SoundCloud looks doomed, but streaming is still soaring

9 Jan 201710 Shares

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SoundCloud had a harrowing 2015, with losses growing faster than revenues. With even market leaders struggling to make money, what does the future look like for the company?

SoundCloud spent plenty of 2016 at the centre of an acquisition rumour, with Spotify heavily linked to a purchase of the music-streaming rival.

However, as yet, no move has transpired and while we fiddle and wait for something to happen, SoundCloud is burning cash at an alarming rate.

SoundCloud

Full financials from 2015 were released recently and, in a year when streaming really took off, SoundCloud’s losses continued to spiral.

SoundCloud’s 2015 revenues grew 21.6pc to €21.1m in 2015, but its net losses accelerated 30.9pc to €51.22m in that time.

These are clearly troubling figures for the company, which responded to the losses by launching its premium music service, SoundCloud Go, in March last year. Premium services were nothing new at the time, with the company essentially following the well-worn, but as yet unprofitable, path of the likes of Spotify, Pandora, Apple Music and even YouTube Red.

Despite the clear cash flow issues, optimism seems quite high at SoundCloud, with CEO Alexander Ljung telling Fast Company: “[Last year] was really putting a lot of key pieces into place.”

He said 2017 “is going to be a big year, especially in terms of revenue growth”, though it’s becoming pretty likely that the company is a microcosm of an industry that has yet to prove itself in any way profitable.

Seeking greater revenues, companies may be moving further away from profits.

Since SoundCloud Go was launched, Amazon’s Music Unlimited offer has offered itself as a competitor, adding another giant into a market that, to be fair, is growing at an incredible rate too.

Long a golden goose of music consumption, streaming trumped all other forms in the US in 2016. Nielsen Music revealed it finally surpassed digital music sales, up 76pc year-on-year.

“The music industry continues to grow at a healthy rate, and 2016 showed us that the landscape is evolving even more quickly than we have seen with other format shifts,” said David Bakula, senior vice-president of industry insights at Nielsen Music.

Something similar is happening in the UK, with music consumption again soaring thanks to streaming options – 45bn streams in 2016 saw an overall spike of 68pc on 2015.

However, turning a profit (if you’re a streaming service) remains elusive, with pretty much every provider running in the red. Spotify, the market leader, is the closest to bucking that trend.

Last September, it reported a 33pc rise in premium subscribers in just six months (up to 40m), offering greater opportunity to finally turn a profit.

Considering that even 30m paid subscribers were not enough for the company to break even – an 80pc rise in revenues to €2bn in 2015 saw the company still post losses of €173m – a speedy spike in income would be a welcome boon to Spotify.

However, turning a profit will be pretty hard if the rumours of a SoundCloud acquisition re-emerge.

At the time of the premium subscribers spike, Financial Times reported that Spotify was in “advanced talks” to buy out the rival.

No price was given but, citing people familiar with the deal, it said SoundCloud’s growing threat to Spotify’s empire was one of the reasons behind the move.

However if SoundCloud’s cash was burned at a similar pace in 2016 as it was in 2015, what is appealing about an acquisition?

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Gordon Hunt is a journalist at Siliconrepublic.com

editorial@siliconrepublic.com