Understanding income/loss reports continues to be all the rage in EDM as recent reports of SoundCloud posting a loss of $29 million on revenue earned of $14 million in 2013 joins recent reports of SFX Entertainment having similar disparities in revenue versus loss in creating trepidation regarding the future of sustainable portals and services for the spread and expansion of underground-to-mainstream (and mainstream) music.
According to SoundCloud's latest annual filings statement, the company's income increased $5 million from 2012-2013. However, the company's loss total also grew by $19 million, 2013's totals reflecting these increases. Regarding the situation, SoundCloud states in its own statement, "[SoundCloud is] in a phase of growing SoundCloud into the market-leading platform for listening to, creating and sharing sound. This has necessitated investment in technology, headcount and marketing. Our overhead base has increased faster than our revenues."
Where a cause for concern may exist with SoundCloud that's different from SFX is in SoundCloud's ability to access global investments from multiple revenue streams at-present, which pales in comparison to the entertainment conglomerate. While yes, SoundCloud has $700 million from investors on hand, the ROI (return on investment) on SoundCloud is low without the company being able to a) access content from major label content creators who can spur increased interest in the portal, and b) companies with the access to disposable capital who are willing to invest and grow into a redeveloped SoundCloud model. Of course, when this idea is coupled with the concept that SoundCloud's rise to success came not from major labels but independents as well as non-label affiliated artists themselves, it's clear that SoundCloud must shift their aims, market and expectation in order to stand a chance to become profitable. SoundCloud has companies like Red Bull, Jaguar and Comedy Central on board, but insofar as major labels, those negotiations have slowed.
Major labels are of course concerned about royalty payments for music that must first be licensed in order to be streamed, thus creating a landing pad for monies earned for song plays via the service. Of course, SoundCloud is one of many potential sources for streaming, which the company itself addressed in its own earnings statement: "Typical internet users use about four to five different music and audio services during a month. The market is heavily contested by strong incumbents such as YouTube, Apple and Amazon as well as new more focused players. While the group does not expect the market to be a winner takes all opportunity, there are economies of scale and technology developments that need to be monitored closely."
Presuming that a "winner-take-all" situation will not exist is logical. However, the "winner" of the streaming war may not take everything–that company will take just enough of a share of the marketplace to likely force a competitor with mounting losses and concerned investors to possibly close up shop or sell to a company that can create sustainability. Insofar as SoundCloud's next steps? Not accruing a great amount of losses by comparison to 2013, while also attempting to create a model that seamlessly serves both independent artists as well as both selected archival and brand new major label material is imperative. Is SoundCloud raising subscription rates or courting integration with YouTube or Amazon to have the capital on hand to pay the royalty fees demanded by majors a possible answer? Whatever the case may be, SoundCloud is between a rock and a hard place, and though currently semi-thriving, without a feasibly executable plan, the future looks bleak.
