SoundCloud posts $62.2 million loss, to be in red for three years

SoundCloud posted a €39.1 million (A$62.2 million) loss in 2014 on revenues of €17 million ($27 million), according to latest filings in the UK. Its results for 2015 don’t look like they’ll be filed until 2017. SoundCloud expects to continue losses at least for another three years,

“Our overhead base has increased faster than our revenues,” admitted SoundCloud in its financials. “After making enquiries, the Directors have concluded that they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future.

“However, the Directors have concluded that there are material uncertainties facing the business.”

It would be fair to say that 2016 is a make or break year for SoundCloud. Like many of its rivals, it is aiming at a business model where it has to convince investors to bring in some money while it holds off on going profit for a few more years as it convinces its users to transfer to paying for content with a subscription service, and continue to strike licensing deal terms that labels and artists will be content with.

The jury’s out on whether it will be able to catch all the falling balls and survive. But some industry analysts say that its strong point is that the music culture regards it highly as a major platform through which emerging artists share their songs and it draws a user-base which is adventurous and continually looking for new music. Its catalogue is large and mostly user-based. It was valued at US$700 million (A$984.9 million) in a 2014 funding round.

Its CEO, Alexander Ljung, who co-founded it in 2008 by with Eric Wahlforss, says, investors have been supportive as “we’re one of the biggest music platforms in the world and we’re growing fast.”

It raised US$60 million ($84.4 million) in funding in 2014, and $77 million ($108.3 million) last year.

The Berlin-based company generated €1.37 million (A$2.18 million) of revenues in 2010, €4.32 million ($6.8 millon) in 2011, €8.04 million ($12.8 million) in 2012, €11.28 million ($17.9 million) in 2013, and now €17.4 million ($27.7 million) in 2014.

However, its losses have also increased over that five-year period: €1.55 million ($2.46 million) in 2010 to €3.74 million ($5.9 million) in 2011, €12.43 million ($19.7 million) in 2012, €23.11 million ($36.8 million) in 2013, and now €39.1 million ($62.2 million) in 2014.

In the past two years, it’s struck deals with major music industry players. Universal and Warner are in (but not Sony, which keeps pulling down its track, much to the annoyance of some of its artists), independent group Merlin and the US National Music Publishers Association, and artists as Prince, Kanye West and Aphex Twin. In the US, it has started to share proceeds with labels and artists from its advertising, paying out $1 million by last March.

But it faced criticism from the IFPI (“taking advantage of exemptions from copyright laws that simply should not apply to (it).” British collecting society PRS for Music sued it for copyright infringement in August and settled four months later.

While SoundCloud is on a strategy to keep expanding, its rivals too are raising money to fund their expansions. Spotify is seeking to borrow $500 million ($703.4 million) from investors just eight months after it raised the same amount by selling equity at a valuation of $8.5 billion ($11.9 billion). Pandora raised $300 million ($427 million) in December. Deezer this month secured €100 million ($159.2 million).

SoundCloud has remained insistentthat its business is not in danger of folding. Read the company’s full statement below:

SoundCloud filed its 2014 accounts with Companies House. Beyond the full-year financials for 2014, which reflect those of a company in a strong growth stage, they show that, in 2015, we secured $77m of incremental capital, some of which came from our existing investors, demonstrating their belief in the future of the company, and the rest of which is a flexible credit line from Tennenbaum Capital Partners, an attractive option for companies like SoundCloud, who have a solid credit rating and are on a clear path to global success.

Since we began, we’ve been building a completely unique platform. SoundCloud users can discover more creators, at all stages of their careers, than anywhere else, and more music and audio: over 18 million creators are using the platform, sharing well over 110 million tracks, and reaching 175 million monthly active listeners. Additionally, comScore recently listed SoundCloud as being the 8th most popular app among millennials based on usage in the US.

Over the past year, we’ve continued to bring partners from the music industry onto SoundCloud. We’ve signed deals with PRS and UMG/UMPG, to add tothe nearly 200 deals we’ve already signed, including those with Warner Music, Merlin and NMPA, as well as MCNs and independent creators. We’re focusing on enabling creators to get paid for their creativity, and on building a financially sustainable platform that our community can enjoy for years to come.