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SoundCloud, Will It Survive?

The faults of the modern music business are coming full circle. In short: no one, outside of a few top-level artists, business men, and promoters, are making any money, and it’s coming back around to bite the industry and the fans in the ass. Nowhere is this more visible right now than with the SoundCloud debacle. When online streaming became a mainstream thing, over a decade ago now, it was the blessing the music business needed, torrents and piracy be damned. Fans could listen to music for free, artists could reach a wider audience, and it finally seemed the industry had a leg to stand on after the decade-long collapse of record sales from 1999-2009.

We’ll do a brief history of SoundCloud momentarily. But first it’s important to note that the music business is just as profit-driven and selfish as every other industry. Despite musicians’ rantings and ravings about revolutions and societal harmony, the only complaints you’ll hear when the royalty check shows up is that it’s not big enough. Artists flocked to services such as MySpace, Bandcamp, SoundCloud, and others because they were allowed to post and share their music for free. Then, they complained about the decline in record sales along with the rise of illegal downloading and file sharing in the early 2000s.

There’s an old saying in the business world: it takes money to make money. There’s an old saying in America, I don’t recall the exact phrasing but it’s something to the effect of this: If you work your ass off, you deserve to make a living and maybe even improve your status in life.

I think both of these phrases, the latter in particular, overlook something. The first requirement for making money is solving a problem. Even if that means creating the problem that needs to be solved, it generally takes a solution-based argument to get people to spend money. A businessman notices a need to fill a void in society, so he creates a service or product in order to solve the issue. He needs to get a job done, so he hires an employee. The employee solves the problem, and earns a paycheck as a result. You get the picture.

SoundCloud raised $193 million in funding between 2008 and 2017. The platform became popular quickly, entering the scene and luring independent artists because it gave them a platform they could call home when other streaming services (ahem, Spotify) were more interested in big-name artists that brought in big revenue. I have nothing personal against SoundCloud. But I fail to see the problem that they solved. Artists loved it, because they can post music for free. Fans loved it because they can listen to music for free. But there’s no money being exchanged. The only one racking up a bill in the equation is SoundCloud itself.

The EDM world in particular embraced SoundCloud because of the simplicity of their platform for independent DJs and artists. They could test new concepts and remixes, and gauge how well they were received by audiences. All seemed good for a while. Independent DJs retained much control over their music and what they wanted to do with it. Artists and fans were both happy, and the platform became a daily habit for many with nearly 200 million registered subscribers. The one thing SoundCloud has always done well is that unlike platforms like ReverbNation, they’ve never tried to push bells and whistles when they know people just wanted to listen to music. The line of thinking might have gone something like this: Maybe the public will be pulled by our simplicity, and a small percentage will opt-in to a paid specialty feature.

The problems crept in.

SoundCloud first ran into trouble with their copyright policy, which led to intense negotiations with record labels and Performance Rights Organizations. Royalties are tricky business, especially when you’re in a position that requires paying them. As it turns out, SoundCloud learned, a funded startup needs to consistently find ways to monetize in order to keep people (and themselves) happy. The service never had a model that solved any problems that weren’t already being solved. SoundCloud recently made a decision to let go of 173 employees in order to get the company on a “path to profitability,” as noted by co-founder Alex Ljung. This emphasizes my point: had they ever found the path to begin with? SoundCloud never had a great monetization plan. When the public is more keen to spend $5 on a cup of coffee on the way to work than $1 for a song download, brands in the music sphere must get creative to get by. SoundCloud Go, SoundCloud Pro, and SoundCloud Pro Unlimited never caught on the way they’d hoped, probably because they weren’t offering fans anything they couldn’t find elsewhere.

Fans were drawn to SoundCloud because it’s free and because they could find content not available anywhere else. Suddenly trying to be Spotify? Not many people lining up for that. In SoundCloud’s defense, it’s not easy to make money in the music business. They’ve tried a number of approaches. But the dark cloud just won’t pass, and I’d label them extremely fortunate to have received the funding they have.

For any unfamiliar with how business works at the level of 99% of the music industry, which make up the vast majority of SoundCloud’s artist base, here’s a quick scenario:Bar-level clubs pay an artist $2 per head they bring in the door for a gig. Artists bring 15-20 people and walk with less than $50. To pay off their equipment, practice space, and start-up costs they’ll need to play 2 gigs a week for a year at that rate. But playing that frequently kills their draw numbers after about two weeks. Those 15 people, plus another 15 that another artist brings, spend $20 each at the bar, netting $600 for the club. The club pays the sound engineer, bar staff, and security $400 for the night. Electricity, taxes, and other bills eat up the other $200.

The club closes down after two years, and it took a small, lucky handful of successful weekend gigs to keep them going even that long. Online streaming services are much the same. It takes a brilliant stroke of genius to find a new way to get someone to open his or her wallet.Since news of the company’s financial troubles came to light, there has been much speculation about whether the service will survive, or if they will go the way of so many clubs and labels.

The company claims it’s not going away anytime soon.

I believe them when they say that. I don’t think we’ll wake up to a SoundCloud-less world anytime soon. But I don’t expect them to solve their problems in-house. In order to relinquish themselves from financial peril, they need to sell. SoundCloud is home to 76 million monthly users. That’s a lot of people, including the internet’s largest collection of artists, over ten million. Twitter invested $70 million in SoundCloud last year. This is a palm-to-the-face amount of money when it’s noted that they didn’t acquire the company. That would have made perfect sense – Twitter has many famous musicians with huge followings. Those musicians have to link to another site in their Tweets in order to share music with that following. SoundCloud could have solved that problem, even if only by adding a Myspace-esque music player to the artist’s Twitter profiles. SoundCloud needs to put immense effort into finding another buyer.

There’s got to be a platform where their streaming service and the huge fan base they have to offer will be the perfect complement to round out a diverse portfolio of entertainment offerings. Preferably someone that does the bells and whistles thing better than either ReverbNation or Twitter, but hey – if someone makes an offer, SoundClound’s execs need to show up with a sharp pen and a fine bottle of champagne.

Here’s an open call for a large company that has a music streaming problem.

By | 2017-10-19T09:37:05+00:00 October 9, 2017|Opinion|0 Comments