chance the rapper

The Fate of SoundCloud

UPDATE 10:08 AM PST: SoundCloud founder Alexander Ljung and Chance the Rapper both tweet that SoundCloud is here to stay. Ljung announced that Kerry Trainor and Mike Weissman, previously of Vimeo, will be joining the service as CEO and COO, while Ljung will keep his role as chairman.

The clock is ticking on SoundCloud as it faces a hugely pivotal and defining week.

We’ve heard many rumors lately about the apparent termination of SoundCloud due to funding issues, as for many years the company has been running on an unsustainable revenue model and the bubble could be on the verge of bursting. This would be a huge shock to the music industry with many fans, DJs, and artists alike relying heavily on the streaming service. Premium paid service SoundCloud Go doesn’t seem to have had the traction and impact the owners hoped, but this is unsurprising when we look at the fierce competition in the market, such as Spotify, Apple Music, and TIDAL. SoundCloud failed to amass as many subscribers to the premium service as they had hoped, thinking it would be able to help tackle their monetary woes. The struggling company has had to let go 40% of its staff and has shut down its London and San Francisco offices.

When rumors of SoundCloud’s demise first arose, we got an interesting response from hip-hop’s golden boy, Chance the Rapper. In a tweet, he offered support to SoundCloud and vowed to save the struggling streaming service, leading some to believe that an Apple Music-SoundCloud merger could possibly be in the cards due to the rapper’s affiliation with Apple. The next day, Chance announced that SoundCloud was “here to stay,” also dropping Young Thug collaboration “Big B’s” exclusively on the service. With Chance being able to do no wrong in the public’s eyes, he was hailed by many as the savior of SoundCloud—but it seems like those reports may have been off the mark.

Fast-forward to this week and events have gotten to a critical and defining period. According to a report from Axios, shareholders will be voting this week on a new reorganization plan for the company. The plan has been put forward due to a new investment of $170 million which values the company at $150 million overall. This valuation is significantly lower that it was just a year ago, when Bloomberg reported the company was mulling over a $1 billion deal. At that time, a situation like this seemed hugely farfetched.

The investment has been put forward by Raine Group, Temasek, and existing backers of the company, and the deal hinges upon existing backers accepting somewhat of a raw deal: the new investors would get first priority on funds should the company face liquidation. A “no” vote would leave the company in a huge mess and serious questions would undoubtedly be raised about its prospects (though reports that SoundCloud could face demise in a day seem a tad premature at this point). A joint statement has been put out which reads as follows:

“Financing of this size will enable to company [sic] to pay off its remaining debt, while ensuring a strong, independent future… In the event that the transaction does not close and in the event SoundCloud does not otherwise obtain additional funding, based on current cashflow forecasts, SoundCloud faces liquidity concerns in the near term.”

SoundCloud artists Lil Pump & Smokepurrp — Kyle Johnson / The New York Times

Somewhat ironically, the service’s woes seem to have started just months after we first began to see its first artists, such as Xxxtentacion, Lil Pump, and Smokepurrp, use the service to truly break into the mainstream. If anything, the SoundCloud story is a cautionary tale in regard to how solid business models should always be looked at rather than simply potential—the music scene is rapidly changing and SoundCloud only has to look at Napster to see how giants can fall.

Though it is too early to panic, SoundCloud artists should be backing up all music uploaded on the service in the event of a closure. SoundsPurple will keep you updated with the results of this latest vote that will prove pivotal to the future of the existence of the streaming service.

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