SoundCloud’s Uncertainty

Berlin-based streaming service SoundCloud has enabled its users to upload, record, promote, and share their original content online since it was founded by Alexander Ljung and Eric Wahlforss in 2007. With a valuation that at one point was expected to surpass $1 billion, SoundCloud was an inimitable start-up with great potential. As the ingenious combination of an audio streaming service and social network, it provided an online space for creators to upload, share, and discuss nearly any kind of sound. It hosted bootleg remixes, spontaneously recorded Drake tracks, and transmitted podcasts; not to mention the millions of independent music creators sharing their musical voice with the online community. It provided a vast library of content for users with interests outside of the standardized catalogues of streaming giants like Spotify and Apple Music. In February of this year, the company proudly expressed a total of 150 million tracks on the platform, about five times the amount on Spotify or Apple Music.

Now SoundCloud’s future is uncertain. In 2014, Twitter expressed public interest in a potential acquisition of the streaming platform, as did Sony the following year and Spotify too, soon after. All found various issues with the state of SoundCloud at the time and decided against the acquisition. Sony was quoted stating the reason being “a lack of monetization opportunities.” The company’s valuation has sunk immensely and is still sinking. On July 6th, it announced it had laid off 173 employees, which is 40% of its workforce, and shut down its London and San Francisco offices.

Many of SoundCloud’s problems began in 2012 with the introduction of reposts, along with the service’s surging popularity, began to attract bad actors who flooded the site with what amounted to undisclosed advertising. SoundCloud finally instituted reposting limits in 2015, suspending or even banning users who abused the feature, but it was arguably too late. Years of unchecked abuse had flooded users’ SoundCloud feeds with mediocre music pushed through by artists, labels, and blog accounts, much of it paid for.

Furthermore, a very major issue for SoundCloud presented itself in 2012. The launch of Spotify in Europe in 2008 and the United States in 2011 quickly started a race within the music steaming market. Spotify emerged offering new users a six-month free trial of unlimited major label music. For millions of SoundCloud users, Spotify proved irresistible. It also offered record labels the business model that they would come to insist on everywhere else, this being fully licensed tracks in exchange for guaranteed royalties. And while Spotify has had its own combats with labels, the basic structure of its deals with the labels set a template that SoundCloud was pressured to follow going into their negotiations with the majors.

It took until 2014 for SoundCloud to finally complete its first label deal with Warner. In August of that year, British licensing company Performing Rights Society For Music (PRS) sued SoundCloud for unpaid royalties. This then became a major concern for the company as so much of their content was either a derivative work or uploaded without the rights holder’s permission. That December, the Wall Street Journal reported that the company was looking to raise $150 million with a valuation of $1.2 billion; however, the round never closed.

During 2014, SoundCloud introduced On SoundCloud and later On SoundCloud Premier, programs similar to YouTube’s partner program. On SoundCloud Premier offers members a way to make money from their music directly. SoundCloud never specifically provided the public with details about how these programs work, but it seems to concerned content-related ads, as well as working with brands to create sponsorship packages, which are then offered to On SoundCloud Premier artists. These programs are still in operation but very little has been shared about their success.

In January 2016, SoundCloud was able to raise $35 million in financing. Along with a round of layoffs later in the year, this transaction pushed the company a little further away from bankruptcy. It also wasn’t until 2016 that all the label deals were finally secured, which gave the company the opportunity to introduce SoundCloud Go and Go Plus, a paid monthly subscription that grants users access to all 150 million tracks in the library, essentially designed to compete directly with the music streaming giants.

SoundCloud Go includes the derivative works like remixes and original songs containing samples of popular songs that labels and PROs were finding troublesome, but it was still only about half of the major label content found on Spotify. Many of the big names in popular music including Katy Perry, Rihanna, The Beatles, and Radiohead were not present on the service. Although many of these were later added, to many users, this new Go service was a failure, with many criticizing its confusing interface as a major issue. Furthermore, SoundCloud was a latecomer to this ferociously competitive streaming music space and with a selection of services that offered no real differentiation from that of Spotify and Apple Music.

The SoundCloud Go subscription went on to shift the primary focus of the company away from what really made them successful in the first place. SoundCloud’s embrace of the major labels had the side effect of dispiriting the remix culture that had originally helped the site grow and thrive. Though a content identification system had technically been in place since 2011, SoundCloud began to enforce it much more severely once deals were in place with labels. Suddenly, long-time accounts were being suspended, tracks were being removed, and copyright infringement “strikes” were being issued. Artists that were issued strikes had little recourse and were often directed to take their problem up with the original rights holders.

There are still possibilities for acquisition or further funding that could save the company. Ljung wrote in a blog post earlier in the year that the company raised $70 million in debt this past March to stay in operation while it pursued a reported $100 million in additional investment. It has yet to secure that investment and is once again rumoured to be looking for a buyer. There has even been talk of an IPO for SoundCloud in the future; however, this seems very unlikely at this point in time.

In a music era dominated by steaming giants such as Spotify and Apple Music, SoundCloud has been a start-up in stagnation. Though the company found substance with the major labels and was able to launch a subscription as an attempt to compete in the market, this came at the cost of a huge opportunity by losing sight of what made it unique in the first place; serving as a listening platform for non-label controlled content. Many very successful artists today owe their success to SoundCloud. Artists like Lorde, Post Malone, Don Monique, as well as a large percentage of the hip-hop scene today all started their musical endeavours on the streaming platform. Once with the aspiration to become the YouTube of sound, the Berlin-based company has fought to remain viable, challenged by an unproductive business strategy, management problems, and a tenacious music industry.

Bibliography

• Deahl, Dani and Casey Newton. How SoundCloud’s Broken Business Model Drove Artists Away. 21 July 2017. <https://www.theverge.com/2017/7/21/15999172/soundcloud-business-model-future-spotify-streaming>.
• Feldman, Brian. The Potential Death of SoundCloud Should Scare Music Lovers. 13 July 2017. New York Magazine. <http://nymag.com/selectall/2017/07/soundcloud-shutting-down-what-happens-to-the-music.html>.
• Hogan, Marc. The SoundCloud You Loved in Doomed. n.d. <https://pitchfork.com/thepitch/the-soundcloud-you-loved-is-doomed/>.
• Ljung, Alexander. A note from Alex Ljung. 6 July 2017. The SoundCloud Blog. <https://blog.soundcloud.com/2017/07/06/note-alex-ljung/>.
• Mac, Ryan. The Inside Story Of SoundCloud’s Collapse. 28 July 2017. <https://www.buzzfeed.com/ryanmac/inside-the-storm-at-soundcloud?utm_term=.fhKOo3YRl#.yxbbxnM8v>.
• Titlow, John Paul. Is SoundCloud Doomed? Here’s How It Can Be Saved. 7 July 2017. <https://www.fastcompany.com/40438186/after-major-shakeup-where-does-soundcloud-go-from-here>.

By Alexander Stewart

Comments