The successful audio platform has launched it's first advertising initiative, and plans a subscription service in the near future.
It’s a new era for SoundCloud.
The audio platform has long been a home to unsigned, independent and even established artists to debut new material -- from Lorde’s The Love Club EP (which ultimately earned her a record deal with Lava/Republic) to Drake’s OVO page, which is often the first place the Toronto rapper debuts new material from himself as well as his OVO-affiliated artists. Heretofore, SoundCloud’s revenue was derived primarily from its Pro accounts and private funding. But beginning today (Aug. 21), the company has announced a three-tiered monetization strategy that will introduce advertising to the platform for the first time, as well the news that SoundCloud has received more than $100 million in funding since its 2007 launch.
Jeff Toig, SoundCloud’s chief business officer since September 2013, tells Billboard that the company’s growth has come in three phases -- first was the creation of tools that have allowed users to upload new content and track its engagement, the second was scaling the audience (175 million unique users globally per month, the company has announced), and the new third phase. “This is where we start to figure out how to generate revenue and help our creators make money in order to enable them to build careers with us,” Toig says. “When Alex [Ljung, SoundCloud’s CEO] and Eric [Wahlforss, SoundCloud’s CTO] founded the company, they really saw an opportunity to build a business with a global, open platform that would kind of evolve over time.”
At the center of the new strategy is a partner program called On SoundCloud, which includes a new Premier tier (which is invite-only) for subscribers that will allow them to monetize content of their choosing via select advertising. The new offering reflects SoundCloud’s positioning as a promotional tool for creatives, rather than an all-you-can-eat service for consumers. Until Thursday, advertising had not been part of SoundCloud’s business model. Instead, SoundCloud had offered a “freemium” pricing scheme that charges users for file hosting. Three hours of audio time can be uploaded for free (the Partner tier).
Premier-tiered content will include advertising from five different ad products -- native, audio, display, channel sponsorship and contests. Red Bull, Jaguar, Sonos, Squarespace and Comedy Central are the first five ad partners at launch. An example of the sponsorship model can be found on Squarespace’s sponsor page. Dan Gerber, SoundCloud’s head of sales (and a veteran of Pandora), notes that audio ads will be similar to YouTube, running at a minimum of 15 seconds, with 30-second ads offering the option to opt out after the first 15 seconds. Additionally, display ads will be offered solely on the mobile platform, which Toig reports has seen audience growth increase by a multiple of six in the first eight months of 2014 alone.
Unlike most other music services, On SoundCloud will not launch with agreements from the three major labels. While major-label artists like Beyonce, Diplo, Kendrick Lamar and Drake frequently use the platform to debut new material, sources tell Billboard that 80% of SoundCloud’s current uploads are from user-generated content, while 20% is derived from labels.