Amongst the rapid rise of streaming companies, Berlin-based SoundCloud has run into trouble. The startup, founded in 2008, has to date raised $193 million (£147m) in funding. Earlier this month it announced that it would "let go" 173 of employees – around half of its total staff.
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The move, as outlined by co-founder Alex Ljung in a blog post is to help it spin a profit. "By reducing our costs and continuing our revenue growth, we’re on our path to profitability and in control of SoundCloud’s independent future" Ljung wrote. It follows the introduction of a premium tier a little over a year ago.
The drop in staff numbers was followed by rumours the startup was going to close its business and the Internet Archive starting to backup SoundCloud's website as a precautionary measure. Despite the apparent troubles, Ljung responded to critics promising the music service wasn't going anywhere.
"Not in 50 days, not in 80 days or anytime in the foreseeable future," he wrote on the company's blog. "Your music is safe". This was followed by one of the platform's biggest artists, Chance The Rapper, speaking with Ljung directly and then almost immediately releasing his first song in a year.
Whatever SoundCloud's future, it isn't the only music service to struggling for profit. At present, there are two business models for streaming: Apple and Amazon's subscription only services; and the freemium models offered by Spotify, Deezer and SoundCloud. "Music has been perceived as free for a long time," Chris Carey, the founder and director of Media Insight Consulting tells WIRED. "There's a perception barrier in getting people to pay for music. You've then got the challenge of them competing against each other and the success of one probably harming the other."
In terms of freemium models, Spotify is leading the way with 53 million paying subscribers. According to the Music Industry Blog, Apple Music has around 28.2 million paying subscribers, with Amazon trailing in third place with 16 million customers. SoundCloud has 39.1 million paying customers across all other services.
Despite its dominance in paying users and a growth in revenue, Spotify's losses grew by 133 per cent in 2016, according to its financial results. Similarly, Deezer's managing director Alexis de Gemini said in July 2016 the company was hoping to be profitable by 2018.
While they struggle, Apple, Amazon and Google's music services, supported by their larger business portfolios, don't have the same pressure to deliver immediate profit. This doesn't mean they are immediately successful though. Apple executive Jimmy Iovine has said his job would be easier if Apple had a free-tier for subscriptions and claims the service would have 400 million users (it currently has 27 million paying subscribers).
Streaming services may be struggling financially, but they've led to a resurgence for the music industry, which has been plagued by piracy in the internet age. From March to May 2016, according to the UK Intellectual Property Office, 70 million tracks were accessed illegally online, a decline of 18 million for the same period in 2015.
"Whilst individual companies have to respond to their own particular circumstances, overall we’re seeing encouraging growth in consumption of music driven by audio streaming," Gennaro Castaldo, a spokesperson for the BPI, the music industry trade body, tells WIRED. "This is also resulting in an accompanying increase in trade revenues, which last year rose over five per cent, as more consumers switch from ‘free’ to monthly subscriptions".
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According to the BPI, the UK generates around 1.3 billion weekly audio streams, a figure that could hit 70 billion across the entire of 2017. "We appear to have reached a point where an increasing number of fans, including younger Generation Z consumers, appreciate the benefits of investing in music," Castaldo adds.
What does this increased popularity for music streaming services mean for customers? "Generally speaking, the internet likes one winner," Carey says. He draws on examples of Google controlling search and Facebook being the most dominant social network. "For SoundCloud or Deezer to catchup with Spotify and Apple is going to take some doing"
One way this could be achieved, he says, is through innovation. And that's an area where streaming platforms are struggling. Exclusive content, which companies hoped would attract freemium customers to cough-up cash, hasn't been a big draw. With consumers unsure of what they're paying for, streaming is always going to struggle. And that's bad news for artists. "The consumer perception of paying for streaming does not equate to paying the artists – whereas for live tickets it seems much more clear cut that you're giving to artists," Carey says.
Slowly, new ways are being developed to make sure artists benefit from the royalties of their streams: Imogen Heap worked with Ujo to create a payments system using the cryptocurrency platform Ethereum. And then there's vinyl, sales of which soared to a 25-year high in 2016.
This article was originally published by WIRED UK
