Business News Digital

SoundCloud financials confirm challenge ahead in make or break year

By | Published on Wednesday 10 February 2016

SoundCloud

I think it’s reasonable to say that 2016 is something of a make or break year for SoundCloud, without being accused of ramping up the drama in this here opening paragraph in the vague hope it will encourage you to read on.

The digital firm has been “pivoting” its business – as start-up types like to say – for at least two years now, trying to launch both an advertising set-up and a subscription service around its existing platform, which boasts a significant content library and user-based.

This pivoting is all about finding new revenue streams, partly to placate investors who need to see more income than the ‘pay-us-some-money-to-host-more-content’ model can generate, and partly to placate the music industry, which recognises the marketing value of the SoundCloud platform, but which needs it to start paying royalties. Particularly as the industry at large shifts from sales to consumption, ie streaming is the business, rather than just a way to drive physical or download sales.

Though, of course, it took the best part of those two years to persuade the music industry that the new ad platform and subscription service was something it should participate in, partly because of frustration among rightsholders over just how big SoundCloud had grown without ever getting any music licences (it citing ‘safe harbours’, of course). And while the majority of labels and increasingly the publishers are now getting on board, Sony Music is still a hold-out.

Most of the deals are now in place to try to make this work. And it needs to work. As the firm’s most recently filing with Companies House in the UK confirms. The filing relates to 2014, and confirms that SoundCloud’s losses rose that year, with an overall loss of 39 million euros on revenues of 17 million euros.

In the new report, SoundCloud’s auditor KPMG confirms that additional funding is now required to keep the business operating, a fact that, the accountants said, constituted “a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern”. But the digital firm says it is confident that the required financing will be secured.

The company got its hands on $77 million more in financing last year, including the previously reported credit facility worth over $30 million provided by Tennenbaum Capital Partners. And boss man Alexander Ljung says investors remain supportive because “we’re one of the biggest music platforms in the world and we’re growing fast”.

The company expects to continue to be loss-making for at least the next three years, which in itself won’t necessarily affect investor support, though the firm’s backers will need to see the new revenue streams gain some momentum in that time. That’s no small task. The labels remain critical of the ad revenues YouTube generates, and that’s with the weight of the Google ad-selling machine. In the subscription space SoundCloud faces some significant and well-funded competitors too.

However, Ljung does have a head start in terms of numbers of free subscribers, and some labels and artists continue to use his platform as the launchpad for brand new music, which gives the site an edge content-wise. Whether that is enough to make SoundCloud a viable business long-term, very much remains to be seen.


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