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If you've been in this space long enough - like, a year - you've probably developed an allergic reaction to huge funding rounds. It just seems so speculative and disaster-prone! Case in point: just a few days ago, Beyond Oblivion melted into a bonfire of wasted cash, specifically $87 million across two rounds. As the blood started flowing, Beyond CEO Adam Kidron quick listed licensing as the biggest dagger, and we're not sure refunds are being issued.
Then there's Spotify, which grabbed another $100 million last year, but is getting dogged by serious profitability and sustainability questions.
Which brings us to SoundCloud, the Berlin-based, web sonification extraordinaire that just received $50 million in financing. Kleiner Perkins Caufield & Byers (KPCB) led the round, while bringing the broader valuation of this company towards $200 million. This is all part of a huge bet on internet sound, and a desire to chase the category-killer equivalent of YouTube or Vimeo. "[KPCB investor] Mary Meeker showed very clearly in her recent State of the Internet 2011 presentation that sound is the next frontier on the web," explained SoundCloud founder and CEO Alexander Ljung.
Sounds fantastically ambitious, and dangerously expensive. Actually, KPCB is also an investor in Spotify, but unlike that bet, SoundCloud's model isn't predicated or dependent on expensive major label licensing demands. Meaning, disproportionately large amounts of this financing won't be siphoned off towards major content owners, with deals that must be renewed after a relatively short period.
So instead of hemorrhaging 75 percent of available funds towards licensing, SoundCloud can focus on building its platform, attracting extremely talented (and well-compensated) executives, and boosting the value proposition for paying subscribers (which tallied 5 million in June).
In fact, we've heard that one earlier SoundCloud investor - Union Ventures - is mostly avoiding music startups that involve expensive and potentially show-stopping licensing costs. Because if anything, it seems that major labels are mostly entering these negotiations with short-term cash interests in mind, not a shared goal towards longer-term business growth. And that's no good.
SoundCloud was started in 2008 by Ljung and Eric Wahlforss. Last year, the company pulled a $10 million Series B, and its initial round was in the $3.3 million range. GGV Capital also participated in the latest round.
JacksonL Tuesday, January 03, 2012
Major labels are NOT partners --- they are just trying to get as much as they can out of the investors. That is NOT a model my people.
Parodox Tuesday, January 03, 2012
Spotify is critizied for not being sustainable or profitable.
It is also critizied for not paying as much as it should.
Which is it?
Pay less and be more sustainable?
Pay more and it will never be sustainable?
mdti Tuesday, January 03, 2012
not sure it mentions that it is not sustainable "for themselves" .... the debate has been whether it is sustainable for artists and wether artist would rather go to a free service like soundcloud, which seems more profitable for the artists (indirectly).
James Tuesday, January 03, 2012
Soundcloud is ubiquitous now. Every band and DJ has an account, and every music blog uses it. So if Soundcloud still need VC handouts to operate, their whole freemium model is in question.
Simply Capitalism Tuesday, January 03, 2012
SoundCloud is useful to the amateur and easily bored musician/DJ who can't be bothered to install a WorPress plugin on his blog (10 minutes of work!). You can't expect amateurs to pay a monthly fee, they will just move on to the next platform.
Boj200 Wednesday, January 04, 2012
please clarify about respectin Wednesday, January 04, 2012
I keep hearing that soundcloud respects copyrights. But when I do a search for Lady Gaga on soundcloud, I get 50+ pages of songs - all of which appear to be posted by fans.
Is soundcloud paying the rights holders each time a song is played from a fan upload?
I'm not accusing them of not respecting copyrights, I just don't understand how they are handling it when fans upload and play music that doesn't belong to them (which appears to me to be absolutely rampant on soundcloud).
Anyone know?
You are dreaming? Wednesday, January 04, 2012
Why would Spotify care about copyright?
If they wanted to help the artists, that $50 Million would go directly to album productions of indie musicians.
paul Wednesday, January 04, 2012
Let's split the difference. They announced 5 mm in June of last year. I haven't seen anything publicly-announced since, anyone?
/paul
Foster Hagey Wednesday, January 04, 2012
I think that Soundcloud's data and features are more valuable to rightsholders than Spotify's royalty payments.
Soundcloud/Copyrights Wednesday, January 04, 2012
I keep hearing that soundcloud respects copyrights. But when I do a search for Lady Gaga on soundcloud, I get 50+ pages of songs - all of which appear to be posted by fans.
Is soundcloud paying the rights holders each time a song is played from a fan upload?
I'm not accusing them of not respecting copyrights, I just don't
understand how they are handling it when fans upload and play music that
doesn't belong to them (which appears to me to be absolutely rampant on
soundcloud).
Anyone know?
@fhagey Wednesday, January 04, 2012
Perhaps SoundCloud data and features are more valuable to rightsholders than Spotify royalty payments? I think so.
so... Wednesday, January 04, 2012
By that logic, if Spotify just built the same features and displayed the same data as what Soundcloud does, then Major Labels wouldn't charge Spotify any licensing fees.
Which doesn't make any sense.
How does SoundCloud stay out of hot water for streaming user-uploded content? Aren't they just doing the same thing as Grooveshark?
Foster Hagey Wednesday, January 04, 2012
The DMCA protects SoundCloud from liabilty of unauthorized user-uploaded content.
I work with artists that are totally willing to pay the $30/year for a Lite account, so soundlcoud will allow us to upload tweeked mixes of songs and not have the play-counts start back at zero with each new upload. Also SoundCloud has some pretty cool privacy options, and A&R tools.
The instantness of the data with SoundCloud seems to be worth the money. You play a song. The play count goes up.
But I don't know if it is worth paying a distributor like tunecore to then have to wait six weeks for music to get on Spotify to then have to wait three more months to findout how many times people listened to your music.
While with SoundCloud I can upload a song directly from inside the new pro-tools 10, and post a link to it on facebook and twitter in like 15 minutes. Then I can get up the next morning and check the play-counts and comments from last night.
Value isn't always measured in dollars.
@mfbach Wednesday, January 04, 2012
Great service...
@r0bl0rd Wednesday, January 04, 2012
Yup. Music success without sharecropping -- yay! $50M round is more defense than expansion.
Who will buy…and when …and why?
ali Wednesday, January 04, 2012
The Beyond Oblivion number is misleading. $55M of the $87M in funding "was tied to benchmarks that were not achieved." Burning through $32M in funding is no small feat, but it's a far cry from $87M.
http://www.billboard.biz/bbbiz/industry/digital-and-mobile/beyond-oblivion-shuts-down-before-launch-1005778952.story
Martin Rigby Wednesday, January 04, 2012
Slow burn starts are the only way to build digital music businesses. Market uncertainty, as well as the unpredictable timetable for doing deals with labels and collecting societies/publishers, necessitate a long runway for any start-up in the sector and both last.fm and Spotify are cases in point.
Beyond Oblivion was always defying gravity - how could they persuade handset makers to pay their per-device royalty when it was going to be more than any other single item in the bill of materials for a handset - wholly unrealistic.
lies, every single day Wednesday, January 04, 2012
What are you talking about, have you ever read the TOS on the last.fm platform? They ask you to sign away your rights in exchange for N O T H I N G A T A L L.
DMH Wednesday, January 04, 2012
The business model is smart. Soundcloud is smart as it flips 2 significant
cost lines; the user pays for the privilege of marketing Soundcloud’s services.
For a paid download service there are significant costs associated with
acquiring and manually managing content.
From an investor
perspective, $10/user isn’t much and I’m pretty sure the big picture spiel to
the VC’s would have stated as much.
Tardigrade Sunday, January 08, 2012
Sean Friday, March 16, 2012
I think the more company's like this that exist, and the more labels who help fund and reap both licensing and equity beneift the better.
We need the music industry and the internet industry to live happily together. It will be good for everyone, especially the Internet.
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