SoundCloud's Future Under Microscope After $70 Million Loss

Caitlin Johnstone

SoundCloud has shocked the digital world by posting $70 million in losses over the last two years and only $16.8 million in profit. Many in the industry are wondering how SoundCloud is going to survive.

A favorite of many independent and professional artists, Berlin-based SoundCloud allows users to upload audio content and share it with other Soundcloud users, and on other social media networks. You can find all sorts of things on there from the sounds of space uploaded by NASA, to R.Kelly's latest single. It has a massive user base of nearly 200 million users across the globe, which has made it very attractive to investors, but hasn't translated to profits.

The introduction of ads similar to the YouTube model was touted as the solution to the company's revenue problems back in 2014, but has only improved the bottom line marginally. The news that SoundCloud doubled its losses from 2013 to 2014 has industry insiders fear it could be the next to go in the streaming music world; last year, Rdio filed for bankruptcy and was salvaged by Pandora, and Grooveshark died a sudden death following an arduous string of legal battles with major labels. Unless SoundCloud finds a profitable business model, bad luck could happen in threes.

Billboard insists that SoundCloud is merely spending money to make it, and reports that the company received $77 million in investment funds last year and is planning on bringing in more funding in 2016. This is a reasonably common business model in the digital space, the most famous example being Twitter which existed on investment funding for many years before being listed on the stock exchange and exploring revenue streams like advertisements. SoundCloud has concluded that it will have to operate in the red while they find their groove, and rumors of licensing deals with companies such as the Warner Music Group would suggest they are on the verge of bringing in big money.

One such deal was announced in January with the Universal Music Group. However, as recently as May last year, Sony pulled their artists including Kelly Clarkson, Hozier, and Adele from SoundCloud, saying that there wasn't enough money in it to warrant their presence there. In June, though, in another turnaround typical of the SoundCloud's waxing and waning fortunes, SoundCloud announced they had signed on 20,000 independent artists through the Merlin, the global rights umbrella agency for independent labels. It's a case of swings and roundabouts for the music streaming giant.

Other rumors include the addition of a paid subscription service like their major competitors Spotify and Pandora. A recent announcement of the inclusion of stations on their facebook page would indicate they are moving in this direction.

It's SoundClouds unique social media aspect that makes it different from all other offerings in the music streaming space. The community aspect of SoundCloud appeals to musicians as they can support and be supported with hearts and comments. It's this aspect that makes SoundCloud the most beloved by artists, but also makes it the most difficult to monetize. Social media has to be social - that is, people must be allowed to converse and collaborate freely. This is why many experts believe honing their advertising offering is their best bet. This means though that the real threat is if the musicians and producers get nervous and start pulling their content, like the great MySpace exodus. If the users get too jittery, they could leave and take the company with them.

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