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New thinking, new technology for the creative sectors
A MediaTainment Finance supplement

Financially burdened streaming-music pioneers SoundCloud and Pandora are paying a multi-billion price for being innovators and could now be too big to survive in a market packed with loss-making rivals.

Both recently attracted large chunks in new funding but for the wrong reasons. They desperately needed a financial lifeline to stay on course at a time when the leading market player, Spotify, appears to be getting ready for a stock-exchange listing with a US$13bn valuation.

Indeed, Berlin-headquartered SoundCloud, the world’s biggest audio streaming service in terms of the number of users, published a note to investors in January stating: “Whilst the directors believe that the Group will have sufficient funds to continue to meet its liabilities through 31 December 2017, the risks and uncertainties may cause the company to run out of cash earlier than that date, and would require the Group to raise additional funds which are not currently planned. These matters give rise to a material uncertainty about the Group’s ability to continue as a going concern.”

It is a rather poignant note from what was one of the brightest stars in digital music after its 2007 launch. SoundCloud offered aspiring but ambitious musicians and artists not signed to record labels a high-end virtual studio to record, upload and share their original creations worldwide.

The tech start-up was a refreshing concept that attracted a long list of artists, especially a generation that could find no radio airplay for their infectious hip hop, rap, electronic sounds.

Today, it boasts a catalog of 150 million-plus tracks and about 175 million monthly active users. Crucially, it has licensing agreements with the three multinational major record labels: Universal Music Group, Warner Music Group, and Sony Music Entertainment.

However, it is financially bleeding and needs a cash transfusion to keep going long enough to retain its very existence.

Its most recently published annual results showed it lost €51.22m (US$57.31m) in 2015, from €39.1m (US$43.7m) the year before. Meanwhile, it brought in only €21.1m (US$23.6m) in revenues, compared to €17.4m (US$19.4m) in 2014.

Monetary lifeline
In March 2017, SoundCloud raised US$70m in new funds to support its growth ambitions. But the new money did not come from venture capitalists or private equity firms seeking a stake in the company. It was a loan (from Ares Capital Corporation, Davidson Technology Growth Debt Fund and Kreos Capital) that will weigh down its books with a heavy debt.

To find out more about the financial hurdles and obstacles in SoundCloud and Pandora’s path to profit, download TechMutiny Issue No.15    

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