Spotify withdraws from bid to acquire SoundCloud

After several months of talks, Spotify has abandoned the idea of acquiring SoundCloud, reports say. It has come as a surprise to the industry, as the talks were thought to be in an advanced stage.

In late September, TMN reported thatSpotify were closing in on the acquisition of the Berlin-based audio distribution platform.

Sources privy to the discussions said that Spotify had contemplated buying SoundCloud to strengthen its prospectus as it reportedly goes for an IPO (Initial public offering) next year.

SoundCloud has 175 million active users, while Spotify only has 100 million, 40 million of which are subscribers.

Additionally, SoundCloud has a different model offering to Spotify’s service, with a 200 million-strong creative community uploading 135 million tracks of mixes, hip hop, electronic dance music and DJ sets.

Valued at $1 billion in July by its owners, Having SoundCloud on board would have made Spotify more attractive prospect to investors. Although Spotify is growing, the rapidly expanding Apple Music and Amazon’s upcoming service come with deep pockets for their own growth through marketing and landing artist release exclusives.

SoundCloud sees a buy-out as a valid option: its revenue is climbing but its losses are significant. In 2014, it was in deficit by $44 million after spending $63.8 million to generate a 53.9% rise of revenue of $19.7 million. Its biggest expenditure was $54.1 million in administrative expenses which included staff to operate and market the service.

In June 2016, it received a cash injection of $100 million from a group of investors including Twitter, at which point the market valued it at $700 million, according to Bloomberg.

It was the third time that Spotify tried to buy out SoundCloud in the past two years. The first two times, the companies could not agree on a price.

This time however, according to sources, Spotify walked away from the impending deal because it did not want to get entangled with an additional licencing headache – the costs of negotiating with record companies over uploaded tracks on SoundCloud as the platform prepares to go public with its IPO.