Music streaming service Spotify has initiated talks to purchase SoundCloud, to step up their competition with Apple for the future of digital music.
According to sources, it is still not clear how much Spotify is offering for Soundcloud, and no one is sure about the certainty of the outcome.
SoundCloud, had raised $100m in June from investors including Twitter, and was last valued at about $700m.
Spotify hit 40m premium subscribers a week in September 2016, after Apple Music announced its service had grown to 17m subscribers.
A deal between Spotify and SoundCloud, two of Europe’s top tech start-ups, comes as Silicon Valley titans such as Apple and Amazon have recently launched their own music streaming services, forcing independent players to consolidate to survive.
Despite having a 200 million strong creative community and 135m tracks, with remixes and new artists coveted by competitors, it’s surprising to note that SoundCloud has never made a profit.
Since 2014 when it reported a turnover of €17.4m and an operating loss of €39m, Soundcloud has not reported user numbers or business health.
Sources close to Spotify said SoundCloud was viewed as a threat as long as it was considering offering a cheaper, mid-tier subscription service. However when it abandoned those plans, going instead for a standard $9.99 option known as SoundCloud Go earlier this year, it lost its best chance of independent success.
“They’ve been absolutely dobbed by all the pressure from the labels to go in for a cookie-cutter subscription service which doesn’t fit their user base, content or catalogue. It’s an artefact ultimately,” said analyst Mark Mulligan, founder of Midea Research.
Spotify had “reasonably detailed” talks with SoundCloud last spring about a possible acquisition, but balked at its asking price, said people familiar with the matter. After its Twitter investment, Spotify considered the acquisition again, although talks fell apart after a brief round of negotiations, the people said.
Rich Greenfield, analyst with BTIG Research, said: “Spotify buying SoundCloud could be a sign they are trying to extend their significant lead in online music, as Apple, Google and Amazon are gearing up to compete more aggressively in music. The next question will be, is Pandora going to be left out and forgotten.”
Soundcloud’s biggest strength is the community of creators who built it, with an extensive catalogue of music, such as mixes, hip hop, EDM and DJ sets.