People seem to forget that the music business is a changing industry. Record stores are far and few, physical sales are down, fans find out about new music in different ways, and musicians generate revenue in more ways than they used to. Social media, and online distribution sites are not only a major part of today’s industry, but they will most likely be the key source of revenue and marketing for music in the future. Online sites like Reverbnation, SoundCloud, BandMix, and many more sites where musicians can upload their music have become the key standard for fans to interact and discover new music today. Due to SoundCloud’s popularity and effectiveness, it has recently secured a major investment to help the company grow and dominate the independent sector of the music industry even more than they already had been.
It was recently announced on Billboard.biz that popular online streaming audio platform SoundCloud closed a Series D funding firm with Institutional Venture Partners, with participation from the Chernin Group. SoundCloud has been one of the most popular ways for musicians to store, stream, sell, and share their music on the internet and mobile devices. The amount of funding has not been disclosed yet, but the Wall Street Journal announced that SoundCloud had raised more than $60 million dollars at a valuation of around $700 million.
A Spokesperson at SoundCloud recently stated that the funding would be used “to grow more rapidly in product, personnel and expansion in mobile efforts.”
In a recent online blog posting, Institutional Venture Partners (collectively known as IVP) called SoundCloud “the YouTube of audio.” The phrase “YouTube of audio,” probably refers to SoundCloud being the most popular site for unknown musicians to showcase their audio. Much like YouTube allows you showcase your videos. This type of buzz attracted investments into SoundCloud due to it being one of the leaders and innovators in the ever-growing world of audio streaming digital platforms. IVP has publicly recognized SoundCloud as a business that is quickly growing and scaling. SoundCloud is currently used in more than 200 countries, and its users upload more than 12 hours of audio every minute. A key factor in SoundCloud’s figures, which led to IVP’s investment, is that 90% of all those tracks being uploaded are played on the day they are posted. A rep from IVP recently stated, “We believe that this global reach, combined with very strong networks effects, will continue to expand and solidify SoundCloud’s position in online audio.”
The economics of sites like SoundCloud have proven to be very attractive for investors. Sites like Pandora and Spotify are not as lucrative for investors, due to those streaming sites having to pay royalties for the use of the music being played. SoundCloud doesn’t have to pay labels, artists, songwriters, or publishers. Most streaming sites have to pay some type of licensing’s royalties, and they in turn generate revenue from subscription fees and advertising charges. The royalty most steaming sites and SoundCloud competitors pay usually ranges from 50-70%. SoundCloud allows music to be streamed for free and also offers its users basic accounts with limited storage. If more storage is needed for artists to upload more music, then SoundCloud will charge an extra fee. The fee not only will increase storage capacity, but it also comes with additional features. When a musician uploads their music to SoundCloud, they have to grant SoundCloud a “worldwide, royalty-free, fully paid up license that allows for royalty-free streaming.”
SoundCloud has proven effective in attracting investments prior. They previously attracted investments from Union Square Ventures, Index Ventures, Keliner Perkins Caufield & Byers, GGV Capital and Doughty Hanson Technology Ventures. SoundCloud had raised more than $123 Million before.
Streaming, although financially challenging, has the potential to disrupt the traditional forms of media. Billboard Magazine last year reported that there were nine major investmensts into streaming audio and video sites that were worth $839 million dollars. The biggest investment was $393 million dollars, which was raised by Pandora, from its secondary stock offering. Pandora currently owns $6.5 Billion in market share. The other major streaming site, Spotify, raised $250 Million dollars, which was reported at a $4 Billion valuation.
Companies might not be investing into artists or labels much anymore, but they definitely are investing into new media and online streaming sites. This is just another major indication that the music industry is not dead, it is just changing.