Like many digital startups, SoundCloud — the world’s largest audio-streaming service — built a seamless user experience before figuring out how to make money with it. Now the Berlin-based company is deep in negotiations for licensing deals to monetize its audience and climb out of its financial hole. (From 2010 through 2013, revenue grew 723 percent to $14.4 million while net loss rose 1,373 percent to $29.6 million, according to SoundCloud financial statements.)
Like YouTube before it, SoundCloud has reached critical mass — currently it boasts 350 million monthly users — without licensing deals. Its business model calls for users to upload content for promotional purposes, meaning the company is not required to pay royalties. YouTube’s advertising sales prompted a 2007 lawsuit by the National Music Publishers’ Association and other groups, which was settled in 2011, but SoundCloud has avoided legal action because it hasn’t sold advertising. “We may still look to sue them, but we’re looking for a win-win situation,” says NMPA’s David Israelite.
To monetize its substantial traffic, SoundCloud has launched On SoundCloud, a partner program that pays creators for ad-supported streams in the United States, and brought in executives like Jeff Toig, former GM of Muve Music, and ex-Warner Music digital executive Stephen Bryan.
MusicWatch’s Russ Crupnick sees blue skies ahead, noting almost half of SoundCloud’s listeners are 25 and younger, and 69 percent are male, according to NPD Group. “It’s young and male,” he says. “There’s lots of room to grow.”