Why We Think Soundcloud Is Preparing For A Giant Data Mining Operation

Image via SoundCloud
Image via SoundCloud

Like anything that’s ever been popular, EDM culture undoubtedly going to crumble. All of the warning signs are in place. SFX Entertainment has been buying everything in their path to turn dance music into something of a Wal-Mart wholesale warehouse for all of your dance music needs. Our culture is being picked at and stockpiled right before our eyes, and EDM is turning into a train wreck waiting to happen.

Not that you care. Even with warning, people will sit complacently until there’s something to complain about. We’ve kept you updated as SFX has monopolized, gone public, and starts to figure out how to monetize. SFX artists will have their records sold on Beatport (which is owned by SFX), pushed on websites that SFX has a stake in, and land on the Clear Channel radio stations that SFX has partnered with. Kids will spend their money at SFX-owned festivals. Our options and opinions will be handed to us, and the mainstream dance music culture will be even more one-sided than it already is.

The sad fact is that this industry has nothing to do with art anymore. We’re living in a landscape where PR firms, booking agents, managers, labels, and websites are collaborating to convince fans that their product holds value, regardless of whether or not it’s good. Dozens of genres produced by hundreds of next-level artists are being systematically pushed to the side. Fans don’t question it because they’re expecting their trusted resources to be handing them the best and most relevant music. The pool of people that control placement and flow (and ultimately the audiences) will get smaller and smaller.

But while SFX has been upfront about their moves, SoundCloud looks to be carefully and quietly plotting a move of their own. And in researching for another piece, I ran back across a seemingly simple article published by the Wall Street Journal stating that SoundCloud secured $60 million in funding, and was now worth $700 million. In this quick news piece, there is a note that this additional funding came from Institutional Venture Partners and The Chernin Group.

To the innocent bystander, this funding seems like a small event in the grand scheme of things. But the reason that I decided to dig deeper into this announcement was that this investment makes no sense whatsoever when you take a moment to think about what they’re saying. A company that’s already worth $640 million dollars has no logical need for additional funding. I decided to poke around a bit on these two investment firms, and the results are more than interesting. Peter Chernin, CEO of The Chernin Group, sits on the boards of Twitter and Pandora. This might seem like a non-event if you stop right there. But I didn’t, and things got really interesting really quickly.

The other private equity firm investing in SoundCloud is IVP. They’ve invested in Zynga, which owns rights to Words With Friends and Farmville, amongst other games. Connecting the dots to Facebook isn’t hard. They’ve also invested in Dropbox, as well as a ridiculous array of companies that specialize in storage, hardware, and software. And just like The Chernin Group, they’ve publicly handed money to Twitter. This is a blatant partnership between SoundCloud and those that have the ability to sway positioning on two of the biggest social media platforms in the world. The company holding the content received funding from massive investors that also funded companies that already have a stronghold in placing content.

Then we take a peek at four other investors that have ties to Soundcloud. Kleiner Perkins Caufield & Byers funded Google, AOL, Electronic Arts, and Zynga. GGV Capital funded Pandora and has a strong interest in mobile devices. Index Ventures funded Songkick and Last.FM, and Union Square Ventures funded Zynga, Twitter, and Tumblr. Twitter, Pandora, and the number one social gaming company in the world (which is a direct connect to the largest social media network in the world) are common threads between all of these companies. What if they’re all coming together to partner with the most relevant source of music in the free world to mine your data?

The easiest way to do so is through cell phones, which we just stated as a field that GGV is elbowing through. Black Swan suggests that cell phone carriers are already looking to analyze and sell data that they have access to. But partnering with another giant set of resources to cross-reference that data on a device that knows where you are physically located at all times. And this article outlines how your information is already being sold. They aren’t being very shy about it.

Forbes published an article last April that mirrored public speculation that SoundCloud might be making a big move, and said that “its owners sought to make SoundCloud a more viable business proposition by attracting a wider audience” and quoted a user that suggested that an already successful and financially sound SoundCloud was looking to seek bigger profits. To achieve this, bigger crowds are being attracted, but there wasn’t any concrete answer to why. And when you piece everything together, it’s enough to make you scratch your head.

SoundCloud has the power and could realistically be positioning themselves to be industry leader in monetizing online audio. All of the pieces are in place. They made their website easier for the average user to navigate. The recent addition of “trending audio” and charting system.  Their alliance with small and large record labels gives them limitless leverage with labels and artists. They are the industry standard. And their funders are funding other companies that have the ability to tap into every other facet of social media that you use. And sitting on advisory boards. It’s the one lane that Google never got right, and it’s happening right before our eyes.

This is all in black and white. The article in question is from the Wall Street Journal, not some EDM site run by kids. We’re doing nothing but speculating, and will shrug as SoundCloud denies or ignores these connections that these new funders are holding onto. Our hope is that SoundCloud will continue to be a platform where underground stars can compete and succeed, but we can’t ignore the funny feeling that monetization from data mining is what’s lying underneath this odd string of coincidences.

  • controlla

    “EDM is currently in the middle of exploding and will survive beyond mainstream success.”

    Lol. Maybe in the states, but in other countries nobody wants to hear the crap of Krewella, Hardwell, Afrojack, Nicky Romero etc.

    • mixmason

      it’s curious that Hardwell was voted #1 DJ in the world last year…not #1 DJ in the states

    • haaha

      you must be living in a cave

  • Frustrated

    This article proves that you have absolutely no understanding of how the Soundcloud business model works or how venture capital works and should be prefaced as wild conjecture.

    First off, VC Firms invest in companies that fit an investment thesis and that exhibit certain properties. Most often these are things like growth rates, scale of existing userbase, and the belief that an influx of capital will lead to faster growth. Yes, serving as an investor in multiple businesses can make it easier to facilitate deals between them, but just because one VC firm invested in Twitter and Soundcloud doesn’t mean they’re automatically going to do a deal. More often, founders look for investors that can provide true value-add to the business through strategic guidance or previous experience. (Red hot companies like Soundcloud are in a position where they can have their pick of which investors to let in because so many are knocking at their door.)

    Another key issue with this article is that there’s no such thing as a “giant data mining operation.” Every single web company these days collects tons and tons of data about its users on an ongoing basis and constantly uses that data to inform decisions — whether those decisions are about product, marketing, or something else completely.

    Soundcloud is sitting on TONS of data and likely has been for years. Every time a user clicks play on a sound, skips through a sound, hearts a sound, or does something else on the platform, SC makes a note of it. They’re likely exploring this data all the time internally and have an army of data scientists to make sense of it all. SoundCloud’s main revenue stream is premium subscriptions, and they don’t stand to gain as much from “selling data” as they do from using it for other purposes. If anything, they want to increase the long tail of artists uploading sounds, which will hopefully lead to more premium subscriptions and more listeners interacting with those sounds. Soundcloud has NOTHING to gain by making it harder for content to be discovered. Additionally, most of the major labels and management companies HATE Soundcloud because they turn their head the other way and circumvent DMCA requirements by calling things like ripped livesets “user generated content.”

    DaD likes to use sensationalist headlines and make grand assertions about companies when in reality it’s all speculation, and usually uninformed speculation at that. You like to stir up controversy by connecting dots that don’t exist and passing things off as fact, or not saying it’s all just guesswork until the final paragraph when most people have already lost interest and left.

    Leave the real journalistic work to publications like the Wall Street Journal, because you really are just “some EDM site run by kids.”

    • Michael DjNappy Abernathy

      I mean if you’re working for one of the companies discussed in this article, you can feel free to say you’re working for one of the companies discussed in this article. Our “sensationalist” headlines have proven to be correct more than once. I can link you to a handful of assumptions that proved to be spot on if you want to message me. Monetization of data is what we’re questioning here, and you’re saying yourself that “serving as an investor in multiple businesses can make it easier to facilitate deals between them”. The dots connect themselves, but I can draw a venn diagram if you wish.

      • bleehh

        But still, it’s pure speculation. That’s all this article is.

      • Kyle

        This article was pure speculative bullshit from a person that clearly has little understanding of how finance works.

      • Lujxio

        bruh bruh you’re an idiot

    • Michael DjNappy Abernathy
  • Annoyed

    I think it’s about time for someone to put their tin foil hat back on… This sounds like the ramblings of a conspiracy theorist.

    • Your TV never lies ;)

      You are an idiot. Everyone in power positions in this world is guiding your thoughts and your information and all you do instead of defending yourself from the brainwash is just sit there and shrug off everything as “conspiracy theories”.
      retard.

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  • bla bla bla

    “A company that’s already worth $640 million dollars has no logical need for additional funding”…. oh wow, you have idea what you are talking about when it comes to business do you… a ‘worth’ of 640M doesn’t mean you have 640M cash in the bank, it means you have paper that is worth 640M. If you want cash for it (oh I don’t know to fund your growth for example) they you sell a part of that paper for cash, that’s the whole point… I hope this clears some basic confusion about how a VC round is supposed to work… sheeesh.

  • Lujxio

    TLDR

  • Benzona

    How about you discuss the real problem with soundcloud. The fact that it’s the only music delivery service that charges artists for their content and provides 0 monetization options. Wouldn’t it be great if artists got payed a percentage of income based on play counts like every other music service in the world. Yes soundcloud is an amazing music discovery tool and the gold standard for sharing music across the internet but does that give them the right to dodge online streaming fee’s and charge artists 800$ a year to use their services. It’s completely backwards and fucked up.

    I still love you tho soundcloud <3

    • Nicholas James Concklin

      Yes! This! Thank you Benzona. Can’t even collect SoundExchange royalties from Soundcloud thanks to their license clause in the user agreement terms

    • Michael DjNappy Abernathy

      i agree wholeheartedly

    • Lujxio

      bruh bruh but then soundcloud would have to put ads on your sounds, b/c they don’t make money off of plays. also it doesn’t cost 800 bucks for a year of pro its like 30

    • guile

      Well, in their defense they get around this through the “freemium” nature of their platform. If you want to be able to change the appearance of your tracks, access backend data and geo, yes that costs money. Though they’re not charging you to upload things.

      Are the new terms and changes a bit dodgy? absolutely. Though they are right in line with most VC funded tech applications…to think that it would ever be any different is a bit naive.

      RE: digital royalties, they would have been dead in the water by now if they built the platform around any type of masters or composers side payouts. Look at our friends over at Pandora and Spotify to see the kind of cash you need to support that model….SC is at $123.3M in investments, a drop in the bucket compared to those other two…

  • Nicholas James Concklin

    Aside from the evidence stretching to fit a narrative and the lack of sound knowledge on corporate investing, to claim that “this industry has nothing to do with art anymore” is to claim that the underground is somehow not apart of the industry. While most of the underground content featured on DAD is label-less free downloads, there are an abundant amount of artists like Seven Davis Jr (who, with less than 2k followers on Soundcloud can sell over 200 vinyl records in 24 hours) and small labels like IZWID and bigger labels like Project:Mooncircle who are verymuchso about the art within music and fiercely view music as art.

    When you say “industry” it seems like you are just talking about the mainstream EDM industry instead of the ACTUAL entire music industry and that is misleading, especially given DADs assertion that they are gatekeepers of the underground. Given we ARE the industry, vilifying the industry (something that happens too often here and elsewhere) seems painfully counter-productive and regressive. We should ALL be doing our best to let everyone else know that SFX and the like do not make up the entire industry. Most of it is independent and artist-run. More positive education instead of tabloid-esque speculation please.

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  • Michael DjNappy Abernathy

    love this new cookies policy :-)

    “Our mobile apps will use an app performance and analysis technology for analytics purposes. None of the information collected can be used to identify you or your mobile device individually and you can opt out from this tracking.”

  • Tom

    Man I’ve been nothing but amazed at the terrible standard of journalism in Do Androids Dance articles recently.