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SoundCloud confirms $60 million in new investment, so where next?

By | Published on Monday 27 January 2014


Audio-sharing platform SoundCloud confirmed last week that it had raised further investment from the likes of Institutional Venture Partners and the Chernin Group.

According to the Wall Street Journal, the digital firm secured $60 million in the latest round of financing, which was actually completed late last year, valuing the company at around $700 million. A spokesman for the business told the Journal that the new loot would “allow SoundCloud to grow more rapidly in product, personnel and expansion in mobile efforts”.

SoundCloud has at times positioned itself as the “YouTube of audio”, and that line seems to have appealed to IVP. The investment firm’s Somesh Dash and Dennis Phelps wrote in a blog post last week: “Our core investment thesis for SoundCloud is centered around our belief that [it] will become the dominant online digital delivery platform for audio in much the same way that YouTube has become the dominant online platform for video”.

But, of course, to date, while SoundCloud has operated akin to YouTube in providing tools via which rights owners can distribute their content for free, it hasn’t taken the next step in helping content firms monetise their output. Its business model is based on upselling premium services to the content owners (more capacity and analytics), rather than selling advertising (or even subscriptions) around its users’ audio and taking a cut of the money.

Given how much the internet advertising space is dominated by a few major major players, and how tricky, therefore, it is to make ad-funded internet businesses work, there is a logic to SoundCloud’s approach to date. Though it is based on the assumption that content owners continue to recognise the promotional value in making their audio available for free via the SoundCloud player on their own sites and social networks, and/or to the SoundCloud community of content consumers.

But, even though SoundCloud remains popular amongst artists, producers, A&Rs, bookers and music journalists, for artists and labels it is arguably sensible to direct fans to tracks on YouTube or Spotify-type platforms, where the content distributor pays a royalty. The per-play pay outs may be tiny, but they are better than zero. And where an artist or label doesn’t own all the rights in a track, their content is much less likely to be blocked on YouTube and Spotify, because the other rights owners will also receive royalty payments.

Which means that every time SoundCloud secures new investment, rumours run rife that the firm is busy negotiating YouTube-style licensing deals with the record companies and music publishers. Though such deals would shift the SoundCloud business into a very different domain, and one where most of the leading players are operating at a much higher loss at the moment. Unless, perhaps, SoundCloud could strike up a Vevo-style arrangement with the majors, whereby the company helps the labels to monetise their SoundCloud content, but puts the ad-selling onus onto the content owners by promising them a bigger cut.

It will be interesting to see how this all develops in 2014.