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. The acquisition would come just months after SoundCloud launched its own paid streaming service.
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 hasn’t 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 of 2014 points to 175 million monthly active users.
SoundCloud also has a much larger catalog than any other streaming music service, to the tune of 125 million tracks. That’s because unlike Spotify and Apple Music, SoundCloud does allow its users to directly upload their own tracks without the need to go through any middle men. This has resulted in emerging artists 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 monetization strategy for streaming music as well. SoundCloud began to monetize free content through advertising last year, and has been looking to offer rights holders the ability to monetize user uploads also. That way, a major label would still get paid if a bedroom DJ uploaded a set featuring one of its artists.
Acquiring SoundCloud could help Spotify to bolster its own catalog and offer emerging artists 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 toward 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 don’t open their wallets.
Spotify on the other hand has long argued that its large free user base has both helped to convert subscribers, as well as monetize those that would never pay. Adding a large number of additional unpaid users could help to bolster that case.
However, acquiring SoundCloud wouldn’t 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 may have to change its tune in order to integrate both services.