Tag: Jose Arroyo

2016 Digital Music Revenues

2016 Digital Music Revenues

The upsurge in digital music revenue has created immense opportunities for the music industry to expand and finally grow. However, there are still challenges ahead. As artist begin to realize the power they have in generating profit, it will become imperative for business professionals to reaffirm their importance to the musician’s career. My experience as an independent artist accompanied with my analytical skills allows me to communicate with both sides and enhance business relationships.

Jose Arroyo

UMG’s Management Approach

UMG’s Management Approach

As an active music artist with a long-term goal of managing my own music company, I admire UMG’s success and influence in the music industry. They have a wide array of artists on their roster, such as Drake, The Weekend, Adele, Nicki Minaj, Rihanna, and Taylor Swift. They also own the rights to many popular albums and songs from music legends, such as John Lennon, the Beatles, James Brown, Stevie Wonder, Kiss, and even Eazy-E. Through asset acquisitions (like album copyrights and publishing rights), artist development, market adaptability, innovative leadership, and customer focus, UMG has been able to provide high quality products while putting themselves in a profitable position.
UMG is currently under the leadership of Sir Lucian Grainge. He has been the CEO and Chairman of the Management Board since 2010. Grainge has over 25 years of experience in the music industry and has an extensive background in music publishing. According to an article published by Variety, Universal Music Group’s value has tripled in value since Grainge became the Chairman and CEO of the company.
The music industry has fought hard to break out of the depressive downturn it’s been in for the past 10 years plus. Pirating and digital music sales are some of the factors that contributed to the despair. Music streaming, however, has created an upsurge in revenues for the past two years, and large music corporations love it. UMG is demonstrating effective management because they are showing adaptability to the new music environment. Instead of fighting the changes and complaining about the marginal payouts streaming platforms distribute, UMG has embraced the changing landscape while increasing their revenue. They are also displaying their customer focus by taking initiative and become engaged in the new market.
According to statistics compiled by midiaresearch.com, UMG has the largest music industry market share when compared to all other music companies, accounting for 29%. Sony and Warner Music make up 22% and 17%, respectively. The other 31% belongs to all independent music companies not named UMG, Sony, or Warner Music. UMG’s grasp on the music industry can be attributed to their diverse catalogue of music, adaptable marketing strategies, and innovative leadership.

I believe the company demonstrates effective management because they are adapting their business approach and using their current assets to maximize profitability, while making further acquisitions that will increase revenue and grow their footprint in the music industry. They are also providing products in a way that satisfies consumer needs. As they say in business, you have to ride the wave. That wave right now in the music industry is streaming.

Last month, UMG struck a licensing deal with Spotify, the biggest music streaming company at the moment. By making this move, Universal is demonstrating it’s market adaptability by investing in the new music market landscape. According to a publication released by Statista, streaming subscription services accounted for 38% of total music consumption in 2016. This upsurge translated to increased revenues in a market that has seen downturns year after year.

Although UMG is allowing Spotify access to their catalogue, they still included some contingencies to that will be advantageous to the company’s long-term goal of making music streaming profits a sustainable source of income. In order to come to terms, UMG required Spotify to “window” certain albums, where only paid subscribers to the will be allowed access to the music for two weeks. This move was made as an attempt to incentivize going from a free Spotify plan to a monthly subscription. Spotify has also agreed to give UMG access to their massive database, which will give Universal insight into current and future trends listening trends. In an article published through Full Sail’s library, Robert Levine quotes an industry analyst saying, “Universal is the one that can call the shots,” and I couldn’t agree more. UMG is the first of the Big 3 to strike a licensing deal with Spotify. Their market flexibility and ability to position themselves for sustainable growth (while catering to the average music consumer) shows effective management and great leadership skills.

Resources:

http://variety.com/2017/music/news/universal-music-group-valuation-lucian-grainge-1202400328/

http://www.ifpi.org/news/IFPI-GLOBAL-MUSIC-REPORT-2017

http://www.digitalmusicnews.com/2017/02/24/umg-streaming-revenue/

https://musicindustryblog.wordpress.com/2017/02/26/global-recorded-market-music-market-shares-2016/

https://www.statista.com/statistics/502908/music-consumption-genre-format-usa/

http://web.b.ebscohost.com.oclc.fullsail.edu:81/ehost/detail/detail?sid=47cf5b1b-36f9-4cc3-bcd6-f1560e14166d%40sessionmgr103&vid=6&hid=125&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=122384889&db=bth

Dr. Dre Beats all Odds: Examining his Rise to Success

Dr. Dre Beats all Odds: Examining his Rise to Success

Andre Romelle Young, better known as Dr. Dre, is an incon figure in Music. I believe Dr. Dre’s success illustrates the importance of building strong connections and establishing a personal brand. His journey also demonstrates the importance of diversifying your skillsets in the music industry. Steve Jobs once said, “Great things in business are never done by one person. They’re done by a team of people.” Dr. Dre’s success is a collaboration of many people’s contributions. He mixed and matched learning experiences and implemented them into his own projects, while helping other artists break into the industry and establish themselves as well. His approach to music, business savvy, and innovative production has manifested into a high degree of success for him and everyone around him.

Dr. Dre started off working as a DJ at various local hip-hop clubs. In 1984, he played a vital role in the founding of the “World Class Wreckin Cru.” A few years later, Dr. Dre met Ice Cube through his cousin, Sir Jinx (also a producer). Dre and Cube would eventually meet Eazy-E, which was a street hustler/music manager at the time. Eazy-E hired Ice Cube to write a record for his group H.B.O. (Home Boys Only). The song Ice Cube wrote would be on of the most iconic tracks in West Coast Hip-Hop: “Boyz in the Hood,” produced by Dr. Dre. In a 2013 interview with Complex, Ice Cube states, “[The song] was too West Coast for [H.B.O.] so they rejected [it]… Dre convinced Eazy that he had a good enough voice to do it,” and the rest is history. The three would become the nucleus for the notorious rap group, N.W.A.

The rap group had a falling out in 1992 and Dr. Dre left to form Death Row Records with Suge Knight. Dre began his journey as a rapper and released his first album, “The Chronic.” The album received critical acclaim and is now a triple platinum project with over 3 million records sold. Dre also joined forces with Snoop Dogg and 2Pac during his time at Death Row. He would later leave the gangster rap company to form his own label, “Aftermath,” under the umbrella of Interscope Records through a partnership with Jimmy Iovine. He signed Eminem shortly after and continued to garner appraise and recognition in the music industry by working with various Rap Artists. His contributions paved the way for Hip-Hop’s rise to popularity and he continues to find ways to stay relevant in the constantly evolving music industry.

Dr. Dre has many business achievements. He signed and groomed Eminem, which has proven to be one of the greatest acts in Hip-Hop history. Rap Basement published an article in 2013 detailing Dr. Dre’s experience with signing Eminem and how he ignored the criticism he was getting from the rap community. “The race factor was just a minuscule part of what I was doing with Eminem. It was really about the music and how well we worked together.” Although one cannot disregard the duo’s incredible chemistry, examining Dr. Dre’s business mindset makes one conclude that Dre saw Eminem’s potential to grow the record industry (and his own company) by making Hip-Hop popular outside of the Black Urban community. Regardless of that idea, it was still a risky move. Many “gangster rappers” would have cringed at the idea of having their street credibility diminished by signing a white rapper with an eccentric style like Eminem. However, Dre followed his gut and it paid off. Eminem has gone diamond on two separate occasions with over 10M single sales and streams, according to RIAA, for “I love the Way you Lie ft. Rihanna” and “I’m Not Afraid.” Dr. Dre has also worked with one of the most iconic figures in Hip-Hop, Tupac Shakur. On top of that, he played an essential role in 50 Cent’s early success. Complex published an article in 2013 listing the 50 top selling rap albums of all time. Dr. Dre had his production hand on 13 of the 40 top selling albums, meaning his contributions played a part in producing 33% of the best selling rap albums prior to 2014.

His greatest achievement, however, has to be the creation of Beats by Dre. Beats by Dre/Beats Electronics is a concept that was made possible through the collaborative effort of Jimmy Iovine and Dr. Dre. Jimmy Iovine, founder of Interscope Records, was in a troubling predicament. He was witnessing CD sales drop due to piracy and did not want to continue walking down a diminishing business path. Business Insider published an article in 2014 describing how Jimmy Iovine came up with the idea of selling speakers and headphones in the mid 2000’s. “I can’t sell CD’s anymore,” Iovine said to Doug Morris (then CEO of Universal Music Group). He wanted to pursue other musical ventures. Iovine states he was inspired by Steve Jobs and Apple’s ability of “making hardware and selling it through software.” The iPod was gaining popularity on a global scale. According to Iovine, it was so popular because of music companies. Without music, the iPod would be nothing.

Although Iovine admired Steve Jobs for creating the iPod and “[marrying] technology directly with popular culture”, he was not so thrilled about the cheap headphones iPods came with. According to Iovine, “Apple was selling $400 iPods with $1 plastic ear buds.” He recalls Dr. Dre saying, “It’s one thing that people steal my music. It’s another thing to destroy the feeling of what I’ve worked on.” The two were already frustrated with piracy, and now the iPod’s cheap ear buds were taking away the grandeur of their music. Selling speakers and headphones was Jimmy Iovine’s idea, but it would not have come to fruition if it weren’t for Dr. Dre’s branding power. According to Inc.com, Iovine ran into Dr. Dre on the beach one day. The two spoke briefly, and Dre told Iovine, “my lawyer, he wants me to sell sneakers – what do you think?” Iovine responded with, “Nobody cares about how you dress… what you should sell is speakers.” Dr. Dre replied, “We can do that.” The two then established Beats by Dre in 2008 and built the company through extensive marketing and acceptance by the pop-culture community, thanks to Dr. Dre’s branding power and reach. In January 2014, Beats also launched a music service with the hopes to capitalize on music streaming popularity. A few months later, Apple announced it was buying Beats Music and Beats Electronics for $3 billion. This business venture is easily Dr. Dre’s greatest accomplishment.

Dr. Dre has a long list of achievements. However, there are some instances that can be accounted as failures. One I would like to discuss is Dr. Dre’s unreleased album “Detox.” Detox was supposed to be Dr. Dre’s third studio album. After going three times platinum with his 1992 “The Chronic” album, helping Eminem go three times platinum with “The Marshall Mathers LP,” and going six times platinum with his second album, “2001,” Dr. Dre had a strong taste of success. He had his mind set on releasing another project. Rolling Stone covered the legend of “Detox” in a 2015 article. “For nearly a decade, [Dre] publicly vacillated on whether or not Detox would ever be released.” Dr. Dre was working with numerous artists from the years 2000 to 2010, and many of those artists would report to media outlets about the incredible music they’ve heard from Dre that would be on the Detox. However, year after year passed by, and with Dre being so heavily involved in many other artists’ projects, Detox never came to realization. Flavorwire.com quoted 50 Cent as saying, “[Dre is] a perfectionist. But sometimes that can be a bad thing.” Some may argue that this isn’t a failure as the album was never completed, but the fact that Dr. Dre denied himself the possibility of another platinum album does seem disappointing to me. Nevertheless, this does not account for his biggest failure. I believe the greatest blows he’s felt in his business career is losing a $3M royalty claim on his debut album, “The Chronic.”

His debut album is highly regarded as one of the breakthrough albums for Hip-Hop by many music fanatics. Although it has gone platinum three times, Dr. Dre has not seen any physical royalties from the album. He created the project during his tenure at Death Row and made a verbal agreement with the record company that gave him the rights to 18% of the record’s retail sales (20% when sales hit over one million units), according to an article published by Billboard.com. Dre also made verbal arrangements that entitled him to 4% of producer royalties. However, when he left Death Row to start his own company (Aftermath), Billboard.com reports that, “Dre bought his freedom by disclaiming ownership interest in… Death Row and the sound recordings he had produced there.” Dr. Dre chose to take legal action in 2007 in order to recoup some of the monetary loses. However, his verbal agreements did not stand a chance in a court of law. Dr. Dre’s administrative royalty claims were denied in 2014. The Chronic has been featured in various movies and video games, and Dr. Dre has lost millions due to these verbal agreements. He did, however, win a lawsuit that entitled him to 100% of the Chronic’s digital sales, so his debut project is putting some money in his pocket, but a small amount compared to what it has earned over its lifetime. I think the verbal agreements Dr. Dre made with Death Row and the impact they had on his royalties account for one of the biggest business failures in his career.

One thing I have learned about Dr. Dre’s achievements is that you have a greater chance of success when you expand your skillsets and services. His entire portfolio is a symbol for diversification. He went from being a DJ to being an Emcee. He then went from being an Emcee, to becoming a music producer. Although he saw much success producing hits for artists like Eazy-E, Tupac, and Eminem, Dr. Dre didn’t just confine himself to making beats. He began rapping and creating his own albums. Once he had established his name in the music production and rap arena, he founded his own record label. The experience he gained being a part of NWA and playing a fundamental part in the rise of Death Row gave him the insight and knowledge he needed to spot talent and produce success. You have to help others in order to truly leave a mark in the music industry, and Dr. Dre has clearly done both.

I’ve also learned that you have to be an independent thinker and put yourself in positive situations. Dr. Dre never stuck around if he felt he was being mistreated or taken advantage of. He left NWA and Death Row due to monetary disputes and creative differences. He chose to build his own music company and establish his own business, which is what I am trying to do as well. Although his successes can serve as great learning moments, I’ve also learned from some of his missteps. Perfection is always the target, but examining Dr. Dre’s rap career demonstrates that one can be a perfectionist to a fault. I think Dre battled with this notion when working on his third album, “Detox,” which he never released. He spent so much time trying to perfect it that he never actually finished it. Failure is a scary thing, but not pursuing things out of a fear of failure can lead to unrealized success. This is something I am learning.

Perhaps the greatest thing I’ve absorbed from researching Dr. Dre is that you have to stay on top of trends and modern times. When Apple came out with the iPod, CD sales were already falling due to piracy and digital downloads. Dr. Dre could not change the direction the music industry was taking, so he chose to become a part of it. People were listening to music on their headphones more than ever, and he saw a need for earphones with greater sound quality and exceptional design. He used his branding reach and influence to put these headphones on the ears of many pop-culture figures, from athletes to music artists. The efforts paid off as Apple purchased Beats by Dre for $3 Billion, making Dr. Dre one of the top earners in the music industry.

Dr. Dre has many great leadership qualities. He obviously has a great understanding of business. He used his network and talents at the most pivotal times in his career. When he released his albums, he called on artists he had previously done production work for to feature in his projects. This expanded his audience reach and allowed for greater sales. When he joined up with Jimmy Iovine for Beats Electronics, he used his status to convey the idea that Beats Headphones were “in,” and that you needed to have them. I also believe he is very charismatic and convincing. Eazy-E was not a rapper, but when Dr. Dre and Ice Cube had nobody to sing their song, “Boyz in the Hood,” he found a way to convince Eazy-E to rap the song. This very moment transmitted the three into the small circle of Hip-Hop pioneers. I believe Dre is also very smart and instinctive. When he left NWA, many people saw him as a sell out. But he saw that he was not getting what he deserved from the company. The same thing happened with Death Row. Both of those companies are not even operating now, and Dr. Dre has created one of the most prosperous music companies under Interscope Records (Now under Universal Music Group). He still acts as a mentor to up and coming artists, such as Kendrick Lamar, and remains active in the music industry. Dr. Dre gives off the vibe of a strong-willed, soft-spoken businessman. He isn’t flashy or attention starved, he is happy with being behind the scenes. I believe all of these qualities have granted him the prominence and prosperity he has been able to achieve.

When you’re in the music business, you have to be able to separate yourself from the audience and fans, but also become engrained with them. It is a very difficult task. It’s sort of like being a parent. You want to be friends with your children, but at the same time you want to guide them in the right direction and show them right from wrong. I’ve heard music fans criticize Dr. Dre in the past for not sticking with Death Row. They saw him as a “punk,” if you will. But Dre had bigger dreams for his career. If trying to put yourself in a more favorable position means you are a “punk,” then I guess I am too. Furthermore, when Dr. Dre signed Eminem, many fans questioned the his judgment. According to an article published by the NYDailynews.com in 2007, when Dre played the songs he collaborated with Eminem on, even his GM was skeptical about his angle. “This guy is blond with blue eyes. What are you doing?” But Eminem was talented, and Dr. Dre was the only one willing to invest the time and effort into his career (despite what the average consumer thought they wanted). Sometimes you don’t know what you’re looking for until you find it. Dre gave us the Hip-Hop world a gem in Eminem.

Beats Electronics is one of Dr. Dre’s greatest accomplishments, but some people saw him as a sell out when he made the deal with Apple. I think that notion is ridiculous. Dr. Dre got a huge paycheck, and now he doesn’t have to worry about money. He can spend his time quietly working on the next big, the next innovation that will transcend the music industry into the next stage of its evolution. I think that might be exactly what the doctor ordered.

References:

http://www.rollingstone.com/music/artists/dr-dre/biography

http://hiphopdx.com/news/id.12544/title.sir-jinx-talks-ice-cube-reunion-another-dr-dre-detox-track-with-jay-z#signup

http://www.complex.com/music/2013/09/ice-cube-interview-easy-e

http://www.vibe.com/featured/vibe-eazy-e-cover-story/

http://www.allmusic.com/artist/dr-dre-mn0000805274/biography

http://www.billboard.com/articles/news/6114162/eminem-first-to-receive-two-riaa-digital-single-diamond-awards

http://www.rapbasement.com/dr-dre/121213-dr-dre-speaks-on-the-beginning-stages-of-working-with-eminem.html

https://www.riaa.com/gold-platinum/?tab_active=default-award&se=aftermath#search_section

http://www.complex.com/music/2013/05/the-50-best-selling-rap-albums/dr-dre-2001

http://www.businessinsider.com/the-story-of-how-beats-by-dr-dre-was-started-2014-10

https://www.inc.com/audacious-companies/burt-helm/beats.html

https://www.apple.com/pr/library/2014/05/28Apple-to-Acquire-Beats-Music-Beats-Electronics.html

http://flavorwire.com/530630/a-brief-history-of-dr-dre-not-releasing-his-next-album

http://www.billboard.com/biz/articles/news/legal-and-management/6084811/dr-dre-3-million-royalty-claim-the-chronic-suge-knight-death-row-interscope

http://www.nydailynews.com/entertainment/gossip/dre-signed-eminem-support-shady-slim-article-1.217218

BMG’s Perspective on Digital Music Revenues

BMG’s Perspective on Digital Music Revenues

With Nielsen and The Recording Industry Association of America (RIAA) releasing their Music Industry Revenues Report for 2016, it has been revealed that many record labels are raking in the profits. For the past decade (thanks to piracy and a drop off in physical CD sales) the music industry has been constantly diminishing in value. Last year, however, music streaming earnings allowed the industry to see an increase in revenue, and music companies love it. Technological breakthroughs have given fans the ability to easily discover new music. It has also allowed artists to showcase their musical talents to the world. However, it has created over saturation in the market. Online music streaming has manifested itself into a new wave of revenue, and record labels are riding it all the way to the bank. However, artists have long expressed their discontent with the marginal pay outs that streaming platforms distribute. Digital Music News published an article illustrating how discouraging music streaming royalties are to the average artist. In the article, they exhibited the royalties an independent band received from having over 1 million streams. The results: $4,955.90, an average of $0.004891 per stream. I believe it’s only a matter of time before artists demand higher cuts in royalties from music streaming.

The Financial Times published another article this month discussing this topic. They sat with Hartwig Masuch, CEO of BMG (Bertelsmann Music Group), and asked for his opinion on music streaming and how it will affect the future of the industry. According to Masuch, there will soon be “wake-up calls” for many record labels who believe they are living the dream. “A return to growth triggered by the upswing in streaming is potentially under threat, as artists start to demand a much greater cut of royalty revenues generated.” Streaming and the inevitable demand for higher royalty rates among artists is impacting all of the major labels, but BMG is sheltering itself from the upcoming storm by paying their artists 75% of streaming royalties. According to Masuch, “big music companies spent an average of 19% of their revenues on artists royalties.” That’s a wide gap compared to what BMG pays its artists. Masuch also stated that major record labels use the “complicated” structure of the music streaming market to minimize royalties paid to artists, but even that explanation will soon fall on deaf ears.

I believe BMG is handling the situation very well and is blazing a trail towards future success. Bertelsmann was a media giant in the music industry before, but Sony acquired the company in 2008 for $1.2 Billion. Masuch then reassembled the company with a new vision, “to help artists and songwriters make the very most of their songs and recordings in the digital age.” Masuch created a new company tailored specifically for a digital market, distancing themselves from traditional label business models and adopting a digital infrastructure that allows for songwriters and artists to gain larger royalty revenues. They’re new business model will certainly attract emerging acts. Most artists choose to stay independent, not because they want to do it all by themselves, but because they want freedom to create and higher profitability. By establishing their stance on music streaming and publically advertising their 75% streaming royalty pay outs to artists, they are positioning themselves favorably among musicians seeking the influential power of a music company.

I believe BMG’s response to the growing frustration artists are experiencing due to low royalty rates will bring long term success to the company. In a Financial Times article that was published this month, Masuch stated that “BMG’s ebitda (earnings before interest, tax, depreciation, and amortization) margin of 22.8 percent in 2016 [is] proof that the larger music businesses have cost bases still mired in the physical world.” According to an article published by Music Business Worldwide, “Universal Music Group posted an annual ebitda figure of $712M… representing a 13% [profit] margin.” Sony had a profit margin of 11.5%, and Warner Music Group had a profit margin of 15.9%. BMG, on the other hand, had a profit margin of 22.8%, larger when compared to the Big 3. Although their total revenue was lower than the other companies, when the data is normalized one can see a big difference in the four company’s profit margin.

The article went on to state how BMG has made over 100 acquisitions over the last 8 years and are now focusing on “organic growth.” I believe the company will do just that within the next few years. But there still remains a question to be answered: How are music streaming platforms going to contribute to higher royalty rates for music artists and labels?

Resources:

http://www.digitalmusicnews.com/2016/05/26/band-1-million-spotify-streams-royalties/

https://www.musicbusinessworldwide.com/bmg-revenue-tops-450m-2016-23-profit-margin

https://www.bmg.com/us/about.html

http://www.completemusicupdate.com/article/bmg-boss-says-streaming-boom-will-force-labels-to-offer-artists-better-royalties/

https://www.ft.com/content/e33399ca-1b76-11e7-bcac-6d03d067f81f

Soundcloud’s Future

Soundcloud’s Future

SoundCloud is one of the biggest online music platforms around right now. Boasting approximately 175 million users, it is difficult to see how the giant music streaming company could possible disappear in the next few years. However, they are currently in a problematic situation that will either make or break the company. I believe SoundCloud’s future will consist of rainy days.

After reading the article by KLS.com and understanding some of the warning signs that tell whether a company will ultimately fail, I came to the conclusion that SoundCloud is in jeopardy. Although the music streaming website is popular among musicians and DJ’s because it is a free service, their recent transition into becoming a paid music subscription platform has been anything but seamless. SoundCloud now offers music subscription packages that range from $4.99-$9.99/month (Go and Go+), along with their free package as well. Their free package offers users access to 120M tracks. SoundCloud Go offers access to 120M tracks, offline listening, and removes ads. Their Go+ package offers 150M tracks, offline listening, and no ads. However, there are some flaws in their business model that could ultimately lead to an unsuccessful endeavor.

Ben Stager from MakeUseOf.com published an article in April 2016 titled, “We tried SoundCloud Go so you don’t have to.” In the article, he gives an in-depth look into his musical experience with SoundCloud Go.  One of the major flaws he highlights is SoundCloud’s catalogue. Soundcloud’s musical library is devoid of many well-known artists such as Kanye West, Jay-Z, Rihanna, and Beyonce. This is understandable, seeing as how Jay-Z’s has pulled all of his music from streaming platforms and made them available exclusively on Tidal. Though it is an ongoing battle in regards to whether these big name artists should display their music on Spotify and AppleMusic (seeing as how pay outs are marginal), one thing is for certain: they are not running to SoundCloud for music streaming. While on the website, I did some research of my own as well. I looked up a few of my favorite independent underground artist (such as Papoose and K-Rino) and they had a minimal amount of their enormous catalogue on the website.  I was not surprised.

Although SoundCloud has had a few milestones, for example partnering with Chance the Rapper to make his album, “Coloring Book,” available for free (even though Apple Music struck a deal to stream the album exclusively two weeks prior to SoundCloud), the company has not had many highlighting moments. It was once said that SoundCloud would be the Facebook and YouTube of music streaming, but the fact is that many established artists have not rallied around the platform. In my opinion, it’s becoming the MySpace of music streaming. It is big amongst independent and upcoming artists, but once they establish themselves they tend to move on from the platform. Just look at how Drake abandoned the website a few years ago.

Besides not having the support of many well established artists, examining SoundCloud’s financial forecast will reveal that the money won’t be raining down any time soon. Although the company has been experiencing losses for the past couple of years, they have continued to add employees. According to Digital Music News, SoundCloud expended $28M on wages and salaries for 295 employees in 2015. That means the company spent an average $95,000/employee that year. Their employee wages were less than their total revenues. This does not include any other operational costs, such as rent, utilities, and marketing. The year prior, they spent an average of $80,000 each salary for 236 employees. The costs of acquiring talent and operating in the shark-infested waters of the music subscription sea keeps rising. SoundCloud is basing its future success on the idea that they will be successful. Alexander Ljung (Co-founder of SoundCloud) commented on his company’s business model, “The assumption of a successful launch of the new subscription service is the key element of… financial projections for the next three years… [It] bears financial risks regarding the operating results and cash flows of the group.” According to Ljung, the company might have trouble generating sufficient cash for upcoming expenditures, and may require additional funding from investors, or they could “run out of cash earlier than December 31, 2017.” There is a lot of uncertainty clouding the company’s financial future, and that is an unattractive trait for a business looking to acquire more investors.

Besides reporting losses since 2010, SoundCloud has also explored the possibility of selling the company. According to Hypebot, SoundCloud has been attempting to raise $100M since the summer of 2016 (around the same time they launched their Go+ subscription service). Bloomberg.com also reported that SoundCloud was considering a sale for $1 billion. Business insider made some good points as to why the platform would consider selling. One of the reasons they presented was that SoundCloud might not be able to compete in the rough waters of music streaming, which is dominated by Spotify and Apple Music. Pandora and YouTube also have shares in the market, and consumers are not likely to pay for music subscriptions from multiple platforms. 26% of SoundCloud’s free users are already paid subscribers to other companies.

Spotify initially showed interest in acquiring SoundCloud, however, last year in December those talks came to a mute. Techcrunch.com published an article detailing the unrealized acquisition. With Spotify’s plans of going public on the trading market, they decided not to purchase SoundCloud, as it could negatively affect their preparation. Dealing with the labels is one thing, but SoundCloud caters to independent artists and DJ’s. Acquiring the company would require Spotify to negotiate deals with labels, independent artists, and DJ’s, something they were not up for. It was once approximated that SoundCloud was worth about $1 billion, but an article published by Digitalchew.com reported SoundCloud could sell for as little as $250M, a 75% decrease in former valuation. Complete Music Update also published an article detailing how SoundCloud’s CFO and Finance Director exited the company, causing more concern for a sinking ship. Whether SoundCloud can turn in a profit under different management remains to be revealed, but seeing as how prominent Spotify and Apple music are becoming,  I do not see the music streaming platform being around in the next few years.

Resources:

http://www.makeuseof.com/tag/tried-soundcloud-go/

http://www.news.com.au/technology/home-entertainment/audio/chance-the-rapper-takes-to-twitter-to-defend-649000-streaming-deal-with-apple-music/news-story/47553b67cda08a5f1c01cd4821669bb1

https://soundcloud.com

http://www.digitalmusicnews.com/2017/01/05/google-soundcloud-possible-bankrupt/

http://www.hypebot.com/hypebot/2017/03/as-soundclouds-cash-woes-continue-fire-sale-at-40-of-valuation-seen-as-likely.html

https://www.bloomberg.com/news/articles/2016-07-27/soundcloud-owners-said-to-mull-1-billion-sale-of-music-service

http://www.businessinsider.com/soundcloud-could-sell-for-1-billion-2016-7

https://techcrunch.com/2016/12/08/spotify-soundcloud-deal-dead/

http://digitalchew.com/2017/03/13/soundclod-sale-investment/

http://www.completemusicupdate.com/article/soundcloud-seeks-new-funding-as-key-execs-leave/

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