David Balfour examines how SoundCloud’s new ad model is affecting its different user groups

21 August 2014 - Editorial

SoundCloud today revealed via its blog that it will now introduce advertising onto its service in the US along with the launch of its new On SoundCloud initiative. The move also sees the popular music platform promising for the first time to pay royalties to what will initially be “a small group of creators”. These royalties will be funded by advertising, also being placed on the service for the first time. The twin developments represent a major shift in identify and strategy for the company, which has to date always been ad-free, and non royalty paying. 

The New York Times had the exclusive on the launch, which revealed a great deal more information. The three major record companies have not yet reached agreements with SoundCloud, according to the publication. Nevertheless the launch has gone ahead based on deals which have been struck with publishers Sony/ATV and BMG; as well as a number of distributors and independent artists.

The Times depicted the launch as an exercise in growing up for Soundcloud, describing the service as the “ubiquitous wild child of the digital music world” which, “without paying artists or record companies” has managed to amass a monthly user base of 175m people – “more than four times Spotify’s global audience”.

Reactions to the launch announcement on the web have unsurprisingly been polarised. If you follow the Facebook feeds of music communities like Resident Advisor or XLR8R, reactions have been largely very negative, often outright hostile. Some more balanced and open-minded debate can be found below SoundCoud’s own blogpost, with the tone being helped by the SC social media team attempting to calmly and positively explain the changes. Whilst such education measures can only help, it would seem a fair generalisation to say however that many SoundCloud users currently feel threatened by the new developments. 

Those debating the launch inside the industry generally feel more positive about SoundCloud’s development plans, and welcome the fact that SoundCloud is coming into the fold of monetised music services having spent such a long time in, if not a legal then certainly a moral, grey zone. Whilst it’s clear that many of the deals SoundCloud needs have not yet been struck, the On SoundCloud launch seems like a positive development which in turn promises to deliver new revenues to artists and rightsholders. 

SoundCloud finds itself in a pretty unenviable position when it comes to trying to please all the parties who feel they have an interest in the service. Many of those who are accustomed to using it as a pure free listening tool are unlikely to welcome the arrival of advertising. That said, users of free services are becoming accustomed to the fact that they generally have no choice but to accept when changes and updates are made to those services.

SoundCloud’s position is made more complicated however, by the fact that it has many existing subscribers, who pay to received enhanced features and upload capabilities on the platforms. Many of this group not only also feel threatened by the changes, but feel aggrieved to have changes made without consultation on a service which they feel they’ve been paying to support and grow. This group is going to be hardest to please for SoundCloud. Many of these users will eventually have their charges waived, when they do get to join the currently invite-only Premier programme. Whether some will also seek to abandon the service for other outlets, as many are threatening today, remains to be seen.

The reality for SoundCloud is that it simply had to move forward. Its existing Pro subscribers were clearly not meeting the costs of the service, whilst its investors have demanded the introduction of a more solid long-term business model. Labels and publishers have additionally long been unhappy with SoundCloud’s non-payment of royalties for its use of music. Something had to change.

There is sure to be debate inside the music industry about the deal which SoundCloud strikes with labels. As with the launch of any large service in 2014, questions are bound to be asked about whether all labels and artists are being treated equally. The fact that major label deals are apparently still missing at launch however, shows that this aspect of the transformation of SoundCloud is some way from being crystallised. 

The service is promising to introduce advertising slowly, in the hope of giving users a gentle introduction into the changes. It could be argued that SoundCloud has no choice but to introduce ads slowly, giving that missing label deals mean that much content on the service is still unmonetisable. Nevertheless, the change is now underway and SoundCloud is developing to become a new kind of service. From our rightsholder perspective, we find it hard not to be generally positive. SoundCloud is loved for its great user experience and its proven promotional power. If those valuable qualities can be maintained, with monetisation added on top, it’s hard to be anything but warmly welcoming to SoundCloud’s new incarnation.