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Spotify drops plans to buy SoundCloud

By | Published on Friday 9 December 2016


Spotify has abandoned plans to buy good old SoundCloud, according to the Financial Times. The former is seemingly worried that the costs and licensing challenges of acquiring the latter would slow down its own march towards an Initial Public Offering.

SoundCloud, of course, is busy trying to re-establish itself as an advertising and subscription funded streaming set-up that pays royalties over to creators and rights owners, rather than being a content distribution platform that generates its revenues by charging the same creators and rights owners for its services.

However, even though it boasts a larger catalogue of tracks than its competitors because of user-uploads, and despite its popularity among opinion formers and early adopters in the music community, that’s a very competitive market for SoundCloud to be moving into, where it is up against a small number of major players with very deep pockets.

Many people reckon that SoundCloud’s future is only assured if it can be acquired by a bigger company, though the firm’s $700 million valuation means the list of potential bidders is pretty small. Spotify has been mooted as a possible bidder at various points, and most recently in September when “advanced talks” were reportedly under way.

There is some logic to such a deal – if Spotify could get the price down and negotiate primarily an equity swap – because it could use SoundCloud as a big fat marketing platform via which to sell its premium subscriptions, possibly ultimately instead of its own freemium level. However, sources indicate, attempts to get the price down to a realistic level for Spotify to go through with such a purchase ultimately failed.

For Spotify, which has really stepped up its above-the-line marketing efforts of late, the priority now is showing continued rapid growth in key markets ahead of that IPO, which really needs to come sooner rather than later because of deals the company has done with some of is financiers.

Meanwhile long-term success is reliant on reaching sufficient scale that the minimum financial guarantees it has to make to the record companies, music publishers and collecting societies are always outperformed by the music rights owners’ revenue share arrangements, so that the digital firm gets to keep 25-30% of its income, hopefully allowing it to ultimately go into profit year-on-year worldwide.

As for SoundCloud, well, who knows? Who’s got a spare $700 million lying around and then a few billion to further grow the business? Anyone?