SoundCloud, the online audio giant, is now engaged in serious licensing discussions with major labels and publishers, according to reports. Digital Music News claims a pair of sources, who wish to remain anonymous, say that labels are unhappy with the manner SoundCloud works, due to owned content being uploaded by third parties (fans).

As a result of user-uploaded content, the music site operates under a loophole within the Digital Millennium Copyright Act (DMCA).

One of the sources claimed that keeping track of all content is difficult for labels but used the British Phonographic Industry‘s (BPI) policing of Google and YouTube as a good example.

But sources insist there are serious steps that labels can take, and according to one of the sources, major labels are not at all comfortable with the “DMCA funny business” arrangement anymore. “Their [catalog] is all over SoundCloud, and it’s essentially too hard to police but that doesn’t mean they won’t start,” the source relayed. “If you look at what’s happening over at Google and YouTube, you have [groups like] the [British recording trade group] BPI flooding Google and YouTube with takedown notices.”

“SoundCloud doesn’t want to start that because they could get completely flooded [with DMCA takedown demands]. And that’s just one way [the major labels] will start a war.”