SoundCloud Crumbling? $70M in Losses Spells Uncertain Future

By Steve Nagel on Mar 02, 2016 09:00 AM EST

The longevity of the popular audio social network, SoundCloud, could be in question after recent reports surfaced that service has lost over $70 million in two years. Having endured loses in 2013 as well as 2014, the losses place SoundCloud in an unstable position going into the future, with the company's board of directors going so far as to assert that "there are material uncertainties facing the business."

Although so-called "freemium" services are built around a risky business model, companies like SoundCloud, Spotify, and Pandora have managed to embed themselves, literally, into the hearts and blogs of internet-goers.  The ubiquity of the service would appear, on one hand, to suggest a resounding success.  But the variances between the business models of the three companies could make all the difference in future years, as can be learned from the demise of one-time peer Grooveshark.

Surprisingly, the average revenue per user (known as ARPU) for SoundCloud is significantly below that of the company's nearest competitors, at just 11.2 cents compared with Pandora's $11 and Spotify's $27. Unlike subscriptions for those companies, which are widespread, Billboard reported that most users don't pay to listen to music via the SoundCloud platform. Instead, paid memberships consist mainly of DJs and producers who upload their own material. Billboard also worried that "SoundCloud may not be able to convert a substantial portion of its listeners into paying customers."

According to Consequence of Sound, optimistically the company plans to seek further investments in 2016 to offset their losses, and have already struck licensing deals with Universal Music Group and Warner Music Group. Still, they expect to "operate in the red" for the remainder of the year.

Below, you can hear how and why upstart music producers have, up until now, favored the streaming giant, how it promotes their craft, and how to gain listenership.

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TagsSoundCloud, Warner Music Group, Companies, Music Business, Streaming

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