From the consumer perspective, streaming is an enormous step forward in the way we consume music. Instead of downloading tens of thousands of MP3s, we can now simply pay $9.99 a month on the streaming service of our choice and hear all the music we could possibly want.
The problem, however, is obvious. No matter how much they sugarcoat it, the business surrounding music streaming is unsustainable. Even though millions of people are now regular music streamers, none of the major streaming companies have found a viable business model that yields income and also allows artists to be paid fairly.
Take Spotify for example, the largest music streaming service in existence right now, based on subscribers. The company was founded in April of 2006, almost 10 years ago. In January of 2016, leaked stats revealed that Spotify’s overall user base had passed 100 million. In March, Spotify announced that 30 million of those users were paid subscribers. The most impressive numbers come after dollar signs: in 2014 Spotify generated over $1.2 billion in revenue, a 45% increase from 2013.
And still, Spotify lost money in 2014—over $180 million. On top of that, artist royalties paid per stream have gone down, even as revenue and user base grows.
The other streaming competitors have much smaller user bases. At the beginning of 2016, a source revealed to the Financial Times that Apple Music had passed 10 million subscribers. On March 29, TIDAL reported that it has just over three million paid subscribers.
The bottom line: the major players in music streaming are all gaining users, but none of them are turning this $9.99/month deal into a profitable business model, and it looks like they’ve all got a long way to go. Plus competition is more intense than ever before.
The bottom line: the major players in music streaming are all gaining users, but none of them are turning this $9.99/month deal into a profitable business model.
Up until now, SoundCloud hasn’t attempted to monetize their platform beyond minimal advertisements. They’ve been focused on building a user base, fostering community, and being an artist-friendly tool where musicians and creators can upload their music directly and share it easily. They’ve also got the most user-friendly embeddable players on the internet, making them the go-to choice for bloggers, who can write about a song and insert a clean, customizable SoundCloud stream into a post.
This built-in community and user-friendly design has allowed SoundCloud to reach around 175 million users. Many of these users don’t have accounts, but they’ve all used the platform to stream music, even if they do it through a blog, without ever visiting SoundCloud.com.
After years of negotiations with major labels, money issues, and speculation about future planes, SoundCloud finally launched their subscription-based service, called SoundCloud Go, on March 29, 2016. Their model is the same as all the other major streaming companies. It’s $9.99/month for ad-free listening, access to the entire catalog, and offline listening. Free users deal with ads and limited access, with some music only available in 30-second snippets.
So what makes SoundCloud think that things will work out differently for them? Is this really the final answer? The same thing that hasn’t been profitable for three other large and resource-rich companies?
The difference with SoundCloud is that along with a catalog featuring artists from all major labels, the paid-for service will include the thousands of independent artists and bedroom creators who helped build such a strong SoundCloud community. It’s a big draw for users who have become dependent on SoundCloud for music discovery and underground communities, but it’s also something that millions of people have come to expect for free. On the flip side, it’s a chance for those DIY producers to monetize their music through streaming revenue, something that has been impossible for most independent artists primarily using SoundCloud, even when they start to reach hundreds of thousands of people.
So what makes SoundCloud think that things will work out differently for them? Is this really the final answer? The same thing that hasn’t been profitable for three other large and resource-rich companies? Are they banking on converting the casual users to subscribers? Are they just buying time to prevent losing more money and being forced to shut down?
We sent questions to a SoundCloud representative to try and get some answers. Here’s what they said:
When Spotify and Apple Music are both offering unlimited streaming for $9.99 a month and neither of them have reached a profitable level yet, why is SoundCloud deciding to go the same route? What’s different about SoundCloud? Do you just expect to get more users, have lower costs, or is there a different plan?
The catalog of music and audio you can access with a SoundCloud subscription is the largest and most diverse in the world—more than 125M tracks from the 12M creators heard on SoundCloud every month.
The majority of the content on SoundCloud is unduplicated on other music streaming platforms and as we onboard more and more major and independent label content to SoundCloud, the same content currently found on other services will be available on SoundCloud as well. This means listeners will be able to listen to almost everything you get on other platforms in addition to all the things that you can’t. At this point, the $9.99 price point is the industry standard. The difference is that you get access to so much more content for your money with a SoundCloud subscription.
Additionally, we consider Offline Listening and No Ads to be standard features for music streaming service subscription offers, but our Offline Listening feature is intuitive and easy to use and provides more control over what you choose to make available offline than other competitive services.
With this shift, are you worried about catering to labels and losing the community built around DIY artists? Seems like the plan is to bring in money through paid subscribers, who will be subscribing to hear the major artists.
SoundCloud is for everyone, at all stages of their music career—from artists uploading their first tracks to established artists planning their worldwide release. We’re an open platform and the breadth of content on SoundCloud is as real-time and broad as human creativity itself, from bedroom artists uploading their first tracks to established artists planning their worldwide release.
Our ambition is to strengthen and grow our ecosystem where all forms of creative expression can live, and that includes artists represented by the major labels. We’re working towards monetizing the tracks of every creator, no matter what size or genre, who wants to make money from their music or audio.
On the free version of SoundCloud, will there be more advertising introduced, or is that fully in place with the launch of SoundCloud Go?
We launched advertising on SoundCloud in the US 18 months ago and the number of campaigns has been growing over time on the platform. The number of ads is also slowly increasing and we’re making sure SoundCloud remains a great experience for free users in the US. Outside of the US we do not have ads.
After these initial answers, I sent more questions around the business model and plans for the future, but I was informed that “the second set about the model is just not something we are commenting on quite yet.”
My remaining questions were as follows:
Is the goal to just get so many users that $9.99/month is profitable, or is this a temporary way to keep SoundCloud alive until a different plan comes together?
I understand that $9.99/month is the standard and that’s what anyone who wants to be competitive needs to offer, but are there other revenue streams being considered? Why not allow artists to sell music directly on SoundCloud, like Bandcamp?
We’ll have to wait and see what’s next for SoundCloud. For the time being, they’ve chosen to offer the same services as the other streaming behemoths, and that’s understandable. They need to make money, and in the music industry, the money is with major labels. Copyright infringement has long plagued SoundCloud and caused tension between them and the majors, and simply put, it’s bad for business.
The announcement of SoundCloud Go has been met with mixed reactions. Some are already complaining that it’s not easy to use. But more importantly, a common concern from those who use SoundCloud on a daily basis is that the focus has shifted, and the niche market of active listeners driven by independent artists and music discovery is no longer a priority. For many, SoundCloud was never an alternative to Spotify or Apple Music—it was a completely different world. What happens when you try to merge that world with a subscription-based streaming business, where a majority of the money will undoubtedly be generated by major label artists? Nobody knows.
SoundCloud’s new focus is on including the majors and moving towards profitability, even if they’re doing it using a model that’s already proven to be ineffective for others. Maybe this is just a way to lose money at a slower rate, play nice with the majors, and try to come up with a new plan. Or maybe SoundCloud really does believe that it can compete with the other subscription-based streaming services without abandoning the sense of community that they’ve been developing for almost a decade.
For many, SoundCloud was never an alternative to Spotify or Apple Music—it was a completely different world.
For years, I’ve used SoundCloud on a daily basis. I’ve discovered some of my favorite artists on there, I’ve connected with people from around the world, and I’ve heard music that I’d never be drawn to on Spotify, Apple Music, or TIDAL. SoundCloud was one of my favorite places on the internet, and the connection was deeper than convenience; it was a culture. When you were on SoundCloud—like, really on SoundCloud—you felt like you were a part of something special. It was something that not everyone could understand, because it wasn’t meant for everyone to understand.
Maybe this new direction is SoundCloud’s only option, and maybe we’re selfish for expecting SoundCloud to remain as it has always been. On the same day that SoundCloud Go launched, Spotify announced that it raised $1 billion in debt financing. The company is expected to go public in the near future, and for other streaming competitors, the pressure is on.
I was talking to my friend about all this, feeling skeptical about SoundCloud’s new path and what this means for the culture we’ve both come to love so much. He compared it to the feeling you get when your favorite band sells out, signs a major label deal, and goes corporate. It almost always sucks, and it means that a lot of things will probably change. Priorities shift, the audience grows, the music often suffers. But deep down, we know that we should be happy for the band, even if that means we lose something we love. Music is a difficult business, and sometimes that’s just the way it goes.