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Spotify & SoundCloud: A Cash-Strapped Marriage Of Convenience

The two streaming services could compliment each other nicely

30Sep

Despite both being born out of a love for music and music streaming, there’s actually very little in common between Spotify and SoundCloud. The Swedish giant Spotify has some 100 million users and features just about every artist you’d ever want to listen to (bar a few notable exceptions). It aggressively pushes a subscription model, so much so that any free user will be able to perfectly recite the service’s ads on cue. I certainly can.

SoundCloud is, as put by TechCrunch, the ‘YouTube of Music’. No label or distribution service is required to post music on the service, meaning it has, by a distance, the largest library in music streaming - 125 million tracks compared to the 30 million on Spotify. It’s DIY set up means it has something Spotify and Apple Music can’t compete with; it’s cool. Whether it’s lengthy DJ sets, amateur remixes, grime and hip hop instrumentals, or thrashy bedroom demos, SoundCloud is a sandbox for underground music.

Both are struggling, though. Spotify’s revenue has never been higher, yet neither has its losses, and there is every sign that its current subscription model is unsustainable. SoundCloud, for all it’s popularity, has plateaued somewhat on the same $700 million valuation it had back in 2014. It’s under these circumstances that a coming together of the two companies makes a great deal of sense.

According to the Financial Times, $8 billion giant Spotify is in talks to take over its $700 million rival. The deal is nothing like a certainty - many commentators doubt that it’ll come to fruition, but perhaps it’d be better for both sides if it did. For Spotify, SoundCloud would provide a significant boost before it’s upcoming IPO, which the company hopes will live up to its huge valuation and for which it faces penalization if unsuccessful. Also, as pointed out by Recode, SoundCloud doesn’t represent a duplicate of Spotify’s existing service; it offers them an entirely new market by virtue of the former hosting music many cannot find elsewhere. SoundCloud’s spoken word and podcast content, too, offers a diversification of Spotify’s product that many expect would be a winning combination.

For SoundCloud, the deal represents a way out of a quandary. Earlier this year, news broke that the company was looking for a takeover, with Twitter touted as the likely source. Instead, the social media company invested $70 million (according to Forbes) in June this year, an odd move given SoundCloud’s stagnant value. Joining Spotify would allow the company to abandon its failed premium offering and share the huge number of paying Spotify users. It can bring a younger, more tech savvy generation to the table in return. After all, it’s was almost threatened closure in February this year after a reported loss of $70 million between 2013 and 2014.

The Next Web has lauded the deal, as ‘it has the potential to create a super-charge music platform with both the vibrant community of SoundCloud and the very complete music library of Spotify.’ And, as a user of both, I too would love to see a library with Justin Bieber-level celebrities standing alongside hip hop instrumentals with extremely modest numbers of listens. As tech deals go, it’s tough to see a downside to SpotiCloud and, given that neither service will likely change in the short term for fear of upsetting loyal users, users will welcome the move. Whatever your opinion on Spotify’s policy with regard to paying artists royalties, to see a big area of the music industry - streaming - succeed should come as welcome news. We will have to wait and see if the deal goes through or not but, if it does, expect to see both Spotify and SoundCloud benefit.

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