Entertainment / Music Business / Organizational Strategy

Spotify in Process of Buying SoundCloud

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The music industry is clearly moving away from physical CD sales and downloads and further into the streaming industry. Audio streaming has increased by nearly 100% this past year while digital albums, tracks, and physical CD albums have decreased in sales by over 50%. For Spotify, the world’s largest paid streaming service with over 100 million monthly subscribers and 40 million of those subscribers paying according to Statista, this seems to be good news. But with such an attractive industry, new competitors have arrived as of late. Spotify now has to compete with streaming services such as Apple Music, Pandora, iHeartRadio, Tidal, and Amazon Prime Music all attempting to take control of the industry.

chartoftheday_5866_online_music_listening_platforms_n

Chart courtesy of Statista

In an effort to maintain its spot at the top, Spotify has recently been said to have been in talks of acquiring SoundCloud. The streaming services are very similar in price structure in that both offer a $9.99 per month subscription for unlimited, ad-free music. The companies differ, however, in their content. Spotify features primarily your mainstream artists: Drake, Rihanna, Taylor Swift, basically whatever you hear on the radio, you can hear on Spotify. SoundCloud has more of an underground startup feel for most artists. Artists who are just starting out and attempting to gain a following usually utilize SoundCloud. You can still hear most popular artists, but at the price of paying the monthly fee. This mix of popular and up-and-coming artists has turned into success for the company, as it has stated that it has 175 million monthly users. This new service, called SoundCloud Go, debuted in March of 2016. Since then, the company has shown a 43% increase in revenue, stating that it made almost 28 million dollars this year. As a result of this, SoundCloud has appraised itself at 1 billion dollars to Spotify.

So why would Spotify want to purchase SoundCloud? Although sharing a similar pricing model, Spotify has posted net losses every year since 2010. Due to attaining $1 billion in debt financing, the company has stayed afloat. An acquisition of SoundCloud would be beneficial to numerous parties. Spotify would gain new revenue due to SoundCloud Go and an addition of millions of users. SoundCloud would gain valuable help from the largest company in the music streaming industry. Additionally, the up-and-coming artists that use SoundCloud would gain new followers from Spotify’s users. The deal would easily make Spotify the outright leader in the music streaming industry. For a company posting so many years of net losses, the addition of a company on the rise like SoundCloud would be a great benefit.

As for other music streaming services, the leaders may need to follow in Spotify’s footsteps to compete in the industry. Apple had been rumored to be in talks with purchasing Jay-Z’s streaming service Tidal to compete in the industry. We may be seeing more aggressive maneuvers by the leading streaming services in upcoming years, whether that be by creating new pricing models rather than a $9.99 per month subscription or by merging with or acquiring other streaming services. It would not be surprising to see a few large scale music streaming services just as there are a few large scale video streaming services in Netflix, Amazon Prime Video, and Hulu. An acquisition of SoundCloud may even result in Spotify expanding its business into other fields of music and streaming. The company could create a record label to support the up-and-coming artists on SoundCloud, an idea that does seem far-fetched but is possible for such a large streaming service. It also would not be surprising to see Spotify expand into the video streaming industry if it has newfound success and profit from an acquisition of SoundCloud. And if Spotify can do it, what would stop video streaming giants Netflix and Hulu from joining the music streaming industry? These are just broad predictions, as Spotify has not made any moves to show interest in these fields, although it was rumored to be looking at video streaming options for its music in 2015. As for now, Spotify will continue to lead the music streaming industry and that industry alone.

Sources:

http://www.musicbusinessworldwide.com/spotify-revenues-topped-2bn-last-year-as-losses-hit-194m/

http://www.youredm.com/2016/10/04/soundcloud-recovers-43-increase-revenue-2016/

http://www.theverge.com/2016/6/20/11976554/spotify-has-over-100-million-active-users

http://pigeonsandplanes.com/in-depth/2016/03/soundcloud-go

https://www.statista.com/chart/5866/online-music-listening-platforms/

http://www.forbes.com/sites/hughmcintyre/2016/09/28/report-spotify-is-in-talks-to-buy-soundcloud/#6f411c446a49

http://www.billboard.com/articles/business/6560786/spotify-web-video

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