Growth in the digital music industry is abundant, yet profits are absent from virtually every company. SoundCloud, the cash-strapped music streaming business, reported last year’s losses increased at a faster rate than revenue growth.
Let’s look at the various factors that could speed up or help prevent SoundCloud’s demise.
Signs of trouble?
Founded in 2007, SoundCloud entered an increasingly crowded market with companies going out of business, becoming acquisition targets, or struggling financially (e.g. Deezer, Pandora, Rdio).
SoundCloud has always been on the lookout for more capital investment. In 2015, after years of fighting licensing issues, the Berlin-based music service raised $77m in investment from Universal Music Group in exchange for an equity stake.
In 2016, SoundCloud was optimistic that the financial figures “reflect those of a company in a strong growth stage,” with over 18 million artists using the platform, “sharing well over 110 million tracks, and reaching 175 million monthly active listeners.”
However, SoundCloud has been more cautious, warning it could run out of money before the end of 2017, if its newly launched subscription service fails to take off.
Who owns the content?
Any user-generated content hosting platform must adhere to copyright rules, such as YouTube and SoundCloud. In enforcing those, SoundCloud ran into bad publicity due to their high-profile account takedowns and suspensions.
SoundCloud seems to have been too harsh, even suspending users over the music that they own, inconsistently handing out judgements and so on.
Then it becomes the question of who SoundCloud is trying to protect, the artists, the record labels (e.g. Universal, Sony) or SoundCloud itself. In this case, the content owners – record labels – win.
SoundCloud’s competitor – Spotify - pays out about 85% of its revenues in royalties to record labels and other rights-holders.
The three major record labels, Universal, Sony and Warner have all signed licensing deals and owned a stake in SoundCloud, although a relatively small one. At least, that means they have the incentive to help SoundCloud avoid bankruptcy.
Recent hires have proved SoundCloud’s determination to diversify its offerings and open more routes to monetisation.
Their dual model of free and paid subscription finally put SoundCloud on par with rivals like Spotify and Apple Music. Now they can make money off the user base and share the revenue with artists, in addition to charging artists with different levels shown below.
Along with the launch of SoundCloud Go last year, the company has been ramping up its programmatic advertising efforts to attract marketers. This is on top of the ad platform launched in 2014, with brands such as Red Bull and Netflix already working with the music service.
In the Australia and New Zealand market, SoundCloud has started offering bespoke ad solutions, including sponsored content such as in-stream message, promoted track/playlist.
Competitors’ continuous improvements
Critics have pointed to SoundCloud’s rivals. Competing with those who have more a lot more cash such as Google and Apple is a tough call.
Moreover, both Spotify and Apple Music have hand-curated playlists along with music recommendation algorithms, which SoundCloud is still lacking.
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