Moreover, if you want to build a sustainable ecosystem for creators, artists need to earn money. While SoundCloud has proven capable of breaking artists — which is no small feat! — it hasn’t managed to create significant revenue for those same artists. Thus, once they leveraged SoundCloud to build a fan base, they rely on other revenue streams — often including a label contract.
Fixing SoundCloud
Thomas Euler
1819

SoundCloud could have been the AngelList of music

On the value of record labels and SoundCloud’s closing window

Thomas — 
Succinctly, what you’re talking about is widening-the-base to allow more artists to make more money, increasing median income as opposed to having a few dragon kings skew the mean. Were SoundCloud to achieve that, you must understand why the record labels exist — nay, persist:

  1. Tangible capital: Labels offer artists the best of both worlds, including guaranteed money, working capital/financing, plus upside equity. In exchange, the labels get their own share of equity.
  2. Intangible services: Crucially, labels themselves provide a valuable service beyond mere liquidity. They have relationships, megaphones, shelf-space, legal, logistics, etc. Booking a month-long tour and enforcing copyright across decades are valuable services that enhance the equity for both artist and label alike.

Tech has not disintermediated that second bundle of services yet. However, SoundCloud definitely is/was uniquely positioned to provide the former. Because it was the place where up & coming artists congregated — and the place where listeners could find the next sensation or a narrow niche — SoundCloud lay claim to both supply and demand for the greenest of music. They’re like the AngelList of music; now all they have to do is turn-on the money spigot.

SoundCloud itself was a monied interest. It was venture capital-backed and flush with cash (at times). Were it to have used its capital to leverage its preexisting tech, which had successfully aggregated artists and audience, it could have effectively become the money-man, a record-label-cum-VC, providing upstart musicians with the seed money needed to launch a career, in exchange for equity.

Thereafter, SoundCloud could have opened-up their platform to third-parties, who could provide not only their exogenous capital, but also their services — fulfilling the intangible part that’s so hard for tech to disintermediate. SoundCloud could have laddered-up from being a good streaming platform, to the AngelList of music, to the Upwork of music. (Coincidentally, AngelList itself is vertically integrating parts of its own supply chain in much the same way.)


Now, I’m writing all of this to you to address your main prescription:

“Today, the rights to most relevant music are property of the music labels. Since streaming services need to license the music in order to legally use it — and because the labels have the bargaining power — all streaming services struggle to become profitable. One way to change this would be to significantly reduce the percentage of streaming revenues that goes to the labels… [SoundCloud could] be a major distributor of music and a revenue generation tool for artists. This would mean to enable a world where artists, not labels, own the rights to their music — a classical cut-the-middleman scenario.

The part I emboldened is my focus. You need to acknowledge the two aforementioned values provided by record labels (tangible capital and intangible services) in order to understand SoundCloud’s strategic options. It’s undesirable (and unlikely) for the middleman to get cut-out entirely, because that middleman currently provides artists with the guaranteed money that puts food on their table — regardless of whether or not they strike it rich. The middleman also provides the working capital that helps finance increasing riches. That’s why so many artists literally sell a stake in themselves to labels.

Were it to become a profitable business by these means, SoundCloud has to become the middleman. Make no mistake, labels themselves have aggregated both artists and audience — supply and demand — on a similar scale. Comparatively, SoundCloud’s relative strengths are its lower overhead and its captive audience. It can be a cheaper middleman, but SoundCloud still needs to be a middleman so it can provide artists and itself with necessary sustenance.

There are a number of difficulties for SoundCloud’s pursuit of that strategy at this juncture. For example, a ton of money has already been ploughed into the company, and the recent valuation write-down makes it hard to pivot into such a capital-intensive business. In addition, the cost of capital has risen since the days of Uber weaponizing abundant venture money, so it’s more difficult for SoundCloud to pitch investors on the idea of arbitraging VC/PE required rates of return vs musicians’. Maybe they could convince a visionary corporate parter? Maybe they could convince Twitter, since it already owns a big stake?


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