It's no secret that in the past decade the way we engage with music has changed dramatically, owing partly to the rise in online music services—from Napster and iTunes to piracy and (if you believe the record industry suits) Bitcoin. It's certainly true that the sale of physical music has been in decline for some time, though it still remains the dominant format for music purchases in the UK. But digital downloads are nipping at its heels in a big way, and have already overtaken physical sales in the US.
Downloads, however, aren't the only threat to conventional streams of musical revenue. On-demand streaming services are amassing an increasingly large audience and producing growing revenues, according to the record industry body IFPI. But just because revenue from streaming is growing doesn't mean it's making up for losses in other areas, and that's why artists and record companies are so worried.
We have three times more engagement yet we cannot get our users to pay for it? That’s fucked up!
The debate over how the music industry can make money off listeners has been going strong for a while. As Hany Nada, founding partner of venture capital firm GGV Capital, aptly put it to a SXSW panel on the subject in 2012: “In 2011 the average American listened to on average 14 hours of music a week, contrasted with just 3.5 hours a week watching sports. The sports industry worldwide is worth $441 billion dollars whilst the music industry is worth only $70 billion. We have three times more engagement yet we cannot get our users to pay for it? That’s fucked up!”
Meanwhile, online music companies seem to be doing more than all right. SoundCloud is admittedly a bit different from other popular streaming services in that it allows anyone to upload and share music—though you'll increasingly find established artists on the site too. This month, cofounder Eric Wahlforss said he thought the valuation of the company at $700 million was low, and that it would rise significantly.
SoundCloud founders Eric Wahlforss (left) and Alexander Ljung (right). Image: Flickr/Stefan Kellner
That's already a huge leap from where they were when they initially launched the platform as we know it in 2009, after struggling to get funding for the idea. I caught up with SoundCloud's co-founder and CEO of the company Alexander Ljung to find out how they've got to this point, how they even make money, and how their model fits in with the future of the music industry.
Motherboard: When you conceived of SoundCloud, what hole did you see in the world that it could fill or improve upon?
Alexander Ljung: Eric and I both felt that sound was an untapped territory on the web compared to images, video, and text. We wanted to make it as easy to share audio online as it was, say, with pictures, on dedicated services such as Instagram. At the time, there was a clear deficiency in the tools that were available for sharing audio, so we focused on changing that. We certainly were not the first to identify this pain point, but our differentiator was to offer a dedicated platform for sound creators, and build it with the community’s needs in mind.
What do you think attracts people to SoundCloud and how do your users typically engage with the content available?
SoundCloud is the largest community of music and audio creators on the web, so we like to think we have something for every taste. Creators on our platform now upload 12 hours of content every minute, spanning a huge range of artists, producers and organisations, from bedroom artists uploading their first demos to Nine Inch Nails and Beyoncé debuting their latest singles. Users can repost their favourites to their own profiles, effectively curating their own channel of content. Since launching at the end of 2012, this has proven to be a very popular feature.
SoundCloud co-founder and CEO Alexander Ljung. Image: Flickr/Hubert Burda Media
How do you envisage this will change over the next five years?
Social platforms like Twitter, Facebook and Tumblr have addressed the human desire for everyday interactions online, but digital music services have been slow to adopt it. People find a music service that appeals to them, pay a subscription fee, and begin to listen and potentially rediscover huge catalogues that offer a lean-back listening experience. There are no meaningful connections with creators. There is no feedback on the song or audio. There is no community, the world of music streaming is still very much a concert environment: you show up, you listen, but can’t actively interact or connect with artists or other fans.
How is SoundCloud looking to evolve and expand?
SoundCloud is all about creating, discovering and sharing sounds, which makes us uniquely suited to being on mobile because sound is not dependent on a big screen. Sound is one of the key fundamentals of life; easier to create and experience than visuals, and can be consumed in parallel with other activities.
How does SoundCloud make money? Everything’s free, right?
Right now our focus is on continued growth, mobile, expanding features across all platforms and levelling up the direct to fan experience. We're experimenting with ways that bring value to a range of different types of users. SoundCloud has always operated as a freemium model and we're committed to providing a platform to our community that enables them to deliver the broadest range of music and audio.
The future of the music industry is a two-way interaction.
Where’s the future of the music industry going?
We need to enable conversation between creators producing work while offering fans an opportunity to participate on any level they choose to—listening, sharing, and commenting directly on the audio of an artist to offer feedback or become a creator, too. The future of the music industry is a two-way interaction, with artists and labels just beginning to understand how to make use of new formats.
And music streaming? How are new developments going to affect you? Do you compete with other music services?
While there are a lot of really well realised online services available in the music and audio space today, we maintain that SoundCloud has its own space on the web by combining listening, sharing, discovery, and the community aspects of gathering feedback, building an audience and collaborating with others. Some of these features overlap with other platforms, and of course we use them too everyday: they help to keep us on the front foot.
What do you think has been your biggest success and biggest failure?
I’m not sure if it’s necessarily our biggest success, but getting the White House listed on SoundCloud certainly felt like a bit of a ‘moment.’ It felt like we had finally become important enough for one of the most powerful organisations on Earth to choose us. We’re lucky enough not to have had any truly significant failures to date, but if anything, I only wish we had started the company sooner.