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When Chance the Rapper accepted the award for Best Rap Album at this year’s Grammys, he didn’t just thank his musical collaborators or his family. “Shouts out to every independent artist out there,” Chance said. “Shouts out to SoundCloud for holding me down. It’s another one, baby!”
Anyone who’s followed his rise knows Chance owes much of his success to the streaming audio platform. His release Coloring Book was SoundCloud’s most popular album in 2016, according to the company’s year-in-review blog post, totaling over 100 million plays across the album’s 14 tracks.
Since launching in 2007, SoundCloud has become an invaluable tool for musicians looking to bypass traditional distribution channels. Chance, a fiercely independent artist who vowed never to sign a record deal, knows how to use the platform, building his massive online audience by sharing free mixtapes and one-off tracks directly to his fans.
While indie artists like Chance are thriving on SoundCloud, the privately funded startup has struggled to maintain a steady cash flow. According to a financial statement obtained by Music Business Worldwide, SoundCloud’s net losses totaled $52 million in 2015 and the company is in danger of running out of money by the end 2017. SoundCloud’s dismal financial state prompts speculation the startup may be on the verge of a sale, leaving many to question whether its current business model is sustainable.
Although it’s unclear how SoundCloud can compete with the likes of Spotify and Apple Music in the now-crowded streaming space, the platform provides a unique experience for both artists and fans that other services can’t easily replicate.
“It’s truly a community of music lovers for creators and fans alike,” says ambient-electronic artist Instupendo. “I really appreciate the feedback listeners provide through comments. It’s pretty special to know when your music resonates on a personal level with someone.”
Instupendo (Aidan Peterson) is a 16-year-old high school student from Philadelphia who began making and uploading beats from his bedroom at 13. He’s now an up-and-coming producer in SoundCloud’s thriving electronic music community, boasting more than 23,000 subscribers to his account and over 730,000 plays on his most played track “long live.”
“It had no barriers to entry, and I didn’t need a distributor to upload my music, so it was really a great sandbox in which to start,” says Peterson. “Also, the way it’s integrated with other social media platforms like Twitter and Tumblr has helped push my music in an organic way that doesn’t feel forced.”
In an effort to monetize its engaged network of 175 million monthly users, SoundCloud recently began serving listeners more ads while striking licensing deals with all three major record labels, making music from artists like Adele and Beyoncé available to customers who purchase a $10-per-month premium account. Users can also opt for a $5 subscription, which allows for ad-free listening but blocks most of the service’s major label catalogue.
While the new licensing agreements give DJ’s and producers the freedom to sample or remix copyrighted material without fear of receiving takedown notices—great news for independent artists—the moves met with little optimism that they will significantly help SoundCloud’s bottom line.
“The structure of monetization by both YouTube and Spotify are distinctly more efficient than SoundCloud,” says Peter Berry, founder of the popular SoundCloud channel and music blog Aux London. “I think the subscription concept brought in by SoundCloud’s management was a risky and perhaps impulsive move to save the company rather than to improve the platform.”
As the company has yet to release metrics on its premium accounts, little evidence exists to suggest SoundCloud users are interested in paying to listen to major label artists on the platform. And trying to become profitable without a significant subscription base is almost certainly a losing battle.
“Though there is room [in the streaming market] for a service like SoundCloud and the audience it caters to, it’s a matter of whether the economics of such an audience is enough to sustain the platform,” says MIDiA Research analyst Zach Fuller. “Existing within a larger entity such as Spotify or Apple, where it would be shielded from the immediate need to turn a profit…would still allow it to retain its unique customer base.”
If a sale were to go through to a larger tech company, Fuller expects SoundCloud to be treated as a separate product in the same way as Instagram and WhatsApp after Facebook purchased them.
“What could potentially change would be SoundCloud being used to drive engaged customers over to other aspects of the parent company’s services,” says Fuller.
A prospective buyer should have every incentive to keep SoundCloud’s user-base happy, but it’s unclear how listeners would react to a company like Apple pushing outside services onto such a community-driven platform. The company is clearly struggling to make its current business model viable. It’s likely in SoundCloud’s best interest to sell so it can concentrate on making a product that musicians and fans love to use.
“The best thing about SoundCloud has been that it’s focused exclusively on music, artists and listeners,” says Peterson. “That’s one of the reasons it evolved into the awesome social-music delivery platform it is today. I’d think that [a major tech company] would recognize that, and wouldn’t buy SoundCloud to radically change it to the point where no-one would use it.”