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Monday, January 18, 2016

Even With a Universal Deal, Does SoundCloud Have a Future?


Written by Scott Keeney — The fact that SoundCloud has secured a licensing deal with Universal certainly seems like a great step forward for the streaming music service as it goes mainstream. With today’s announcement, SoundCloud has got two of the three major record labels on board (Sony is the only holdout), as well as several indies, and there’s talk of a paid streaming service launching later this year.

SoundCloud’s financial situation seems precarious — while news of a debt-funding round reported yesterday is somewhat dated, as the round was actually raised in May of 2015 — many of the company’s original investors haven’t added new funds in a few years. The Universal deal terms were not disclosed, but one can only imagine that a catalog of its size and influence didn’t come cheap — and no one would be surprised if Sony held out for even more.

SoundCloud has replaced the mixtape — a great venue for showcasing new content and taking risks. Whether or not people want to pay to hear those experiments is another question.

But even if the Sony deals wraps quickly and a paid streaming service launches soon, can SoundCloud pivot from being this generation’s equivalent of the mixtape — a gray area, legally, fueled directly by artists putting out music on a whim and giving it to fans — to something more corporate and mainstream? The paid streaming space is already crowded, with major players like Spotify and Apple Music in the lead — and even they have failed to capture the vast majority of the listening public, largely due to price. I would advise SoundCloud not to enter into this area the same way, as it isn’t its core business.

Soundcloud certainly has an audience, with the New York Times reporting that it has 175 million users per month. In the dance and hip-hop communities, it is seen as the place to discover new music and showcase remixes and edits, with strong communities popping up around artists and DJs. But how many of those users will actually convert when the service starts charging? Again, SoundCloud has replaced the mixtape — a great venue for showcasing new content and taking risks. Whether or not people want to pay to hear those experiments is another question.

There’s also the question of how much control the majors will have over the site’s content. There was backlash when remixes of major label tracks were pulled, and although the labels were technically in the right, fans weren’t happy. Part of this has to do with a lack of education about who owns what when it comes to music and that even someone else’s remix of a Katy Perry song is still technically a Katy Perry song. Users loved the variety of remixes, but if labels limit who can mix which tracks, it might well spark conflict. This point is personal for me — one of my big breaks was producing a remix of “300 Bars” by Game, but if his label had been able to control and clear it, the mix would never have gone public.

One of SoundCloud’s killer features has been becoming the platform for artists to test the market and put out something just recorded that day, often before publishing splits and production fees have been handled, or the label even knows about a song. Will this area vanish? And if SoundCloud becomes a subscription service, will the others cry foul if SoundCloud has this early access to exclusive music?

One of SoundCloud’s killer features has been becoming the platform for artists to test the market and put out something just recorded that day. Will this area vanish?

Because details of the paid service haven’t been released, there is a fear that smaller artists, who essentially helped build SoundCloud back in the day, might miss out on the windfall. Part of what made the site special was that it was easier, compared to other outlets, to find emerging artists — but if major label content has to be put front and center, that differentiating factor disappears. There’s also nothing to stop Spotify and Apple Music from opening up their platforms to the same type of content SoundCloud allows, something that could further erode their market.

Very few people want SoundCloud to go away — it still serves as a valuable resource and place of discovery for underground and developing-market artist communities. But it seems to have backed itself into a corner with label deals — and by trying to go legit, might have alienated its base. It’s sometimes tough to scale a business based on authenticity and credibility. Let’s hope SoundCloud’s rapid success and growth into the mainstream doesn’t doom it.

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