Reports that the music streaming service Spotify is in “advanced talks” to buy Berlin-based start-up SoundCloud initially sound exciting. Spotify has recently raised £695m in debt financing, meaning it can add to its resources without accepting a lower valuation. This frees up a lot of money and resources for the company to expand its offering – which, presumably, is where SoundCloud comes in.
There’s an immediate and obvious reason why Spotify wants to absorb SoundCloud – its audience. While Spotify caters to a more mainstream audience (Justin Bieber, Drake and Ed Sheeran count among the platform’s most-played artists), SoundCloud has fostered a more subcultural ethos.
The early days of the site were dominated by bedroom producers and at-home enthusiasts, encouraged by free downloads and illegally snaffled samples – a user base that Spotify could significantly benefit from.
Spotify also spends around 80 per cent of its revenue on licensing fees; SoundCloud’s focus on original content could bring overall costs down, potentially helping Spotify prepare for an IPO.
On SoundCloud’s part, the benefit isn’t just financial – the deal could potentially help with the site’s numerous licensing issues. Unlicensed mixes are frequently taken down from the site, and its copyright detection systems are less than perfect, with musicians frequently complaining about original mixes taken down from the site because of mistaken copyright claims.
Spotify, on the other hand, has the aforementioned rolling licensing deal with three major music companies – Universal Music Group, Warner Music Group and Sony Music Entertainment. It could also be argued that the deal is less of a choice and more of an inevitability for SoundCloud – the company is losing revenue at such a rate that a deal with Spotify could literally be make or break.
Moscoman, a musician who posts mixes on SoundCloud and also founded his own label, has mixed feelings about the deal. “On the one hand, it’s a fundamental source of underground electronic music and in that respect can be the wild, wild west of low-scale music plays,” he says. “But on the other hand, it does generate millions of clicks and plays, most of which don’t generate any actual revenue.”
As an artist using the service, he believes he could ultimately benefit from the change. “As a music lover? I’d prefer it if they just let it be, because there isn’t a better platform to host and push new music in this way. But as a musician, looking at making music not only for myself but for my artists, they should start paying us for the traffic. Spotify could be a good carrier for that.”
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