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April 7, 2016 | Authored by: Vindicia Team

How subscription billing can save a popular music provider

The online music service SoundCloud has struggled with various issues since its beginning. In the past, the company came under constant fire over the fact that none of the music is provided was licensed. Numerous lawsuits from record companies like Sony and Universal forced SoundCloud to divert most of its funding from increasing its brand to paying legal fees. These troubles, combined with SoundCloud's difficulties monetizing its service, caused deep financial concern. According to Music Business Worldwide, the company brought in $19.4 million in revenue in 2014 but lost $44.2 million that same year. Ultimately, SoundCloud earned approximately $42 million between 2012 and 2014 but lost $85 million during the same timeframe.

Offering a new service
One could argue that SoundCloud's strength was its ability to serve as a platform for independent publishers. While the company did stream licensed content, it was popular with unsigned artists and those from small labels. They were able to put their music in front of a large audience and, thanks to SoundCloud's algorithm, even play directly after a song from a famous music group. Unfortunately, while this delighted avant-garde music enthusiasts, it didn't bring in much revenue. Meanwhile, the legal expenses regarding licensed and established artists were too large to ignore.

Solving both problems with one stone, SoundCloud launched a new subscription service named SoundCloud Go, The New York Times reported. Prior to release, the company signed several licensing deals with both major and smaller record companies that gave SoundCloud legal access to millions of songs. Go operates distinctly from the platform's free version, which lets users enjoy 100 million songs uploaded directly by artists or as a promotional effort by record labels. The new offer, which costs $10 per month, gives subscribers access to these songs plus over 25 million more. It also allows users to listen without advertisements and save songs to their smartphones.

Subscription billing improves SoundCloud's product
One might consider the switch to an online subscription business model a risky move on the company's part. One of SoundCloud's advantages was that it was completely free for listeners. Now, the company is more in line with its competitors: Spotify, Apple Music, Pandora and Tidal.

However, there still remains one key difference: SoundCloud's numerous independent, unlicensed and small-label artists. This lets a company offer a larger variety of music, turning the platform into a one-stop shop where users can find the same artists on other services as well as smaller, lesser-known acts. What's more, since SoundCloud Go is competitively priced, users get more value for their money. They can spend $9.99 per month for Apple Music or spend the same amount and get access to more artists with SoundCloud Go.

This move also helps address the issue of customer acquisition, although maybe not intentionally. SoundCloud first launched in 2008, and the eight years since then can be thought of as an extended free trial. There's not much the company has to do to reach a broad audience - it already has 175 million regular users. That's a sizeable market in itself, and many of these users undoubtedly already pay for Spotify or Apple Music. Once they see they can get the same artists and more via SoundCloud Go, they're likely to switch over.

"Subscription billing is the standard among most online providers today."

Making subscription business models work
Subscription billing is the standard among most online providers today. Users adapted to the payment methods quite easily - it's convenient for them and provides access to content under terms they can agree with. 

Companies planning to follow in SoundCloud's footsteps should do significant research to devise subscription terms and customer acquisition methods that will work best for them. It's highly unlikely SoundCloud entered this new territory without certain calculations, after all. The company likely did a lot of forecasting to ensure this sudden move would be financially beneficial and not cause even more trouble. SoundCloud Go's success hinges on its ability to convert former free users into paid subscribers or attract new customers altogether, so acting recklessly could spell the company's end.

To start the process of transitioning to a subscription model, companies must come to some understanding of how many users will sign up for the experience. They can do this by monitoring all the channels on which they advertise and recording how many users come in from each. It might be difficult for companies to get an accurate count, especially if they're employing subscription services for the first time or using new channels, but there is plenty of third-party data available to help make more accurate calculations.

Ultimately, SoundCloud's new offer is an attempt to merge its ability to promote underserved artists with its desperate need to become a profitable institution. A subscription business model served its competitors well, and SoundCloud believes combining the payment method with its large catalog of music will benefit the company and its users.

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Vindicia Team

Vindicia Team

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