soundcloud-charity
Graphic: Kyle Petreycik

How SoundCloud Went From Billion Dollar Platform to Charity Case

It’s been a topsy-turvy summer for SoundCloud. In June, two months short of the platform’s tenth anniversary, it was heralded for incubating (once again) a vital new hip hop movement—a potent strain from South Florida. Weeks later, it seemed like that might be SoundCloud’s last contribution. On July 6, the company announced it was closing two offices and laying off 173 employees. The New York Times reported that SoundCloud did not have enough money in the bank to make it through the year.

Perhaps this was not particularly surprising. SoundCloud has been hugely important artistically, especially for hip hop and dance music, but there’s one thing it has never been: profitable. In 2014, it pulled in only $19.5 million in revenue, leading to $44 million in losses. (Spotify also does not make a profit; Apple Music and TIDAL keep their numbers secret.) But SoundCloud’s fortunes see-sawed again suddenly on July 13 when Chance the Rapper, who became famous with help from the platform, swept in, announcing on Twitter, “I’m working on the SoundCloud thing.” The following day he added, “SoundCloud is here to stay.”

But which SoundCloud would stick around: the platform that garnered 175 million users a month by celebrating unfettered creativity? Or the more recent version, which increasingly resembles other services like Spotify and has been accused of betraying its core values? “They got this incredible service up and running off all these people that have been trusting it, and then they yanked the rug out from under them,” prominent electronic music producer Kaskade complained in 2014.

This grievance has become increasingly commonplace ever since SoundCloud incorporated advertisements for the first time in the summer of 2014. The platform announced its first deal with a major label, Warner Music Group, the same year, a step towards becoming a subscription-based, full-catalog service. Then SoundCloud Go launched in March of 2016. “It felt like they were shifting away from their core audience,” says Kevin Breuner, VP of Marketing at CD Baby, which bills itself as the largest global digital distributor of independent music. “It seemed like they were moving away from the communities that helped build their business.”

“They tried to pivot into this Spotify-competing product,” says David Ponte, co-founder of Audiomack, a rival streaming platform. “That really wasn’t in their pedigree to being with—focusing on independent artists and song creators and podcasts and things like that. They got clouded in terms of what they were doing.”

chance-the-rapper
Chance The Rapper

SoundCloud, founded in Sweden in 2007, was a triumph of simplicity at a time when streaming was still largely a big question mark. Major labels mostly equated streaming with piracy and still mourned the loss of the highly profitable CD. Spotify had been founded, but the application had not yet launched and it was still years away from being available in North America. Other streaming competitors like Apple Music, TIDAL and Amazon Music were nonexistent. Active streamers hunted for music on the blogosphere or on Myspace.

SoundCloud cut through as an easy to use service for both artists who could record songs on the app and upload them directly to the platform, and fans. It allowed for simple interactions between the two groups. It was either free for most or cheap if you were a heavy user and wanted a few extra perks. Audio links were easily shareable.

“The process to upload something to that platform is so frictionless,” says Az Cohen, who works as an A&R at the label 300 Entertainment. “It’s a far easier process for artists to throw something on SoundCloud absentmindedly and see how it reacts.”

“I always really loved SoundCloud because I felt like I could really see and connect with the people who were listening to my music,” adds Nico Segal (formerly Donnie Trumpet), who became famous in the popular SoundCloud collective the Social Experiment, which also included Chance the Rapper. “So when we were deciding the next steps for releasing Surf, that was one of the first places that came up because of how interactive I felt like it was: you can see stats down to the individual user and how many times they listened to specific songs. It was catering to younger people really engaging in music.”

Convenience was high on SoundCloud’s agenda, but monetization was not. Breuner of CD Baby characterizes SoundCloud’ concept more as “launch and figure out the rights issues later.” The platform functioned as a low-risk site where artists could experiment without needing deep pockets, distribution partners or much of anything besides a laptop and a decent internet connection. In a legal environment that makes sampling increasingly untenable for low-income artists, SoundCloud was a place where rappers and producers could sample without fear of retribution.

“There needs to be a platform that gives kids a chance to be heard in a free space—space that doesn’t require clearances, that doesn’t require artwork, a space that allows an artist to be an artist with no strings attached,” says Neil Dominique, who now manages Bryson Tiller, another artist that became famous with SoundCloud’s help. “A lot of these other providers won’t give John Doe, who’s recording a song next to you right now, the opportunity to upload it. [With SoundCloud], whether it’s a song like [Tiller’s] ‘Don’t’ or you burping and singing the ABCs, you can put it up there, no approval needed.”

Ease-of-use meant SoundCloud was wildly democratic and mostly unmediated, a rare place where superstars and unknowns existed side by side, and often the exchange of information between these two worlds appeared to run in both directions. Snoop Dogg, for example, is famous for reposting the music of relative unknowns on his SoundCloud page. (He recently took a liking to a cover of Fleetwood Mac’s “Dreams” by Brielle Marie, who has 875 followers.) Investors praised this aspect of the service. “I saw that this wasn’t about music in the iTunes sort of way,” one investor told The New York Times in 2014. “It was about music in the YouTube sort of way, where anybody could participate. It was a bottom-up approach.”

It fostered a community of music lovers. “I’d see a lot of people on SoundCloud that were really digging for music,” says New Orleans rapper Pell, yet another artist who first earned acclaim on the platform. “You could see what was trending in terms of what your friends were reposting, get a feel for other people’s music tastes. People wanted to engage and like music and make playlists.”

Segal is also a proponent of the repost button. “It’s a good, clean way of showing songs you’ve had involvement in or you’re a big fan of,” he says. “It’s a great feeling when one of your friends or someone you respect posts your music. You feel good about your collaborative experience. SoundCloud really caters to that.”

SoundCloud’s growth was gradual at first—the platform announced that it passed the five million-user milestone in 2011. But soon it exploded. By August 2014, the service was said to attract 175 million users a month. In July of 2016, Billboard reported that the company was on the market with a price tag of $1 billion.

Bryson-Tiller
Bryson Tiller/ Photo: Scott Roth

The music industry’s belated realization that streaming was essential to its future simultaneously helped SoundCloud and made its transformation unavoidable. Once Billboard adjusted its charts to incorporate streaming numbers—Spotify streams started counting in the Hot 100 in March of 2012; YouTube views became a factor in February of 2013—virality became an engine of commercial success in a way it never had before. SoundCloud streams did not count until October of 2016, but that hardly mattered—virality feeds on itself and erodes platform boundaries. SoundCloud’s ability to catapult songs into success on other streaming services, the terrestrial airwaves and the Hot 100 proved impressive. The list of hits that were given wings on SoundCloud is long. Some relatively recent Top 20 examples include Fetty Wap’s “Trap Queen,” Bryson Tiller’s “Don’t,” Post Malone’s “White Iverson,” Khalid’s “Location” and Amine’s “Caroline.”

As SoundCloud became more important, so did the monetization concerns. A music marketplace like today’s that treats streaming as legitimate business—notably not the marketplace in which SoundCloud was founded—is in some ways fundamentally at odds with the freedom and frictionless-ness that earned the platform its reputation. Major labels that finally understood the cash value of millions of streams started pulling content. A songwriter organization sued. “Once the labels cracked the code to making money from streaming, they just kept knocking on the door,” artist manger Dominique says. And they came knocking with cease and desist letters.

In June of 2015, the outside world discovered SoundCloud was gambling that it could follow the path of Spotify when documents revealing plans for a multi-tiered subscription service leaked online. This was an odd decision, since the two platforms had seemingly been created with different goals in mind. In contrast to the “bottom-up” qualities of SoundCloud, Spotify leans more top-down. Henny Yegezu, whose management client Goldlink eventually earned a deal with RCA in part on the strength of his SoundCloud numbers, likens Spotify to “the new radio station,” with its flagship playlists as “the new mix show.” (Spotify recently denied allegations that it is using those playlists as a delivery mechanism for “fake artists” that only exist on the platform.) In a recently negotiated deal with Universal Music Group, Spotify also agreed to allow artists to release albums only on their platform’s premium tier for two weeks—another top-down, access-restricting move.

When the news of SoundCloud’s next steps leaked, the company’s transformation was already well under way. Ads appeared on the service in 2014, grating listeners used to maneuvering unencumbered. “More now I use Apple Music, just ’cause of the ads—it was getting in the way,” says rising New York rapper DonMonique, who attracted acclaim on SoundCloud with tracks like “Pilates.” Her fans also started requesting that she put songs on other platforms.
“They wasn’t going to SoundCloud that much because of the ads,” she says.

The subscription service, SoundCloud Go, debuted in 2016, interfering with the unmediated artist-to-fan relationship. “It affected the way people consume on the platform, made it not as accessible,” manager Yegezu asserts. “Nobody was happy with that shit. Early on for us, [when talking with our label] we’re like, Goldlink’s audience is really in SoundCloud—this [release] has to be in front of the paywall to be able to found quickly and not have the SoundCloud Go shit so nobody shares it.”

Dominique has a similar story from when Tiller signed his major label contract. “When we went and signed a deal with RCA, we told ’em, Don’t touch our Soundcloud or we’re not doing this deal,” he says. “We understood that’s what got him here. But once you start releasing music, it starts turning into, The other providers are getting angry because they feel like you’re showing favoritism to SoundCloud and not them. In this industry, you don’t want to get anyone mad. We had to follow suit as well as possible.”

Yegezu sees changes in the way labels use SoundCloud as well. Though the platform had offered a space for artists to woodshed ideas and gradually build a substantive style, labels hungrily combing the platform to cull the next big track from the herd threw that system out of whack. “It’s tricky when you can see that the return on a song that cuts through and becomes a platinum record in seven months is better from a business perspective than investing money in three or four albums and really developing the artist,” Yegezu says. “Sometimes SoundCloud was an indicator of, Wow, this song is moving quickly, if we put radio behind this, it could be huge. I think that was a con for artist development.”

In addition to potentially misidentifying what made it vital, SoundCloud’s transformation came at a bad time. Apple moved aggressively into streaming in 2015, Amazon followed in 2016, and both have nearly unlimited resources in comparison to SoundCloud. Spotify, meanwhile, had a head start of several years on SoundCloud in terms of building a paid subscriber base. “It’s just a crowded field now,” CD Baby’s Breuner notes. “It feels like Apple, Amazon and Spotify have really locked up the space to a degree. They need to figure out their uniqueness that draws people in. That hasn’t been clear to me.”

SoundCloud HQ
SoundCloud offices in Berlin

“Change isn’t always a bad thing,” says Segal of the Social Experiment. “It’s an inevitable thing. This was always going to happen. They reel you in on your free service, and then they start making you pay for it. That’s smart marketing.”

SoundCloud still has many supporters, though TechCrunch cites estimates that the number of users has dropped to 70 million. “It’s helped so many people out,” says D.C.-area rapper Chaz French, who leveraged SoundCloud visibility into a deal with Motown Records this March and just released his major label debut, True Colors. “Someone needs to save it.”

“My music is always gonna be on SoundCloud,” adds DonMonique. “Those were the day ones.”

For Cohen, the 300 Records A&R, the current absence of a serious replacement helps ensure SoundCloud will stick around for the time being, at least in some form. “I think it’s a little bit too important of a place right now to not be stripped for component parts,” he says. “And if that happens, they’re not gonna get rid of the brand entirely. Maybe it’s the cynical way to look at this, but it’s a positive way to look at it [too].”

At the moment, the only real competitor angling for SoundCloud’s old role as the premier free streaming destination is Audiomack, which recently unveiled a redesigned desktop platform and is in the process of developing the Audiomack Monetization Program (AMP). Right now, AMP is invite-only, with roughly 1,000 artists being paid out each month, but co-founder David Ponte suggests that Audiomack aims to make AMP available to all users eventually.

“We cater to the needs of independent artists—we have distribution for them, we have monetization for them,” Ponte says. “As SoundCloud exited that market and tried to compete with Spotify, we wanted to provide this platform for independent artists that want to get their music out there.”

He points out that unlike SoundCloud, Audiomack has been profitable since its second year, and that it had advertisements from day one, so users are used to that. Still, Audiomack has a ways to go before it reaches SoundCloud’s size. Ponte says the Audiomack app has been downloaded 10 million times.

As for what SoundCloud says about its future, a representative from the platform responded to my inquiries, “The most important thing to know right now is that everyone’s music and audio is safe on SoundCloud. SoundCloud is not going away—not in 50 days, not in 80 days or anytime in the foreseeable future. You can also take a look at Chief Executive Officer, Alex Ljung’s recent blog post, found here to answer some of your questions. This is all we have to share at this time.”

Segal predicts that a new service will develop to offer the excitement and creative possibilities of early SoundCloud. “I think there’s gonna be another streaming service that will come along,” he says. “It’s going to be incredible [and] it’s going to be free. And then, eventually, you’re going to have to pay for it.”

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