Spotify in talks to acquire SoundCloud

LOS ANGELES — Spotify is in advanced talks to acquire rival music service SoundCloud, according to a report by the Financial Times. An announcement of the acquisition could be made soon, according to the Times. And the acquisition would come just months after SoundCloud launched its own paid streaming service.

A Spotify spokesperson declined to comment on the report when contacted; a SoundCloud spokesperson declined as well.

Spotify is the market leader in the growing paid streaming business, disclosing earlier this month that it now has more than 40 million paying subscribers. Its biggest competitor is Apple Music, with 17 million paying subscribers.

SoundCloud’s own paid service, dubbed SoundCloud Go, likely has not attracted more than a few hundred thousand users ever since it launched in March. However, SoundCloud does have many millions of non-paying users — the latest publicly released metric from December 2014 points to 175 million monthly active users.

SoundCloud also has a much larger catalogue than any other streaming music service, to the tune of 125 million tracks. That is because, unlike Spotify and Apple Music, SoundCloud allows its users to directly upload their own tracks without the need to go through any middlemen. This has resulted in emerging artistes posting their demos on the platform, DJs publishing mix sets, and consumers uploading bootleg recordings.

In many ways, SoundCloud operates a lot more like YouTube than Spotify, and the Berlin-based startup has long tried to adapt YouTube’s monetisation strategy for streaming music as well.

SoundCloud began to monetise free content through advertising last year, and has been looking to offer rights holders the ability to monetise user uploads. That way, a major label would still get paid if a bedroom DJ uploaded a set featuring one of its artistes.

Acquiring SoundCloud could help Spotify to bolster its own catalogue and offer emerging artistes an easier way onto the service. It would also help Spotify make the case for ad-supported streaming. Record labels have long pushed Spotify to move towards a purely paid model, similar to the way Apple Music operates. Apple’s service does offer listeners a three-month free trial, but cuts them off after that if they do not open their wallets.

Spotify, on the other hand, has long argued that its large free user base has both helped to convert subscribers and monetise those that would never pay. Adding a large number of additional unpaid users could help to bolster that case.

However, acquiring SoundCloud would not come without risks for Spotify. For one thing, SoundCloud had to make some concessions in order to get the rights to launch its paid streaming tier. One of them allows major labels to withhold specific tracks from SoundCloud’s free tier, and only make them available to paying subscribers for a set period of time. Spotify has long resisted this kind of windowing, but it may have to change its tune in order to integrate both services. REUTERS