While Twitter and SoundCloud are vastly different companies, they seem to provide similar benefits to the music industry: seamless sharing and direct engagement with fans, coupled with a blank, immediate canvas for artists to express themselves and give mass audiences a glimpse into their early creative and mental processes. Unfortunately, despite numerous attempts, the affinity between these two platforms has not translated as well financially, speaking to the challenges of building a social music strategy in service of both a scalable and sustainable business.
Twitter was mulling an acquisition of SoundCloud as early as 2014, but backed out last-minute in part due to the latter’s persistent copyright infringement issues. Later in 2016, Twitter invested $70 million in SoundCloud through its Twitter Ventures unit, in a deal that valued the music service at $700 million.
While both companies were still operating on financially rocky foundations at the time — Twitter reported flat user growth and a net loss of $107 million in Q2 2016, while SoundCloud’s annual losses had accelerated by 31 percent to €51.22 million ($55.61 million) in the 2015 fiscal year — the deal fell in line with Twitter Ventures’ unconventional approach to VC, which seemed to forgo capital gains in favor of strategic alliances with startups that could be developed and incorporated into Twitter’s main product. Other key investments from Twitter Ventures leading up to that point included connected venue tech startup VenueNext, beacon marketing startup Swirl and Android OS startup Cyanogen, which has since shuttered.
Nonetheless, the majority of investments always come with some expectation of return, which SoundCloud could not deliver to any of its shareholders. As a result, Twitter wrote off 95 percent of its investment in SoundCloud in its 2017 annual report, explaining that the money was “not expected to be recoverable within a reasonable period of time.”
(Twitter Ventures has not publicly announced any other investment since its 2016 deal with SoundCloud; a Twitter spokesperson declined to reveal any further details about the current state of the company’s venture arm.)
Meanwhile, SoundCloud’s own financial troubles culminated in the company laying off 40 percent of its staff in July 2017, followed by a $169.5 million cash infusion from The Raine Group and Temasek one month later. Along with this emergency funding came a major corporate restructuring that tapped former Vimeo CEO Kerry Trainor to replace SoundCloud’s founding CEO Alexander Ljung at the helm. (The Raine Group did not respond to a request for comment by press time.)
Trainor has vocally discussed his ambitions to reorient SoundCloud’s long-term strategy more explicitly towards building and monetizing services and analytics tools for creators, rather than treating listeners and subscribers alone as the company’s most valuable customers. He also encourages skeptics not to undervalue SoundCloud’s unmatched influence early on in the creative lifecycle of an artist, describing the service’s differentiation as being “first” for both artists and fans.
“I think some of the most exciting activity on SoundCloud centers around artists posting unfinished works in progress and asking their audience, ‘What do you think?’,” Trainor told Billboard last December. “Fans love giving feedback and being a part of that journey, and I would advise creators to take advantage of that openness and directness.”
SoundCloud has forged only a handful of creator-facing strategic partnerships over the past few years, most notably an integration with LANDR that allows musicians to master their tracks for free in a manner optimized for online streaming quality. A SoundCloud spokesperson declined to reveal whether any other similar partnerships were in the pipeline for 2018 and would not comment on statements in Twitter’s annual report, but offered an optimistic outlook overall on the music service’s progress since its recapitalization.
“We’re pleased to report SoundCloud is ahead of plan, and our year-on-year growth accelerated through Q4  and into Q1 ,” the spokesperson tells Billboard. “Look out for a big year of investment in our creator-driven ecosystem, as we remain focused on further building and expanding our differentiated offering.”
Interestingly, part of SoundCloud is still clinging tightly to the listener-driven, social aspect of this “differentiated offering,” including but not limited to its sharing, commenting and platform integration features that arguably eclipse those of rival subscription services like Spotify and Apple Music. “Yes, we’re a streaming service, but first and foremost we’re a form of social media,” Julia Killer, director of label relations at SoundCloud’s U.K. office, asserted at the FastForward conference in Amsterdam earlier this month. “The more you engage, the more results you get.”
But Twitter perhaps knows better than most that a social-focused music strategy, while it might make for great marketing, does not always deliver on revenue. On one hand, music plays a crucial role in driving traffic to Twitter: 11 of the top 20 most-followed Twitter accounts as of press time are musicians (Katy Perry, Justin Bieber, Rihanna and Taylor Swift are all in the top five), and diehard fans of celebs from Beyoncé to BTS have created dedicated “fan-army” Twitter accounts to drive sales and chart performance through carefully-choreographed frenzies of social media activity.
On the other hand, nearly all bespoke applications that Twitter has tried to build for the music industry to date have fizzled out. After acquiring music discovery startup We Are Hunted, Twitter launched its own #Music app in Apr. 2013, on which users could explore both overarching, real-time music trends and emerging artists pulled from their own social graph (via tabs labeled “Suggested” and “#NowPlaying”). Upon realizing that users were much more interested in discussing music directly on-platform than in viewing statistically-driven lists off-platform, however, Twitter shut down the app within one year.
On the business-to-business front, Twitter attempted to launch a data partnershipwith indie record label 300 Entertainment in Feb. 2014 that gave the label exclusive access to a dataset specific to music, but there has been no followup on the partnership or similar ones ever since. Even Vine — the short-form video platform that Twitter acquired in 2012 and that elevated several young musicians such as Us and Shawn Mendes to major-label careers — could not stay financially afloat amid intense competition in the social video space and was forced to close its doors in October 2016.
Since then, Twitter’s most successful music projects have centered around live-streaming events — including festivals such as Coachella and REVOLVE, awards shows like the Grammys, VMAs and AMAs and an ongoing live-streamed concert series by Live Nation featuring the likes of Walk The Moon, Khalid and Imagine Dragons. The majority of music projects at Twitter are led by the company’s global partnerships team, led by Kay Madati, which drives efforts to engage media companies on sales and marketing opportunities; Lara Cohen leads another team of around 25 employees under Madati who work on the individual level with creators. The internal music team specifically has seen a bit of turnover recently, with head of music talent Lance Turner recently departing for a new role as senior vp of marketing at Republic Records (Kevin O’Donnell has since taken his place).
One could argue that Facebook is now entering the space that Twitter had aimed to conquer with SoundCloud. Having secured licensing agreements with Universal Music Group, Sony/ATV and ICE, with other label agreements in the works, Facebook has set itself up to compete with YouTube and its Content ID system when it comes to efficient identification and monetization of music, in a way that encourages rather than impedes sharing among music fans. In contrast, Twitter currently has neither the cash nor the overarching strategic desire to invest in such licensing infrastructure and instead offers advertising as the primary monetization method for creators.
It is important to note that Twitter actually reported a net profit for the very first time in Q4 2017. That being said, this profitability was attributed primarily to cost-cutting, rather than to revenue growth alone: costs plummeted by 28 percent year-over-year, but revenue increased only by 2 percent. In addition, while ad revenue was flat, data licensing revenue was up 10 percent — perhaps signaling that it would be worth it for Twitter to leverage a data-licensing scheme again to enhance its value to creators and rights holders, as it tried and failed to pull off with 300 Entertainment.
If Twitter can maintain this growth across several consecutive quarters in the future, it may be able to position itself to acquire SoundCloud or a similar music streaming service and become a serious commercial player in the industry. That being said, while some at SoundCloud may consider the company a “form of social media,” the service’s wider business priorities have necessarily shifted toward building better creator-facing tools. Meanwhile, as Twitter focuses its core investment in 2018 on more urgent strengths and weaknesses (e.g. real-time video and identity verification, respectively), the added value of conventional music streaming services — none of which have turned a profit yet — hangs in the balance.
Source : Billboard