The future of SoundCloud looks bleak

SoundCloud expects to lose money for the next three years.

 

Samantha Grasso

Streaming

Published Feb 12, 2016   Updated May 27, 2021, 5:37 am CDT

Might B.o.B. and Neil deGrasse Tyson have to take their mixtape beef elsewhere?

According to the Financial Times, music streaming service SoundCloud could be in trouble unless it raises additional capital in the next 12 months. At the end of 2014, SoundCloud reported a gain of $17.35 million in revenue for the year, yet experienced a loss two-and-a-half times its growth of $44.19 million.

In the 2014 report, KPMG, SoundCloud’s auditor, said the streaming service’s need for additional funding indicated “a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern.”

According to Music Business Worldwide, from 2012 to 2014, the Berlin-based streaming service lost nearly $85 million and only gained $42 million. In addition, SoundCloud’s administrative expenses increased 67.8 percent to $54 million, with the total expenditure on wages and salaries raising 42.5 percent to $20 million.

The Financial Times wrote that while SoundCloud was valued at $700 million in a funding round in 2014, the company has only recently made strides to generate revenue, and expects to continue to lose money for the next three years.

Shane Morris, formerly with Sony Music, told the Daily Dot that SoundCloud could make money if its hosting strategy changed to benefit artists. (Disclosure: Morris is a one-time contributor to the Dot.)

The service requires artists pay tiered-rate subscriptions to host music, a business model that Morris said doesn’t represent how relationships between artists and fans actually function.

“If SoundCloud was wise, they would allow artists to set the price of streaming costs,” Morris told the Daily Dot. “Either they’ll make it through to the next year or they’re going to [be kept out] because they don’t have a good monetary platform.”

Morris said restructuring policies on the use of sampled music on tracks uploaded to the site, and on bot user accounts that produce counterfeit plays, could also help the service’s future. But fundamentally, he said, artists don’t have enough incentive to pay for the premium service.

“SoundCloud allows those [bot] accounts to exist for a very long time because if you’re an artist… you want to see your chart go up,” Morris said. “If the artists are paying for the platform, they have to believe that they’re becoming more successful… The only way [for SoundCloud to make that happen] is to show them they’re getting more plays and allow those bots to exist.”

When reached for comment, a SoundCloud spokesperson sent the Daily Dot a statement, noting the service secured $77 million of incremental capital, basically additional capital to generate additional output, in 2015 from existing investors and from a credit line with Tennenbaum Capital Partners.

“SoundCloud users can discover more creators, at all stages of their careers, than anywhere else, and more music and audio: over 18 million creators are using the platform, sharing well over 110 million tracks, and reaching 175 million monthly active listeners,” the statement said. “We’re focussing 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.”

Update 9:35pm CT, Feb. 12: SoundCloud statement attributed to SoundCloud spokesperson.

Photo via mrhayata/Flickr (CC BY SA 2.0) | Remix by Jason Reed

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*First Published: Feb 12, 2016, 6:45 pm CST