Five reasons why SoundCloud might be doomed

This week, SoundCloud published a financial report that laid bare the company’s recent earnings, and it wasn’t pretty.

Despite earnings of $15.37m, SoundCloud lost a total of $44.19m in 2014. Some of that was plugged in 2015 by $77m of investment, but company auditor KPMG said in the report that the need for continued investment represented “a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern.”

SoundCloud has since reached a deal with Universal Music Group that expands the catalogue of music it’s allowed to host, but the agreement is far from the end of the company’s problems. Account takedowns plague the service’s users, and sites like Bandcamp and Mixcloud offer viable alternatives that get more attractive by the day.

FACT investigated SoundCloud’s problems in depth last year. A lot has happened since then. Sadly, all signs point to the streaming service being in as much trouble as it was in August – if not more.

SoundCloud's New York Office
SoundCloud’s New York Office Image via: SoundCloud

1. SoundCloud is spending considerably more money than it makes

The losses revealed by SoundCloud are damning enough, but even more difficult to believe are the company’s wage figures. Despite operating at a considerable loss, the company has been expanding at an exponential rate: staff numbers rose 21% to 236 people and employee wages increased 42.5% to €17.9m in 2014, making a staggering average wage per employee of €79,980.

CEO Alexander Ljung’s official line is that “over time, SoundCloud will become a financially sustainable and profitable platform,” but it’s difficult to see how such losses could support the opening of a lavish New York office in 2014. Every tech startup needs expenditure to get off the ground, but there’s no indication that SoundCloud’s figures are anywhere close to balancing any time soon.

2. SoundCloud still hasn’t reached a deal with Sony

The biggest thorn in SoundCloud’s side has been the issue of copyright. It’s entirely reasonable for artists and labels to get paid for music played through the service, but the Kafka-esque hoops users have had to jump through after account suspensions despite owning the music has left a lot people wary.

SoundCloud has no power over these takedowns: it’s primarily the major labels issuing the strikes through automated software. Universal and Warner have reached deals with SoundCloud but not Sony, who last year criticised the platform’s “lack of monetization opportunities”. Until Sony gets on board with SoundCloud, the risk of account deletion will continue to put artists off using the service.

SoundCloud interface
SoundCloud interface Image via: SoundCloud

3. SoundCloud hasn’t rolled with the times

While SoundCloud is prone to the odd bit of downtime and uploading tracks is often a nightmare, you can’t say it doesn’t do the job it’s meant for. Unfortunately, that’s about it. Aside from a few cosmetic improvements, SoundCloud has been much the same site since it launched in 2007, with the same imprecise search function and cluttered timeline. It’s not what you’d expect given the massive investment poured into the company.

Spotify launched a year after SoundCloud, but it’s evolved to make the process of music discovery easier. Additionally, both Spotify and Apple Music have a team of curators that hand-pick playlists working alongside increasingly accurate music recommendation engines. SoundCloud’s “related tracks” feature leaves a lot to be desired, and its successor is a radio station feature similar to the one Apple has sidelined in favour of Beats 1.

4. SoundCloud still hasn’t launched its subscription service

SoundCloud makes some money from charging artists for unlimited hosting and access to listener stats, but it’s not enough. It’s why the company introduced advertising, and why it’s planning to introduce a subscription streaming service as part of its equity deals with Warner and Universal: if the company can carve out some of Spotify’s paid user base of 20m it has a shot at profitability.

Unfortunately for SoundCloud, the subscription service still hasn’t appeared, and we’re still none the wiser as to what form it’s going to take. A leaked document last year suggested two premium listening tiers, but the real question is what SoundCloud’s going to offer that Spotify and Apple Music don’t. The Netflix era has forced Spotify to get into the exclusive video content game, and SoundCloud will need to offer something beyond unofficial EDM remixes made in a teenager’s bedroom.

5. SoundCloud users are already moving to rival services

It’s impossible to accurately measure the number of artists, labels and DJs that have abandoned SoundCloud in the wake of the high-profile account takedowns that occurred last year. As far as hosting DJ mixes goes however, FACT’s preferred method is now Mixcloud, and the number of embeds from the rival service appearing in our regular round-up of the week’s best mixes has visibly increased in the past six months.

Artists wanting to host tracks also have an alternative. Last year PAN’s Mat Dryhurst launched Saga, an embeddable platform that gives artists full control over how their content is displayed online. There’s also Bandcamp, which gives artists a fair way to sell their music independently. Unless the amount of money SoundCloud plans to pay artists out of its subscription revenue is favourable, they have plenty of reasons to go it alone.

SoundCloud has been a potent democratising force for bedroom producers and bands, and if it was to disappear, it’d be a great loss for the music world. A statement from the company to FACT today insisted the recent figures “reflect those of a company in a strong growth stage,” which still has “over 18 million creators are using the platform, sharing well over 110 million tracks, and reaching 175 million monthly active listeners.” Whether that will still be the case in a few years, only time will tell.

Read next: What the hell is going on with SoundCloud?

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