SoundCloud: Understanding Music Streaming’s Dark Horse
Amidst acquisition talk, what is SoundCloud’s strategy for the future?
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GM readers 👋,
Happy (belated) January!
I hope your 2024 is off to a great start. In my hometown of New Orleans, folks are celebrating the city’s next holiday – Mardi Gras. If you’re a veteran of this newsletter, you know what that means…
It’s time for our Second Annual Mardi Gras King Cake Raffle! We’ll be sending one subscriber a free Gambino’s Bakery king cake. Last year had a solid turnout with Mike C. winning the grand prize. If you’re interested, fill out this form with your name and email. We’ll randomly draw a winner on February 27th. To participate, the only rules are that you have to be a subscriber to this newsletter and located in the United States (for shipping reasons).
This month we’re going to study a company that I’ve wanted to write about for some time. SoundCloud is one of the most unique companies in music technology that I’ve come across. Fans use it to discover and interact with their new favorite artists. Artists use it to experiment and build their careers while staying independent. Labels use it to find and sign the next Chance the Rapper, Lorde, and Billie Eilish. It’s a music discovery and streaming company, an artist services company, and a social media company all rolled into one.
Despite its undeniable cultural capital and a dynamic value proposition, SoundCloud seems to receive less attention than other streaming juggernauts like Spotify and Apple Music. More recently, the company has been grabbing headlines for strategic reasons, as it’s reportedly going to hire investment bankers to run a sale process in the coming months.
With some of my favorite things – music, technology, finance, and strategy – intersecting, the timing feels perfect to cover this fascinating business.
And with that, on to the disclaimers…
Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!
Now, let’s get after it!
Jimmy
SoundCloud: Understanding Music Streaming’s Dark Horse
“Maybe he’s an enigma. A riddle wrapped inside a mystery.” – Seinfeld’s Elaine Benes describing Newman
I was in New York this past month for a handful of meetings. In a few, I mentioned that I was thinking about covering SoundCloud for this month’s newsletter. Each time, I got a quizzical look. The responses from music industry professionals were more or less the following –
“Why?”
“What do they do again?”
“It’s always a Re- with them. Restructure. Reorganize. Re-something.”
These quips – even though delivered with a pinch of humor – surprised me and reflect a view that SoundCloud’s best days are behind it.
I’ve wanted to write about the company for a while. I’m a semi-active user. And more importantly, the platform’s track record is impressive in my opinion. Consider the following milestones:
More than 40 million creators or 4x+ more than competitors.
Over 375 million tracks or 3x+ more than other popular streaming platforms.
A history of breaking music megastars, including the likes of Billie Eilish, Chance the Rapper, Lil Uzi Vert, Lorde, Post Malone, and many more.
An artist-friendly brand, as the only technology company I’m aware of that has been thanked by an artist during a Grammy speech.
An innovative approach to paying rights holders via its fan-powered royalties program.
When reports surfaced that the company is being shopped at a $1+ billion valuation by investment bankers, it felt like the right time to go deeper.
As I’ve researched SoundCloud’s history and vision going forward, I’ve realized that there is so much to learn from it. The company has been a high flying start-up that grew quickly and raised a lot of (maybe too much) funding from top VC firms. It has struggled to monetize its large user base and been forced to recapitalize and restructure. And through it all, it’s still standing and has an ambitious, thoughtful, and differentiated strategy for the future.
So which is it? Are SoundCloud’s best days in the past, or is the future brighter than ever?
In this piece, I’ll do my best to answer these questions. I’ll explore how SoundCloud rose to prominence; its value proposition; how it’s currently faring; its unique strategy among music streaming companies; and finally, my quick take on the likelihood of a $1 billion valuation in the context of its historical financials and its publicly-listed peers.
Grab a cup of coffee! We’re about to go deep on a fascinating company.