SoundCloud’s Rebirth
Per the fiscal 2017 filing, SoundCloud has taken “significant steps to improve its financial health,” including renegotiating certain rightsholder contracts, retiring outstanding debt and cutting major operating expenses, and it achieved positive operating cash flow in 2018.
While its 2018 results will not be available until later this year, SoundCloud says it has surpassed its 2018 growth plan and remains focused on two major ideas: expanding its creator business with a suite of useful artist tools and offering a unique listening experience for its “young, trendsetting, global music fans.” The latter will be increasingly tough as Spotify, Apple Music and other big streaming services solidify their place as market leaders, but the former — a focus on music creation — is something in which SoundCloud remains unsurpassed.
SoundCloud is a popular subject on this blog and, yes, there was a time when we contemplated the service’s possible demise. It’s astonishing that SoundCloud once made a go at Spotify and Apple Music, and the ensuing failure was arguably the direct result of an overreach to attract a mass audience.
I’d say ‘SoundCloud rap’ saved the platform’s bacon. This phenomenon was bubbling hard during the depths of SoundCloud’s financial woes and surely pointed the way out: by doubling down on a core user-base of
🔗→ SoundCloud, Making $100 Million a Year, Is Back on Solid Ground
Sources say {SoundCloud} has been trying to raise more than $100 million since last summer, without success. It has also talked to potential acquirers, including Spotify, without closing a deal.
The upshot, according to people familiar with the company: SoundCloud is now at a point where it may sell for less than the $700 million investors thought it was worth a few years ago. One source thinks it will consider bids, as long as they’re above the total investment it has raised to date — about $250 million.
SoundCloud’s struggle is taking place while there’s renewed investor interest in streaming music. Even though the industry’s economics are challenging, users have embraced streaming, and are even willing to pay for it: Spotify, which would like to go public next year, says it has more than 50 million paid subscribers worldwide. Apple Music says it has more than 20 million paid subs. {SoundCloud} says it has 175 million monthly unique users, but it hasn’t updated that number since 2014.
With Pandora experiencing similar woes, it would seem that a tech company wanting to enter the music landscape could make a big splash by acquiring both SoundCloud and Pandora at a good price and combining their users. Maybe one of these will be interested?
Update: SoundCloud forges ahead … this just in from Hypebot:
Beginning today, SoundCloud is inviting DJs and producers who create sets, remixes and other forms of creative works to join its Premier program to earn revenue for the tracks they share on SoundCloud.
Premier creators can monetize their content and earn a portion of the revenue generated by subscriptions and advertising on SoundCloud. Acceptance is still “invite only,” but you can apply here.
SoundCloud has not shared how many artists are Premier members, its criteria for acceptance, or how revenue is shared with creators.
The Financial Times reported in September that {SoundCloud and Spotify} were in “advanced talks” over an acquisition — things went pretty quiet after that, but we now understand that the deal died this past week. The source told TechCrunch that the company ultimately walked away because it feared that an acquisition could negatively impact its IPO preparation.
Spotify hasn’t officially said it will go public in 2017, but there has been plenty of speculation, including a funding round with incentives tied to a listing. The source said Spotify went cold on SoundCloud because “it doesn’t need an additional licensing headache in a potential IPO year.” That’s in reference to the complexity and financial cost that comes with negotiating with music labels, something that is hugely important to SoundCloud, which has a far larger catalog of tracks than other services because it caters to creatives, indies and remixers.
Spotify is reported to have declined to acquire SoundCloud two other times over the past two years, the FT said, with a proposed price apparently the sticking point on those occasions. Beyond expanding Spotify’s ad network and userbase, a deal was seen as key to strengthening its position as well-funded competitors ramp up their music services.
Music Industry Blog wondered back in September if SoundCloud has already peaked:
Throughout the 2010’s Soundcloud’s growth was impressive, growing from 1 million registered users in May 2010 to 150 million by December 2014. But registered user numbers only ever tell part of the story. The most telling statistic is Soundcloud’s Monthly Active User (MAU) number: 175 million. Impressive enough, and 50 million more than Spotify’s 125 million. But Soundcloud hit that number in August 2014 and it hasn’t reported a bigger number since. In fact, it could well be that Soundcloud hasn’t actually issued a new number since, but instead has simply being restating that number. If it had grown, you can be sure we’d have heard about it. If it had fallen, perhaps not.
With the introduction of SoundCloud’s paid ‘Go’ service and external pressure to become a more commercial enterprise, there’s been heated speculation that the site might forgo its commitment to the independent musicians and DJs who have been SoundCloud’s emphasis. Today’s news, though a minor announcement to most, may be a signal that music creators will remain the focus of SoundCloud’s long game. Via FACT:
SoundCloud has announced a partnership with online mastering service LANDR that means all users can get free track optimization for the streaming platform. The partnership sees SoundCloud focusing once again on its original market of music creators rather than consumers after the launch of its paid subscription service, SoundCloud Go.
A LANDR spokesman said: “We use exactly the same algorithms but we did some research to find the best output for optimizing the sound of any track on the SoundCloud streaming format. The optimized tracks will only be hosted on SoundCloud and not in LANDR’s track library. It is really aimed at streaming on SoundCloud."
Professional mastering is regardless still mandatory for commercial release (seriously … please), but this is a smart move that not only gives the music uploader a little something extra out of using SoundCloud, but also improves audio consistency throughout the site.
Update, via Ars Technica:
Landr’s landing site describes the mastering process as “complicated and elusive,” then insists that its product, which is almost entirely algorithm-driven, delivers a quality product for small-fry musicians by intentionally limiting how many options they can pick from. “Great design is all about limiting the field,” Landr says. As a result, the company touts that “we’re confident you’ll hear the difference” between professional mastering work and what Landr can pull off.
After our tests of SoundCloud’s new Landr functionality, we can safely agree with that statement—in every bad way possible.
Apple has announced an agreement with Dubset Media Holdings that will allow Apple Music to stream remixes and DJ mixes that had previously been absent from licensed services due to copyright issues.
Dubset is a digital distributor that delivers content to digital music services. But unlike other digital distributors, Dubset will use a proprietary technology called MixBank to analyze a remix or long-form DJ mix file, identify recordings inside the file, and properly pay both record labels and music publishers.
Licensing remixes and DJ mixes, both based on original recordings, is incredibly complex. A single mix could have upward of 600 different rights holders. According to {Dubset} CEO Stephen White, a typical mix has 25 to 30 songs that require payments to 25 to 30 record labels and anywhere from two to ten publishers for each track. The licensing has been done in-house at Dubset. Thus far the company has agreements with over 14,000 labels and publishers.
*In many ways, Dubset is like any other distributor. The {streaming} service pays Dubset for the content. Dubset then figures out which label and publishers to pay. It retains a percentage of revenue for the service and pays the creator (the remixer or DJ) a share of revenue. *
Apple is just the start, says White. “The goal is to bring this to all 400 distributors worldwide. When you think about unlocking these millions of hours of content being created, it’s significant monetization for the industry.”
Much of the coverage I’ve seen, such as this article in FACT, assumes that Apple Music will use this alliance to go after SoundCloud. I have my doubts. For one thing, user-generated content isn’t really Apple’s bag (and adding this to the already muddled Apple Music interface would just create more headaches for casual users). My guess is that Dubset’s involvement is related to Beats One (and the inevitable Beats Two, Beats Three, etc) and making the station(s)’s sets ‘on demand’. Presently any radio sets that are on demand will have to consist of 100% pre-cleared music. I bet Apple would love to create more on demand content from the Beats station(s) without restricting their celebrity guest DJs. They would also be able to integrate featured guest DJ sets in Apple Music’s curated ‘For You’ section. Based on the timing of this announcement, I’m wondering if we might hear more at Apple’s event next week … there are rumors of a much-anticipated Apple Music overhaul.
As for SoundCloud, this news bodes well rather than being “ominous”. Apple doesn’t have an exclusive deal with Dubset, as the company openly aims to bring this technology to “all 400 distributors worldwide.” Having a huge corporation like Apple be one of the initial adopters will do a lot to convince others to come on board. What the technology accomplishes, once accepted throughout the industry, should do much to push ‘remix culture’ forward as it goes legit. And SoundCloud, who already dominate the niche of user-generated mixes and content, could end up coming out on top. Dubset’s tech, after all, seems to solve most of the problems that rightsholders have with SoundCloud’s service.
SoundCloud has now finalized an incredibly important licensing deal with Universal Music Group, according to details confirmed by both sides Wednesday morning. Exact details on the tie-up are still trickling in, though SoundCloud is likely paying a handsome pound-of-flesh for UMG’s blessing. That probably includes a sizable equity share for Universal, with upfront payouts also a possibility, according to top-level details not yet confirmed.
The deal leaves Sony Music Entertainment as the lone major label not licensing Soundcloud, with Sony CEO Doug Morris demanding for more tear-downs and payouts than other big label CEOs. As UMG crosses the line, earlier sources predicted that Sony would be more likely to forge an agreement as well, though that still remains a separate negotiation.
With some punishing (and somewhat speculative) details of the arrangement outlined in this article, and the real possibility that Sony will want even further concessions, there’s little likelihood that SoundCloud will resemble its present form this time next year. The service does have the advantage of a huge active listenership as it begins this transformation, but it’s safe to say the majority of those users are interested in what makes SoundCloud different and more interactive than the other digital service providers. If new stipulations force SoundCloud to homogenize towards another free tier / subscription tier streaming service then it’s anyone’s guess how they will fare.
Music streaming service SoundCloud has struck a licensing deal with UK-based music rights group PRS for Music, settling a lawsuit and in turn clearing an important hurdle on its way to launch a full-fledged music subscription service. Now, the company just has to get other rights holders back to the table.
SoundCloud has been working for some time on launching a paid subscription service similar to Spotify or Apple Music. However, the company also wants to keep user-generated uploads, remixes and DJ sets on its platform. To this end, it has been looking to offer rights holders the ability to monetize user-generated uploads, similar to the way YouTube has been doing it in the video space.
MBW: Do you get a genuine sense from SoundCloud’s side that they have a business ambition to succeed with a subscription platform – and that they’ll remain solvent long enough to do so?
Robert Ashcroft (PRS CEO): It’s clear from our discussions with them that is their intent. I know they have good financial backing. We’re very hopeful that this will be a major service. It has its own particular personality and there’s room in the market for lots of different takes on music services. We do believe that they’re sincere in the evolution of their business.
MBW: Vevo’s looking at a subscription service, Apple Music is already one; Spotify’s conceding ground on the ‘everything free’ rule; YouTube’s even launched Red – a paid-for tier. Now SoundCloud is starting to behave itself. Is there something in the air?
Robert Ashcroft: We very much hope so. We’ve been very public about our feeling that the playing field has not been level between the different kinds of services. We’ve called on the European Commission to examine the boundaries of who can benefit from the hosting defence under safe harbour legislation and who cannot. We’ve called for a clear distinction between those services that are purely passive, like DropBox, and those that are active in that they provide search, curation and various other means of accessing music. We’re in similar discussions with YouTube. My aim is to create a climate were copyright is valued on the internet, and where all of these services can compete with each other on a level playing field.
We reported yesterday on PRS for Music’s decision to sue SoundCloud for copyright infringement. Over the course of the day, the key contradiction between the two parties’ statements became clear: it’s about whether SoundCloud is willing to strike a licensing deal, and specifically whether that deal would apply to both its existing free service and its upcoming subscription tier.
Meanwhile, it also became clear that this lawsuit may have strong implications for YouTube, not just SoundCloud.
In recent months, when rightsholders have complained about what they see as misuse of safe-harbour protection, they have often grouped SoundCloud and YouTube together as examples. YouTube, of course, has a licensing deal with PRS for Music last renewed in 2013.
If PRS for Music takes SoundCloud to court and wins, delivering a blow to that mooted safe-harbour defence, think how much stronger its hand will be when the time comes (as it soon will) to renegotiate its YouTube deal. Multiple sources have suggested to Music Ally that this is the real significance of the SoundCloud lawsuit. “The stakes are super high,” as one of them put it. Indeed.
2016 may turn out to be ‘The Year Of The Shake-Up’.
FACT:
The Performing Rights Society for Music has taken legal action against (SoundCloud).
In an email sent out to PRS members, the body explains that “after careful consideration, and following five years of unsuccessful negotiations, we now find ourselves in a situation where we have no alternative but to commence legal proceedings against SoundCloud.”
PRS is responsible for collecting publishing royalties for musicians, for radio plays, public performances and more. Its issue with SoundCloud stems from the fact that despite having over 175m unique listeners per month, SoundCloud “continues to deny it needs a PRS for Music licence for its existing service available in the UK and Europe, meaning it is not remunerating our members.”
Now here’s a thorny situation for SoundCloud to address, especially if other PROs (BMI and ASCAP especially) choose to follow in PRS’s lead. There are rumblings that indeed these US counterparts are also considering action. I’m thinking an amicable resolution is required as part of SoundCloud’s impending alliances with the three majors (see below) but, if not, is it a realistic possibility that litigation from the publishing royalty collectors could finally bring the site down, Grooveshark-style? Do the majors, with their shiny new percentage stakes in the company and cash advances, even care?
Let’s reminisce about the early days of SoundCloud, pre-2010. It was a godsend to producers and musicians, promising a social network where they could not only post and share their own material, but also create embeddable players for their own sites. I know I was excited and, like many, ponied up the $500+ a year fee for the convenience and potentially powerful new avenue for self-promotion. I believe this was the early intention of SoundCloud: a place for audio content creators to share and promote their own material, and royalty and rights weren’t a concern. The fact that we’re uploading our own material implies compliance, and how easily we can spread our SoundCloud players was an agreeable trade-off.
Of course, SoundCloud’s growth seems to have gotten in the way of that good thing we took for granted. Remember the numerous times the site was down five years ago? Running all those audio streams isn’t cheap, and I’m figuring the powers that be saw mainstream adoption as a way to solve revenue drought. The nearly $1000 a year ‘Pro’ accounts suddenly were reduced to about $99. SoundCloud was becoming less of an exclusive club, and it seems a lot more users – and not just ‘content creators’ – came on board. (Side note: I remember, a mere few years ago, telling a friend to check out my SoundCloud account for my new music. This friend – not a musician, but probably a bigger, more obsessed music fan than me – had no idea what SoundCloud was. Never heard of it. It was an interesting realization that SoundCloud was kind of this insular club house, and this was probably the root of its woes at the time.)
As SoundCloud’s earliest adopters were electronic musicians (who, more often than not, double as DJs), DJ mixes have always been a major part of the offerings on the site. Growth meant that DJ mixes were becoming more commonplace, especially as mixes were the sole offering of many accounts (it would be interesting to know how much DJ mixes make up the total percentage of site content). The issues with these mixes weren’t completely under the radar in the early days – I received a take-down notice for a DJ mix containing a Marvin Gaye track about four or five years ago – but there certainly seemed to be a permissiveness, or at least a fingers-in-ears “nah nah nah” approach to the problem. PRS, in the article above, claims to have been speaking with SoundCloud about this for five years … probably mainly about their represented tracks included in DJ mixes.
It’s far too late, but it would be great to see SoundCloud try to pivot back to their content creator-focused days. Perhaps they can have a two-tiered system – a paid option for musicians to post and embed their own work without the hassle of advertisements, and then one for the DJ mixes and whatever else is being posted outside of the uploader’s copyright authority. I can’t imagine this happening … now that the majors are stake holders I’m not sure that they would like to see SoundCloud re-focus back towards independent and unsigned artists.
But it’s not all bad news for SoundCloud … or is it?
Universal Music Group and SoundCloud are now ‘days away’ from finalizing a momentous agreement, with sources close to the negotiations pointing to a pact potentially by the end of this week. The deal follows a massively-protracted, multi-year and cantankerous tug-of-war over licensing costs and a range of other issues, with critical financiers and a stable of lawyers hovering on the sidelines.
According to key sources with knowledge of the negotiations, the deal with Universal contains a substantial percentage stake in SoundCloud, with a significant upfront payment likely but not confirmed. That bears similarity to ongoing major label licenses with mega-streamers like Spotify, and reflects an interest in capturing an elephantine payout around a ‘liquidation event’.
“The majors are getting more interested in making money around the acquisition or IPO,” one industry lawyer told Digital Music News. “That’s more important than the huge advance but a lot of times they’re getting both.”
Indeed, we may be looking at the beginning of an entirely different SoundCloud, one that would replace billions of unpaid streams with actual payments to rights owners. Great news for artists, right?
Not exactly. Fast-forward a few months, and a fully-licensed SoundCloud is likely to replicate the problems currently dragging rival Spotify, with artists seeing tiny micro-payments while labels hoard gigantic lump sum payments. That includes proceeds from a massive acquisition or Wall Street IPO, something the largest rights owners will now enjoy as part owners.
The entire Digital Music News article is worth reading, as it goes into great detail about these sorts of deals and the aggressive maneuvering of the major labels. As a music publisher myself, I certainly know and applaud the benefit of royalties accrued from DJ mixes – especially those reaching thousands of plays – but I’m not certain that the deals that are being made will deliver for songwriters, especially independent ones. These agreements aren’t being made with the artists in mind, as evidenced by the lack of distribution of the upfront cash payouts (at least the PRS grievance is legitimately in representation of affiliated songwriters). Instead, my concern is that SoundCloud will become crippled or useless as a ‘level playing field’ promotions platform, and we’ll look back wistfully at the site’s golden days as we receive yet another tiny ‘micro-payment’ for our trouble.
Soundcloud is in the final stages of a licensing deal with the Universal Music Group, sources tell MBW. The deal would reportedly give UMG a substantial stake in Soundcloud.
While details of the deal are not yet known, many in the industry question the efficacy of similar label deals with other music streamers which exchange potential revenue for artists for an equity stake for the corporation which artists often do not participate in.
That leaves Sony, the second largest player after UMG, the missing deal in Soundcloud’s monetization strategy; and given Sony forced takedowns earlier this year, a deal may not be imminent.
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