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article imageSoundCloud joins billionaire club, but will it matter?

By Lidya Patal     Dec 10, 2014 in Music
For all of its recent controversy over its business tactics, giant German music streaming platform SoundCloud seems to have emerged mostly unscathed. Let's take a closer look.
Not only has the company survived, but it looks poised to thrive, with an expected valuation of $1.2 billion should discussions progress on a new financing round that would add more than $150 million to company coffers.
It’s another step toward legitimization for SoundCloud, which decided this fall to introduce advertising on the site for the first time since launching seven years ago. Prior, SoundCloud had earned nearly all of its revenue from charging creators to upload content. SoundCloud has also stated it will launch a premium subscription tier, similar to what Spotify implemented, sometime in 2015.
SoundCloud is hoping the cash infusion will have a two-pronged effect. First, the service needs more capital to compete with fellow global streamers like Spotify, which raised $250 million at a $4 billion total valuation in November 2013, and the smaller Beats Music, which is poised to become a major player after being bought by Apple earlier this year. Second, SoundCloud is hoping that the new valuation will legitimize the company in the eyes of the major record labels, making the likes of Universal Music Group and Sony Music more likely to sign licensing deals.
As of now, Warner Music Group is the only major label to sign a licensing deal with SoundCloud.
From an audience standpoint, partnering with SoundCloud seems like a no-brainer for remaining majors. The service reported that it receives more than 175 million unique visitors a month, almost twice what Spotify most recently reported. Creators on the site upload 12 hours of content every minute. And SoundCloud also has a fervent and devoted user base, on both the creator and consumer sides of the coin, meaning the company has managed to foster a more intimate relationship with its users than other companies.
However, Universal and Sony continue to demur and defer advances from SoundCloud, citing questions about SoundCloud’s business practices and ability to monetize its content. The labels utilize the platform to source new talent and, occasionally, major label artists will release and workshop new music on the site, but they have said they need to see more of a commitment from SoundCloud on profitability and anti-piracy.
While the site should rejoice at its approaching billion-dollar valuation, SoundCloud still faces an uphill battle. That’s because despite SoundCloud’s recent efforts to add revenue streams and appeal to investors and partners, the site’s foundation is built on something different from Spotify, Beats Music and Pandora. While, like those sites, SoundCloud does feature full albums and songs from artists, much of its music content consists of remixes, mash-ups and similar tunes created by bedroom DJs and amateur artists. These tracks are hard to monetize and even harder to explain to the major labels, whose artists’ songs are often co-opted by the SoundCloud creative collective, turned inside out and flipped upside down and turned into something different.
And while you could debate the ethics of music creation — and many have — the major labels are increasingly seeing it as nothing more than simple copyright infringement.
More about Soundcloud, Universal Music Group, Warner music, Sony music, Spotify
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