Even SoundCloud signs licensing deal with Universal, future may be in doubt

Founded in Sweden in 2007 by Eric Wahlforss and Alexander Ljung, SoundCloud Inc. is currently headquartered in Berlin and registered in London. The privately-owned company employs nearly 300 people in Germany, Great Britain, New York, and San Francisco.

The internet is abuzz with doom-and-gloom reports about the precarious financial status of SoundCloud. On February 18, Tech Times reported that the international audio distribution platform is deeply in debt, having hemorrhaged more than $40 million in the fiscal year 2014. Wired names the sum of SoundCloud losses in excess of $44 million.

Both of the aforementioned reports are based on a financial statement that SoundCloud Ltd. filed in the UK last week. Granted, the SoundCloud Ltd. directors’ report and consolidated financial statement referred to describes financial data that is now more a year old, but it does open the door to questions about the company’s stability.

DigitalTrends indicates some 175 million registered SoundCloud members use the platform to share more than 110 million audio tracks with each other and the world. From 2007 until 2014, registered users could upload and share audio on the site for free. In 2014, the worldwide streaming service introduced an ad-funded tier of service featuring Warner Music Group as the first major SoundCloud advertiser. They probably won’t be the last. As of 2016, SoundCloud boasts more than 100 advertising partners and is actively wooing a number of new advertisers in anticipation of the audio-sharing platform’s revamped paid service policies.

A spokesperson for SoundCloud spoke to Billboard about the company’s plans.

“We are in ongoing conversations with major and independent labels and will continue to add partners to the program. We’ve always put control in the hands of creators, and anyone who makes music and audio can decide when and how they want to share it with fans, allowing artists to essentially broadcast out to the world the availability of new content.”

One reason SoundCloud has remained afloat despite staggering losses is capital investment. The Chernin Group and US-based Institutional Venture Partners (IVP) each contributed an undisclosed sum to SoundCloud’s coffers in 2014. According to the same source, SoundCloud investors contributed a hefty $77 million in funds to the cash-starved company the next year. In 2015, Twitter considered and subsequently rejected the idea of making an all-out purchase of SoundCloud.
In response to the recent flurry of worry about SoundCloud, the company made the following comment.

“We’re focusing on enabling creators to get paid for their creativity and on building a financially sustainable platform that our community can enjoy for years to come.”

Last November, SoundCloud launched a new mobile app that allows music creators to upload and share songs privately and publicly, view performance statistics, and interact with listeners via comments. At the time of this writing, SoundCloud Pulse is available only for Android devices, but a fully functional iOS app is on the horizon.


For SoundCloud, it marks another step up from the deal with Universal Music Group — which owns labels like A&M Records, Blue Note Records, Capitol Records, Decca, Def Jam Recordings, Deutsche Grammophon, Island Records, Motown and Polydor and represents artists as diverse as Avicii, Bob Marley, the Beatles and Justin Bieber — the ability to collect royalties when its artists are played on the platform, and to use SoundCloud’s marketing tools for further promotion.

“At UMG, we have long­ embraced empowering entrepreneurs and innovative services such as SoundCloud,” said Lucian Grainge, Chairman and CEO of Universal Music Group, in a statement. “With this partnership, we’re ensuring recording artists, songwriters and labels benefit, both creatively and commercially, from the exciting new forms of music community engagement on SoundCloud. We look forward to working with SoundCloud and supporting the company’s evolution into a successful commercial service.”

Universal’s agreement is SoundCloud’s third large label deal, in what has been a fairly slow-moving process. SoundCloud announced its first big label deal only in November 2014, with Warner Music. An agreement with Merlin — which represents some 20,000 independent labels — came in June 2015.

But still to come is a deal with Sony Music, the world’s largest music publisher. Sony has had a longstanding agreement with Spotify, and very recently Sony/ATV finalised a deal with another streaming service, the online radio Pandora, which recently acquired Rdio assets.

One big challenge for SoundCloud will be how the platform adds all of this without compromising itself. As is often the case for sites that are not initially built around monetization and gather strong and loyal followings, adding in revenue-generating features could come at the expense of the current user experience, which is indeed unique.

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