As if the music streaming service industry couldn’t get any more competitive, it looks like Spotify is making a big move next by acquiring Soundcloud. Rumors of this deal had been circulating since last spring, but according to a report by the Financial Times, Spotify is in advanced talks with Soundcloud and could make the announcement soon.
The news comes just months after Soundcloud launched its “Soundcloud Go” service, allowing paid subscribers to access a larger catalogue of music. The company had been on shaky ground earlier in the year as its monetization strategy was questionable, but a fundraising round in June of $100 million by investors valued Soundcloud at $700 million. However, despite an extensive collection of over 200 million users and 135 million tracks, Soundcloud actually never turned a profit. It is unclear how much Spotify will pay for the deal if it were to go through.
This deal would intensify competition from the European companies (Spotify from Sweden and Soundcloud from Germany) as they face off Silicon Valley giants Apple and Amazon in their own streaming services. This month, Spotify hit 40 million subscribers, while Apple Music had grown to 17 million.
In launching their monetization strategy, instead of choosing a cheaper subscription service that would allow users a large amount of access, Soundcloud was pressured by labels to go with the standard $9.99/month that competitors offered. According to analyst Mark Mulligan, founder of Midea Research, this move “didn’t fit Soundcloud’s user base, content or catalogue” and made the company lose their best chance at independent success.
Spotify is gearing up for an IPO next year, so the move to acquire Soundcloud makes sense to consolidate the user base. Spotify CEO Daniel Ek says, “the next decade for us is very much about ensuring that even more of these artists can live on their music, and bringing them together with a new audience.” This is very much in line with Soundcloud’s community of promoting and sharing up and coming artists.
The acquisition is certainly a big move as Spotify delves into online music and represents a significant moment in the future of music. Could Apple respond by acquiring Pandora or Tidal?
H/T: Financial Times