SoundCloud is stuffed. On Thursday, the streaming music service mostly known as a place to hear podcasts and remixes from unknown DJs confirmed that it had taken $US70 ($92) million in debt funding — basically a loan from various investors — in order to stay in business.
Image: Gizmodo Composite/Spotify/Deezer/Apple Music/Pandora/iHeartRadio/Tidal/SoundCloud/Napster
It’s never a good sign when venture-backed companies have to raise money from debt financing groups, because it indicates that traditional investors don’t have much hope for the company. This appears to be the case for SoundCloud, as TechCrunch reports that the debt funding was raised because the company couldn’t close a $US100 ($131) million round of funding.
Back in February, when SoundCloud released its 2015 financial information, we found out that the company had lost $US55 ($72) million for the year and was at the risk of running out of cash.
Yet, while having an extra $US70 ($92) million is certainly helpful, it’s probably not going to be enough to save SoundCloud from the fate of Rdio, Grooveshark, MOG and other failed music streaming services.
In fact, looking at the landscape, streaming services in general are kind of screwed. The payment model for streaming music services makes it very difficult for companies to actually make money. In addition to infrastructure costs, payroll and marketing, music licensing fees paid to the labels mean that the profit margin for subscription streaming is often negative.
Profitability, even for the biggest players, is still largely a pipe dream. As a result, it’s a game where only services with a lot of funding and a lot of users (Spotify), or a lot of backing by a parent company and a lot of users (Apple Music), are relatively safe. At least for now.
But who is the most screwed? Who is just sort of screwed? Who has the best shot at surviving? Here is a ranking of streaming music companies, ranked from most to least screwed.
PonoMusic technically isn’t a streaming service, but we included it on the list because it’s just so very stuffed. You may recall that Neil Young’s terrible Pono Player had an accompanying online store from which Pono owners could buy high resolution music.
Hilariously, that store didn’t even get Young’s May 2016 single (it was a Tidal exclusive), which was a very bad sign for the future of both the service and player. In July, the company announced that the PonoMusic store would be going “offline” as it switched to a new source for its content.
But more than eight months later, the store is still offline. In fact, Pono hasn’t tweeted since January and the music player doesn’t appear to be for sale on its website. If PonoMusic ever makes an actual comeback, we will be shocked.
Poor SoundCloud. The service has raised an enormous amount of money — $US320 ($420) million since 2009, according to Crunchbase — and the product is good. It’s also known as a launching ground for indie artists before they make it big (Chance the Rapper, Lorde are famous alums) and it’s been platform to which aspiring DJs could upload their tracks.
But the reality is that SoundCloud can’t compete against its bigger, better-funded rivals. The fact that it couldn’t close a funding round and had to raise debt instead speaks volumes. Moreover, SoundCloud Go, its premium product, hasn’t exactly pulled in paying users — in fact, the company had to launch a dumbed-down, cheaper version last month. Here’s a bet: Within 12 months, Spotify or Google is going to buy SoundCloud.
Tidal has basically been a disaster since Jay-Z relaunched it back in 2015. In just two years, the company has gone through multiple CEOs, faced lawsuits from customers and employees and was reportedly late with payments to some of its indie labels.
Even Jay-Z feels like he was ripped off! Tidal might last a bit longer, but eventually, Jay-Z will probably get tired of investing money in a service no one cares about and give up the ghost.
You didn’t misread that. Napster — or at least its brand name — is still around. Of course, the only thing that remains of the original peer-to-peer music app is the logo — everything else is actually just Rhapsody, one of the very first streaming music services. (The two merged back in 2011.)
In many ways, the Spotifys and Apple Musics of the world owe a huge debt to Rhapsody/Napster. Rhapsody was the first subscription service that licensed streaming music from all of the major label groups. But being early isn’t always a good thing, and the company has struggled over the years. As of 2015, it had just 3.5 million paying subscribers. We’re more and more amazed that Napster/Rhapsody is still alive with every year that passes.
Pandora is in a heap of trouble — take note of its depressing financial results and recent layoffs — but unlike most of the other stand-alone music services, it’s also a public company. More importantly, Pandora has users. Pandora’s free product has about 81 million monthly active users, which makes it one of the most popular services around.
The problem, however, is that those users aren’t making the company any money. It’s pinning a lot of its hopes to its new Pandora Premium service, but early reviews say that it has nothing to offer over Spotify or Apple Music. If its stock plummets far enough, Pandora could be a great takeover target.
Deezer isn’t very popular in the US, but the service has more than six million users across the globe. The company planned a French IPO back in 2015, but ended up cancelling it, citing “market conditions” — that’s code for “Pandora is tanking and we’re afraid our share price will be bad” — but still managed to raise another $US109 ($143) million in January 2016.
It’s hard to say what the future of Deezer is, but the company hasn’t made any layoffs, so that’s an OK sign.
7. Groove Music
Microsoft’s music service isn’t exactly a focal point for the company. (In fact, we forgot it existed until we started writing this story.) And that’s why it’s medium-level screwed. On the one hand, Groove Music has Microsoft’s very pliant coffers to keep it up and running. On the other hand, if Microsoft decides it’s bored of doing its own streaming service (as Sony did back in 2015), it could wind up nuking the service.
8. iTunes Music Store
Technically, iTunes isn’t a streaming service, but its importance in the digital music space earns it a place on this list. For nearly a decade, iTunes was the most popular place to buy digital music. But times are changing. In January, Nielsen reported that in 2016, music streaming overtook digital music downloads for the first time.
That means that iTunes’s revenues are declining, and that’s bad for the traditional iTunes Music Store. The good news is that Apple has an alternative for iTunes waiting in the wings: Apple Music. Last May, music industry analyst Mark Mulligan predicted that Apple Music revenue would overtake iTunes Music Store revenue by 2020, at which point Apple might consider turning off the old download store.
Within a few years, the iTunes Music store will probably be stuffed, but for now, it’s still the most popular way to buy music.
9. Google Play Music
100 million registered users in the US, it has a lot of ears.
Moreover, because its owner is the biggest player in the terrestrial radio business, it doesn’t have the same financial issues as Slacker or Pandora. iHeartRadio might not be cool, but it’s also not screwed.
Make no mistake: Spotify has some very real business problems. For one, it can’t make money, though some investors insist it might find profitability this year. For another, musicians and labels don’t all love the service. And the longer it delays its IPO, the more money it owes some of its investors.
None of that is great. But the reality is that Spotify is far and away the biggest streaming service globally — both paid and free — on the planet, with more than 50 million paying users. Moreover, even though labels and artists often decry how much Spotify pays them, only the biggest artists can actually afford to not be on the service. Post-IPO, Spotify could be screwed, but for now, it’s the definition of too big to fail.
12. Apple Music
Let’s be honest: Apple Music will probably never outpace Spotify in number of subscribers. Spotify had at least a four-year head start, and it has a free product that can get people hooked. But that doesn’t matter. In less than two years, Apple Music has managed to attract more than 20 million paying subscribers, something no company on this list (save Spotify) can even fathom reaching.
Plus, Apple Music is backed by the richest corporation in the world. And as stated above, in the future, Apple Music will likely be the iTunes Music Store’s replacement. As revenue for the iTunes Music Store declines, Apple is going to do everything in its power to make Apple Music make up the difference.
Ones we’ve already lost
Rdio: Rdio was acquired by Pandora in 2015 and was the basis for the new Pandora Premium. A lot of us really loved Rdio, but in the end, its death was entirely predictable.
Grooveshark: Who knew a business model built entirely on intellectual property theft wouldn’t work? (Not even OG Napster was as brazen as Grooveshark.) The service, which was awesome for music fans — if not great for musicians — was wonderful, but it was sued out of existence back in 2015.
Beats Music: Beats Music Apple bought Beats in May of 2014 for $US3 ($4) billion. It ended up using the underpinnings of Beats Music for Apple Music, which was launched in 2015.
MOG: Beats Music might be Apple Music’s precursor, but Beats Musics’ precursor was MOG. For a brief moment, it looked like MOG could make a name for itself (it was available in the US before Spotify and offered a similar service), but it couldn’t compete and was sold to Beats for just $US12 ($16) million in 2012.
Songza: Songza was never that popular, but its curated playlists made it a favourite for many music lovers. Google acquired the service in 2014 and shut it down at the beginning of 2016. Fortunately, most of Songza’s best features are now integrated into Google Play Music.
Last.fm (for streaming): Last.fm used to be a great way to stream music, but its owner, CBS, shut down that feature in 2014. The scrobbling service — the Last.fm term for making a record of every song a person listens to — still exists.
Milk Music: Samsung tried to enter the streaming music space in 2014 with the bizarrely named Milk Music. But the service curdled and ultimately shut down in September 2016.
GhostTunes: Country superstar Garth Brooks famously hates digital music, including iTunes. Still, even Brooks had to recognise that even the most ardent Chris Gaines fans are annoyed by CDs. In 2014, Brooks launched GhostTunes, his own shitty version of iTunes.
Amazingly, the service managed to exist until Amazon bought it (and the digital rights to Brooks’ catalogue) in October 2016.
Sony Music Unlimited: Sony used to have its own subscription streaming service. Sony Music Unlimited launched in the US in early 2011, just a few months before Spotify’s stateside debut, but never managed to gain a lot of users. Sony conceded defeat in early 2015, ditching its own program for a Spotify-backed service.