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SoundCloud Puts Independence Over Growth

The music streaming service has cut its size to stay afloat

7Jul

SoundCloud, the German music streaming service, has been part of the furniture in the world of music for just under a decade. Since its release in 2007, SoundCloud has morphed from a platform for musicians to share recordings with each other into something that altogether resembles more of a ’YouTube for music.’ It’s remained something of a footnote up against the likes of Spotify, though, attracting significantly less media buzz and it’s worth less than a 10th of its Swedish rival - $700 million to Spotify’s $8 billion.

Despite having twice as many registered users as Spotify - 175 million active monthly listeners - SoundCloud has always been more niche, populated with smaller artists self-publishing their tracks on the service and building vibrant networks rather than major chart-toppers releasing albums. Early last year, SoundCloud announced that it had struck a licensing deal with Universal Music, who join Warner Brothers to provide it with 50% of the ‘Big Four.’ It’s clear that the service is looking to take a chunk of Spotify’s audience, though it currently has no monetized service in place and is obviously struggling for capital.

In January, SoundCloud made its financial issues public, admitting that it could run out of money by the end of 2017, before it kept itself afloat with a $70 million investor funding round in March. Just four months later, the company announced that it will cut 40% of its staff, letting go of 173 of its 420 employees in a bid to ‘ensure [its] path to long-term, independent success,’ CEO Alex Ljung wrote in a blog post. The move also includes the closure of its London and San Francisco offices, leaving only its New York and Berlin offices operational. ‘With more focus and a need to think about the long term, comes tough decisions,’ Ljung added

The past year has, according to the group, seen revenues more than double, but it is still failing to turn a profit. According to the Financial Times, ‘in January, accounts filed in the UK showed it had incurred a €51 million loss in 2015 - up from €39 million in 2014. Revenues increased 22% to €21.1 million.’ In 2016, the company released SoundCloud Go, a $10 per month subscription service that aims to properly compete with the likes of Spotify and Apple Music. Initial reviews of the service weren’t great, and evidently the attempt at monetizing its vast audience hasn’t given SoundCloud the necessary revenue to keep growing internally.

As a result of SoundCloud’s financial problems, rumours of an acquisition had heated up just days before the cost-cutting announcement. Last year saw reports that Spotify was in ‘advanced talks’ to buy the streaming service and a recent report from the New York Post claimed that there are a host of companies lining up to buy. The most likely company to beat Apple, Google, and Spotify to the acquisition is Deezer, a French streaming service. But, if SoundCloud’s announcement is anything to go by, it has absolutely no intention of losing its autonomy. ‘By reducing our costs and continuing our revenue growth,’ Ljung wrote, ‘we’re on our path to profitability and in control of SoundCloud’s independent future.’ SoundCloud’s decision to handle its financial issues alone is admirable - it is, of course, unfortunate that so many people had to lose their jobs - and it seems the company is committed to taking its service in its own direction, rather than getting swallowed up into another behemoth.

These financial problems look unlikely to go anywhere unless the company can considerably up its revenue in the coming year or two, but there are reasons to be cheerful. In January 2016, for example, TechCrunch ran with a piece entitled ‘Why SoundCloud Will Be Worth More Than Spotify,’ and there is a general consensus that the company represents incredible as yet untapped potential. Spotify’s model is no goldmine either; the Swedish giant gives some 80% of its revenue to content license holders, and it too is haemorrhaging funds. So though SoundCloud has had to take a very difficult decision to keep itself afloat, it is well-positioned to monetize, and its longevity will ultimately come down to how well it deploys that strategy. 

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