SoundCloud CEO Alexander Ljung on Making ‘Freemium’ Work and Negotiating With the Majors
The audio platform's CEO on negotiating with the majors, making "freemium" work and how the company plans to turn a profit.
Six months from now, the online audio platform SoundCloud could be competing with Spotify and Apple in the music-streaming business. On the other hand, it also could be the next target of the major labels’ legal wrath, like the recently shuttered Grooveshark. The answer to that billion-dollar question (based on reports of the company’s valuation) depends on Alexander Ljung, SoundCloud’s co-founder and CEO.
Ljung, 33, a Swedish DJ, started the company with fellow DJ Eric Wahlforss in 2007 in Berlin as a platform for creators to post their music, which it distributes through its site, app and a web-page widget. SoundCloud, which has more than 300 full-time staffers, is similar to YouTube in that it’s remarkably easy to use for both creators and consumers: Many musicians use the service — which now attracts 175 million unique users per month — to immediately share their work with fans, and its popularity as a destination for DJ mixes has made it an EDM tastemaker.
Also like YouTube, anyone can upload content to SoundCloud whether or not they have the right to do so, and rights holders have complained loudly about, and successfully asked the company to remove, pirated content on the site. SoundCloud struck a deal with Warner Music Group in November 2014 to become a legitimate, licensed service, and is negotiating with Universal and Sony Music; however, it recently was sued by the British performing rights society PRS for Music. SoundCloud also is exploring ways to help musicians earn income from their music by offering a Premier tier (so far available only by invitation) that lets them monetize their music by allowing ads to appear on their pages, and the company is said to be considering a paid subscription service that would let listeners access more music.
Ljung is modest and soft-spoken, but SoundCloud’s Berlin headquarters speak volumes about the company’s success: It’s a 2,900-square-foot industrial-style space that includes a garden, yoga room and wood-burning fireplace. It’s a tough time to get comfortable, though, as SoundCloud is in the midst of an awkward evolution into a licensed streaming service — a business that’s not short of formidable competitors.
SoundCloud has been negotiating licensing deals with the major labels, and there are rumors that you’re close to a deal with Universal. How is that going?
Alexander Ljung: If the question is how are our negotiations going with Universal, I have no comment. If the question is how are our negotiations going with labels more broadly, there are lots of great things happening. Ever since Warner Music came onboard, more labels are joining all the time. Merlin, which represents 20,000 indie labels, just came onboard [in June]. Warner is important because it represents a lot of great artists, but it was also important symbolically: We wanted to show that [SoundCloud is] great for any kind of creator, no matter if you’re the biggest in the world or just starting off in your garage.
Billboard: Assuming that SoundCloud becomes a streaming service of some kind, you’ll be competing with Apple and Spotify. How will you set yourself apart?
In some ways, it’s quite simple. There has been a lot of noise in different articles with pull quotes from people saying “ ‘Freemium’ is the only way” or “We don’t believe in free streaming.” But it’s not about only music subscriptions or only free on-demand streaming. People need to recognize two things: One is that music is important for almost everyone on the planet, meaning there are potentially billions of customers, and also that it’s going to be a real struggle to get billions of people into a subscription service. So if you want to monetize billions of people, you need both ad-supported and subscription [models] to work. The question is, how can you make that work without giving everything away for free? For us, it’s about giving creators multiple tools for monetization.
SoundCloud has experimented with different strategies — you originally focused more on charging artists for distribution. How has your business model changed?
We haven’t really changed business models. From the beginning, we built great tools for creators, and then we started building a community. We’re layering monetization opportunities on top of that.
Did you expect to be profitable by now?
We were always planning on a longer journey. It’s a huge platform now, but we’ve been building it up over eight years, very methodically. I don’t think we assumed profitability would come easily or quickly. Also, what people sometimes misjudge is that it really depends on the timing: We have very tight controls over how we’re spending, but profitability hasn’t been our primary goal.
With regard to piracy, do you do anything except take down infringing content once you get a request to do so?
If we’re told that content has been posted without permission, we remove it in accordance with applicable law. We’re happy to host any content on the platform as long as it’s properly authorized, and we’re constantly reviewing and refining our policies.
There are also a lot of DJ mixes that contain unlicensed music. Are you trying to negotiate deals with the major labels and publishers that will let those stay online?
We’re working with the industry with the aim of solving this problem on a global scale. If you zoom out from that a little bit, what we’re trying to do is not just monetize but also create a functioning platform for more user-generated content, like mashups and remixes. It’s a huge part of music culture today, and we’ve taken on the challenge. I don’t think anybody can solve everything, but we’re aiming to solve the majority of it.
How does being a musician influence your work on SoundCloud?
It happens all the time, in little moments. The other day I was flying back from Greece, where I had seen a performance by [experimental electronic group] Feathered Sun. Before I got on the plane, I turned around and two of the guys were there, and we ended up having this amazing conversation about improvisation. I’ve played in a band, and seeing their set reminded me of that feeling of being inside the music and how great it felt. Running a company, everything has to be quite efficient, and you lose some of that.
In 2014 SoundCloud raised $60 million in January and another $150 million in December. Do you consider your company a “unicorn,” in Silicon Valley-speak?
(Laughs.) We don’t have a public valuation. One of the great things about being a private company is that we don’t have to disclose anything around financing — and we use that to our advantage.
This article first appeared in the Sept. 26 issue of Billboard.