The romance that once existed between music lovers and SoundCloud has turned somewhat sour in recent times. Technical faults, better alternatives and a reluctance to evolve within the business cycle has seen the musical powerhouse brought to its knees.
When you spend more money than you earn you’re always going to have a problem. It’s not rocket science; just ask a few sore heads after a heavy weekend. This is what is happening at SoundCloud. Media outlets such as Twitter and streaming services such as Spotify have both shown an interest in a potential purchase of the brand, but talks seemingly came to nothing as revenue fails to match the high price tag.
What began as a leap into the digital age has turned to a silhouette left choking in the dust of its competitors. Is Soundcloud doomed or is there still light left at the end of a long and dark tunnel?
Soundcloud was founded in Stockholm, Sweden by sound designer Alexander Ljung and artist Eric Wahlforss, though it soon relocated to Berlin where it became permanently established in 2007.
The concept emerged as an essential platform for sharing sounds amongst artists. It eventually developed into a sharing platform for people all around the globe. By 2010 it had hit its first one million users.
You can understand the appeal. Sharing platforms existed for all sorts of other media, but a platform for sound was yet to be firmly established before Soundcloud’s birth. The social element allowed users to follow friends to see what they were listening to, and for journalists it became essential, being able to listen closely to artists and labels directly from the source. All sounds great, right?
As time has gone on cracks began to show in the surface of SoundCloud. Technical issues and flawed copyright algorithms have led to the company receiving some pretty bad press. For example, in 2015, Dummy Mag and DIY had their accounts locked due to alleged breaches of copyright.
If you upload content that you do not have permission to, then you should receive some type of penalty, but for many magazines, labels and artist this wasn’t the case. FACT reported that Plastician had a track that he produced, owned and released on his own label taken down by SoundCloud’s copyright police.
It should be mentioned that major labels have put pressure on SoundCloud to continuously tighten the grip of copyright claims. Universal and Warner had previously agreed deals with Soundcloud, but Sony were reluctant to do so due to a “lack of monetization opportunities.”
Artists could promote their music and labels could publish content safely. Everybody wins. However, now we are left in a situation where the very artists who helped build SoundCloud into the major piece of sonic architecture that it is today are the very people that are suffering.
Symbolic to Frankenstein, the very thing they helped to create has turned against them.
So, aside from the unjustified deletion of accounts, what other reasons are there for the stifling of SoundCloud? To put it bluntly, it didn’t evolve well. You could argue that it did with the introduction of a pay monthly subscription service, but the model is broken and most of the content that is behind a paywall isn’t what most users want, and they’ve struggled to compete with competitors such as Apple Music and Spotify in terms of revenue.
Revenue has grown, but as the company expands, overheads have increased. It has continued to spend more money than it makes, leading to losses of as much as $54 million in 2015, while only reporting revenue of $22.4 million in the same year.
The payment of artists also remains an issue, as it does for all artists who have their work online. Bandcamp now offers artists the chance to sell their work independently as opposed to relying on payment via adverts.
As we continue to venture further into the digital age, the online rights for payment of artists must adapt. To many academics beliefs, physical purchases of music will soon become completely extinct. Without the adaptation of online rights, future creatives may soon find themselves in an even worse situation than the one they’re currently experiencing.
Let’s fast forward to modern day. Last September, The Financial Times reported that Spotify where in advanced talks with SoundCloud regarding a potential takeover. It wasn’t the first time either, Spotify had reportedly declined to take over the site two times over the course of the previous two years.
Talks fell sour. The reason? “Spotify doesn’t need an additional licensing headache in a potential IPO year.”
What’s an IPO? I hear you ask in your finest Jordan Belfort impression. An IPO is an initial public offering where shares are sold to institutional investors and then sold on to the general public. Basically, Spotify thought acquiring SoundCloud would negatively impact their potential share price due to the confusing situation that can arise when dealing with labels.
Fast forward another few months. It’s now been reported, in January, that Google may be interested in purchasing SoundCloud, with the value of the company being estimated at $500 million.
So where do they go from here? Well, it’s been fairly doom and gloom up to this point, but finally there’s some good news. Tech Crunch reports that Soundcloud’s annual revenue has risen 43 percent year on year to reach almost $28 million. This is thanks to the newly introduced subscription service, but it is yet to make a profit.
In addition to this, as of this year, Soundcloud has re-launched their invite only Soundcloud Premier Programme, which will allow specific artists to earn money for mixes and remixes. It’s a smart move to encourage artists to get back on their side. The revenue will be distributed based on how the content is consumed, which will most likely come down to plays and listening time.
SoundCloud spoke to THUMP, stating “This will be the first time we’ve invited DJs and producers who create remixes and sets on SoundCloud to start to be able to monetize and participate in the revenue that we’re generating through ads and subscriptions.”
Having been unsuccessful in closing a $100 million round of funding, the company have secured a $70 million round courtesy of Ares Capital, Kreos Capital and Davidson Technology. SoundCloud state they will use this money to “build a financially sustainable platform” by hiring more people and building more tech.
The last financial report, which detailed the ins and outs of 2015, illustrated that the site may go broke in 2017 if changes aren’t possible.
As Tech Crunch rightly calculate, if SoundCloud’s projected revenue growth comes good their revenue should rise to $56.88 million in 2017, which is a massive step in the right direction for the company.
There’s still a lot to be discussed, such as can SoundCloud ever justify the staggering price tag that has been slapped upon it and the money that has been so heavily invested within it.