create a comprehensive collection of the world’s music and may never strike deals with all the major labels. Ljung declined to discuss the state of negotiations with Universal Music Group and Sony Music Entertainment, which had stalled last month, according to the Financial Times.

Warner is under more pressure than those labels to find innovative ways to make money from digital music because it is smaller. It has been talking to SoundCloud for some time, but a key reason for the breakthrough was SoundCloud’s commitment to develop a paid subscription service early next year. This service could provide ad-free music, songs that aren’t available to free customers, and the ability to store some music on mobile devices for offline listening. Record labels like paid subscription services because they make more from royalties when customers actually pay for the music they’re listening to.