Word broke a few weeks ago that embattled streaming company SoundCloud has offered itself up for sale and is seeking a buyer at a $1 billion price tag.
This is not news. SoundCloud (or, more accurately, SoundCloud’s frustrated investors) have been seeking a buyer for years, and these plans have slowly manifested as features and bugs that you use or curse every day in SoundCloud itself.
In 2011, SoundCloud boasted 10 million users. By 2015, that number had climbed to 150 million.
You remember when SoundCloud became infested with bots four years ago? SoundCloud’s lax account procedures (which didn’t require a verifiable email address for years after the bot invasion began) didn’t just open the doors to wide-scale botting but directly contributed to the “explosion” of registered users on a service which really didn’t give listeners any incentive for registering at all. In 2011, SoundCloud boasted 10 million users. By 2015, that number had climbed to 150 million. Users have always been a common but flawed way to measure a company’s value, and it was widely rumored in the industry that SoundCloud was letting bots run wild all over your tracks to inflate that number. (This was never proven, but they wouldn’t be the first company to do this.)
This search for an exit strategy also contributed to the platform’s urgency in music licensing, which lead to both the unrelenting purge of falsely flagged copyright infringement and to the company’s disastrous SoundCloud Go premium streaming service. As we wrote last month, SoundCloud Go represents a calamity on nearly every level – a “frankenproduct” designed mainly to please investors and licensors rather than lure paying users away from Apple and Spotify.
And yet: After years and with well-connected venture capital investors on its board, SoundCloud remains standing at the altar. A public leak is not how alleged billion dollar companies sell themselves. For one thing: the notion of being “for sale” invites crazy, opportunistic lawsuits and simultaneously destroys leverage among creditors who might be slow to pay lest the new owners abruptly change strategy.
So the news isn’t that SoundCloud is ready to sell. The news is that like many of my friends who regret their youth, SoundCloud is ready to settle.
Unfortunately for SoundCloud, many of its suitors have already moved on.
You couldn’t get the latest Nicky Minaj track on SoundCloud (though you could get 7,000 shitty bootlegs of it). No offense to your Brooklyn jug band but listening to Nicky Minaj is what the consumer wants.
SoundCloud Was Not a Streaming Service
It’s important to remember that streaming music was actually secondary to what SoundCloud was supposed to do. When SoundCloud launched in 2007, playing music on the internet was a pain in the ass, involving plug-ins that often didn’t work.
Video wasn’t much different, and YouTube had been launched to solve a similar problem.
Prior to YouTube, most online video sites required users to pay for accounts before uploading much or any content. SoundCloud was conceived in this environment, before YouTube’s free model had changed the game. SoundCloud’s model wasn’t to provide a site for “exploring” music by fans (much less did it involve an app – the iPhone debuted weeks before SoundCloud launched and allowed no third party apps at the time). Like pre-YouTube video sites, its model was predicated on charging musicians for hosting and serving their material.
This is about as far from Spotify or AppleMusic as you can get, and why larger Silicon Valley companies were not terribly interested in SoundCloud when streaming music became a hot product. You couldn’t get the latest Nicky Minaj track on SoundCloud (though you could get 7,000 shitty bootlegs of it), and no offense to your Brooklyn-based jug band but listening to Nicky Minaj is by and large what the consumer wants out of streaming. And SoundCloud kept charging content creators for hosting, which never made them a profit but represented nearly the only revenue stream they had until this year.
The most interesting parts of SoundCloud have always been the ones that no big money investor cares about.
Buyers Want the Worst, Not the Best, of SoundCloud
The truth is that the most interesting parts of SoundCloud have always been the ones that no big money investor cares much about. Its roster of indie musicians and music lovers is pretty much unparalleled in the world, and with very little coding, SoundCloud would probably wipe out Bandcamp as the #1 destination for independent artists who want to sell their music as well as stream it.
But Bandcamp doesn’t make the kind of money that causes erections to grow in the wallets of Wall Street jagoffs. Taking a percentage of music sales in 2016 is a nice business – Bandcamp has proven as much – but not much of a growth industry. Taking a nickel of each one dollar transaction only works when you’re moving tens of millions of transactions a day. Less than that, and the type of buyer interested in your product changes dramatically (along with the type of car he drives.)
This explains SoundCloud’s bizarre fascination with streaming and getting that Nicky Minaj catalog. People are constantly surprised to learn that streaming makes no money for anyone but it seems like it could, someday, if a bunch of other things happened.
What This Means for Soundcloud and You
After waiting on its perfect lover, SoundCloud is ready to give itself away to the next good enough partner to come along. What this really means is that SoundCloud is not only up for sale, but its primary investors have probably had enough of funding its losses. (The streaming service has been losing money at an astronomical rate.) The company now has major label licensing deals in place but lacks customers for SoundCloud Go.
A larger company many be willing to flip the bill for SoundCloud’s fees and operating costs and package what we currently call “SoundCloud” – streaming, user-submitted content, etc. – as part of a greater package of services to its own users. (Facebook comes to mind, though it’s questionable they would be interested in the low margins of music streaming. It’s hard to imagine too many others, either.)
What this means for artists on the service who have largely taken a backseat (and provided SoundCloud’s only decent revenue stream through all of these adventures in business improvisation) is less clear. The company selling for anything close (or even half of) its $1 billion asking price would be bad news for independent artists. The profile of such a buyer would seem to suggest someone who is going to chase big revenue, and that means riding SoundCloud Go and its licensed catalog of mainstream music to the hilt.
In the short-term, nothing has changed, but nobody should expect the site (or the industry) to stand still. There seems to still be a niche for a site where users can upload music and share it with their friends, and it’s probably about time that users explored them, even if not exclusively. Make streams and sellable mp3s and you’ve got Bandcamp. Or Orfium. Or HearThis. Or a billion other services in this space currently fighting over the pennies SoundCloud could have had but seems determined to leave behind.
Originally published in 5 Magazine Issue #135 featuring Kon, Stephanie Cooke, Gareth Whitehead, Video Clash, 3YB Music Fest and more. Become a member of 5 Magazine for First & Full access to everything House Music for just $1 an issue!