SoundCloud’s do-or-die moment came Friday – and it seems it’s do, not die. The company now takes on new executives, and a new direction.

First, it’s important to understand just what happened yesterday. Despite some unhinged and misleading blog reports, the situation didn’t involve the site suddenly switching off – following the layoffs, the company said it had enough cash to survive through the end of the fourth quarter. That said, the concern was, without reassurances the company could last past that, SoundCloud could easily have slipped into a death spiral, with its value dropping and top talent fleeing a sinking ship.

What happened: New investment stepped in, with a whopping US$169.5 million, for SoundCloud’s biggest round ever (series F). That follows big past investments from Twitter, early venture funding, and debt financing last year.

This gives the company a new direction, some new leadership and leadership experience, and the stability to keep current talent in the building.

Under new management

What changes: Plenty. When you invest that much money, you can get some changes from the company to ensure you’re more likely to get your investment back.

  • New CEO: Kerry Trainor (formerly CEO of Vimeo)
  • New COO: Mike Weissman (formerly COO of Vimeo)
  • New board members: Trainor joins the board, alongside Fred Davis (a star investor and music attorney), and Joe Puthenveetil (also music-focused), each coming from Raine (the firm that did the deal).
  • A much lower valuation: In order to secure funding, SoundCloud adjusted what had been at one point a $700 million valuation to a pre-investment $150 million. That’s not much above its annual run rate, and it indicates how far they’ve fallen.
  • …but maybe we don’t do this runway thing any more. The good news – TechCrunch reports the company says it has a $100 million annual run-rate. This investment means they’re not in urgent need of cash. They’ve bought themselves time to genuinely become a money making business, instead of constantly needing to go back to investors for money. (“Dad??? Can I borrow $70 million?”)

What stays the same:

  • SoundCloud as you know it keeps running. (Meaning, if you aren’t terribly interested in the business story here, carry on uploading and forget about it!)
  • Eric Wahlforss stays on. The co-founder’s title is adjusted to “Chief Product Officer” instead of CTO, but it appears he’ll retain a hands-on role. That’s important, too, because no one knows the product – or how it’s used by musicians – than Eric does. It’s easy to criticize the executive team, but if you’re a current user, this is good news. (Just bringing in some Vimeo people and dumping the people running the product would have almost been very bad for the service you use.)

Now, most headlines are focusing on the cash lifeline, and that’s absolutely vital. But this is a major talent injection, too. Fred Davis is one of the key figures in New York around music and tech, from his role as an attorney to as an investor. (He was known to float around hackdays, too.) Oh, yeah – he’s also the son of Clive Davis, who started NYU’s music business school. Puthenveetil also represents some significant expertise in the area.

Kerry Trainor is about the single most experienced person you could find to lead SoundCloud – more so, in fact, than the executives who have steered the company before. His streaming experience, as SoundCloud points out in their press release, spans back 20 years. (They leave out the names, because kids don’t like AOL, Yahoo Music, or Launch Media any more, but experience matters.) And he is largely credited with making Vimeo a profitable company.

What’s the future of SoundCloud now?

For all the skepticism, Alex seems to have delivered on exactly the promises he’s been making in past weeks, vague as they may have seemed. SoundCloud does appear ready to re-focus on creators, and the financing means ongoing independence is a real possibility.

Whether it works or not, it’s tough to overstate what a significant shift in direction this represents. For years, people have casually referred to SoundCloud as the “YouTube of audio.” (Oddly, the phrase I first wrote when they started was a “Flickr of audio,” which, uh, dates that story. But it does also indicate creators, not consumers, were initially the focus, so I at least go that bit right.)

It seems SoundCloud aren’t just bringing on former Vimeo executives. They seem poised to follow Vimeo’s example.

We already know that endlessly expanding scale and more streaming is a disastrous business model. The issue is, if listeners aren’t paying, and any royalties are accruing, the more people listen, the more money you lose. Spotify is facing that now and may need a similar change in direction, and the entire music industry is caught up in this black hole. Companies like Google and Apple can absorb the losses if they choose; an independent company can’t.

So scale alone isn’t the answer. And just having more listeners doesn’t necessarily mean the kind of attention that gets you caring fans or lands you gigs.

Vimeo faced a similar challenge, in the face of challenges from YouTube and Facebook’s own video push – each backed by big companies and revenue streams that the creator-focused, smaller company lacked.

What’s unique about Vimeo, under Kerry Trainor in particular, is that they found a way to compete by focusing on the creators uploading to the service rather than just the viewers watching it. While YouTube always tried to encourage uploads, its focus was on scale – and ultimately, the toolset was geared more for advertisers and watchers, and casual content creators, than for serious content makers.

Vimeo offers an alternative that serious uploaders like. Actual streaming quality is higher. The presentation is more focused on your content. There are powerful tools for controlling that presentation and collecting stats – if you’re willing to pay. And there’s not only greater intangible value to those serious uploaders, but greater tangible returns, too. It’s easier to sell your content – and, because there’s a collected community of pro users, easier to get audiences that support paying gigs.

Now, to do that in the face of YouTube’s scale, Vimeo had to make money. And that’s where Trainor did, by encouraging more of its creators to pay.

We already know SoundCloud’s plans to make listeners pay have fallen flat. So, as users have been clamoring for years, now is a chance to refocus on the creators.

I think anyone who knew Vimeo figured this was the best guess as the company’s new strategy the moment they saw Trainor and Weissman rumored to take over executive roles. And sure enough, in an exclusive talk with Billboard, Trainor says point blank that’s his strategy:

SoundCloud’s Pro and Pro Unlimited subscription services provide insights into which tracks are most popular and where. The Pro service, which costs $7 a month, provides basic stats such as play counts and likes, see plays by country, turn on or off public comments and upload up to six hours of audio. The Unlimited offering, for a $15 monthly fee, lifts the cap on the amount of music that can be uploaded and provides more specific analytics.

Trainor hopes to increase the number of creators who pay to use SoundCloud Unlimited’s service by adding an even more robust creative toolkit.

Emphasis mine. And reaction from users I’ve seen is, even a lot of die-hard SoundCloud enthusiasts in my early adopter social feed suggest people found reason to pay for Pro, but not Unlimited. Poor differentiation and stagnant offerings just gave little motivation.

That’s not to knock even SoundCloud’s rocket growth. On the contrary, it’s pretty tough to argue against sharing your sound on a site that’s one of the Internet’s biggest, with one of the world’s most popular mobile apps alongside. But now having grown to a huge audience, SoundCloud needs to fresh its tools for creators.

Translating from video to audio isn’t going to be easy. Part of the reason SoundCloud presumably didn’t push as hard on creator subscriptions is, there’s no clear indication what would make musicians pay for them. Audio is simpler than video – easier to encode, easier to share. Serving video on your own server is a nightmare, but serving audio isn’t. And, sorry to be blunt, but then there’s the issue of whether music producers really earn enough to want to blow cash on expensive subscriptions. Compare a motion graphics firm or design agency using Vimeo, who could make back a couple hundred bucks in subscription fees in, literally, an hour of work.

Even beyond that, I’m not clear what SoundCloud creators want from the service that they aren’t already getting. (Okay, Groups – but those probably aren’t coming back, and I don’t know that people would pay a subscription for them.) The toolchain out of the browser is already powerful and sophisticated, which has always made Web tools a bit less appealing – why use a browser-based mastering tool like Landr when you already have powerful mastering tools in your DAW, for instance? If you’ve invested enough money in gear and software to want to share a track to begin with, what will make you spend a few dollars a month for more?

That said, there’s clearly a passionate and motivated community of people making music. And note that the new talent at SoundCloud has music experience and interest as well as video. Trainor is evidently an avid guitarist (what, you’re not a fan of “Etro Anime,” his band?). He cut his teeth in tech in the area of music. (LAUNCH Media went from CD-ROM-taped-to-a-print-magazine to Internet radio offerings that look a lot like how we listen to music now.) And he’s currently on the board of Fender guitar.

Vimeo also had a long-standing interest in music and the music community in the company’s native New York City.

These are tough problems to solve. But I can think of few better people to tackle them. Basically, Alex and Eric not only saved their company for now, but seem to have gotten what they wanted in the process.

Also, it’s worth pointing out – the music business wants SoundCloud to live, not die. I think it would be unequivocally bad for musicians and labels, in fact, with independent and international artists feeling the worst impact. But it’s also worth noting Fred Davis tells Billboard: “If I could show to you the number of people who have been calling us, expressing fear about it going away, you would be shocked.”

It’s still possible investors will look to sell, but I suspect with the valuation at its low point and the tech world in general losing interest in music’s money-losing propositions and legal mess, independence is probably the safe bet.

If SoundCloud can turn this around, it’ll be a great example of a tech company humbling itself and successfully changing course.

We’ll be watching, and when this team settles in, hopefully will get to talk to the new team.

Background:
SoundCloud saved by emergency funding as CEO steps aside [TechCrunch]

SoundCloud Secures Significant Investment Led by The Raine Group and Temasek [SoundCloud press release]

Exciting news and the future of SoundCloud [Alex on the SoundCloud blog]

  • FS

    this is really great news. interesting too because this is what SoundCloud was in the beginning, creators paying to have an account to upload, listeners listen free, the win for for the artist is exposure and releasing obscure creative things that may not fit on an official release.

    it could be cool if they followed Vimeo’s model quite closely. the incentive to create incredible material for viewers and colleagues is immense, with the crown jewel being a Staff Pick which has actually become kind of the Oscar award of short form indie film-making. it would be really cool to see SoundCloud implement Staff Picks, it could be seen as unfair much like Vimeo’s Staff Picks but never the less, aside from how they are chosen, they have actually played a significant part in launching some film-makers careers. one of the questions is always how to stand out in such a saturated landscape, Staff Picks is a major way this can happen. and as far as incentive to have a Pro Unlimited account it would be interesting if they implemented this but only Pro Unlimited users were eligible. good news though.

  • JamiesonJMatt

    TURN OFF THE AUTOPLAY RELATED TRACKS

    If you word associate “soundcloud,” people will say “annoying autoplay.” It drives people away. Yes, today it increases plays today, but tomorrow people don’t come back.

    • Well, this is the challenge of product management. I’ve also heard DJs and so on talk about discovering tracks via autoplay … I have. But this may indicate an issue with SoundCloud generally – one person’s particular gripe may not match everyone else’s.

      In this case, it sounds like a toggle switch is what you want. YouTube already does that.

      But given the problem here was that SoundCloud was running out of money, I’m not sure autoplay was really the issue – especially as their usage growth trend was up.

    • poopoo

      YES!

      Everytime I play a tune on soundcloud, it follows it with a shit metal song called”a place called hell”. Its always the same song.

    • AntoxaGray

      Make your own playlist by liking tracks or following people. Though I agree, there should be option to disable autoplay. On everything, not just related.

  • Patrick

    The #1 thing I would pay monthly for (as a creator) is better streaming quality. Soundcloud is like going back to the days of Real Audio… I’m not sure if listeners would pay for better quality, but I would 100% pay $15/mo to have my tracks served at 320k mp3-type quality. Not sure if that’s profitable but I suspect many creators would do the same.

    • Yeah, I suspect this would be an easy lever for them to pull, actually – and there’s a direct parallel to what Vimeo offers and why it has an advantage for some.

    • Lindon Parker

      The #1 thing I would pay for is audience. I’d pay to have an account that allowed me to offer my tracks to SoundCloud Radio Stations(curated by other SoundClound users) and to Vimeo Producers looking for audio for their video projects. As well as setting my licensing fees (including for-free). That top 50 on the home page is (as someone has said) AOL in 2006

  • R__W

    Hopefully the Vimeo guys can figure something out.

    If you go to Soundcloud right now as a new user, not logged in. The experience is beyond underwhelming. There is a top 50 list you have to drill into and that’s it. It is like an music website from 2006 made by AOL. Right now Vimeo’s music video tab is better for music discovery than Soundcloud…

  • MisterSocrates

    Great article. This is a serious, thoughtful article with facts. Great for podcasters like me, and so many others. Thanks for taking the time Peter.

  • Dubby Labby

    Since the iOS app failed to login and web based redirect to the app… I deleted the app and forget about it. I didn’t used Spotify for years neither…
    So when I need some music just go to YouTube. We can argue about quality but regular user just want easy path. If YouTube releases some platform to skip video part and just do audio I will use it as radio in my phone. ITOH nowadays music goes side to side to video more and more…

  • Jon Riffioso Hockley

    Soundcloud need to change the way they punish copyright infringers. Bootlegs, remixes, dj mixes, samples, not for profit releases, demos, wips, even tracks you created but shared with your publisher all can get taken down. 3 strikes and you’re out. Your account is deleted. Fans gone, metrics gone. It’s a harsh system. Youtube’s content ID is much softer on creators.

    • Elekb

      Not harsh. Fair.

      Youtube’s content ID is soft on purpose. If you don’t agree with they payment terms (i.e. almost zero cents for play) they simply
      will not take down any infringing video. In short, Google/Youtube
      actually behaves more like a racketeering operation.

      I think Soundcloud has the balance right. If all you do is upload vanity pseudo-compositions that are actually just a mishmash of other people’s music with no permission from creators, then you should get taken down. I am aware this includes most “DJs/producers”. Tough luck. Make some actual music of your own and stop complaining.

      • Jon Riffioso Hockley

        Music “of your own” and good music are not the same thing. Remember soundalikes (muzak) are treated as copyright free. The network should provide for all creators and not just the narrow band of copyright free recordings.

        • Elekb

          I did not make a value judgment on any genre or style of music. Nor was I referring to soundalikes, where you actually have to arrange the music and re-compose some parts to just about avoid plagiarism (i.e. you actually need to do some actual work instead of just copy pasting sound samples in a DAW).

          I was talking about pseudo-compositions: “mash-ups”, “DJ mixes”, etc. that are simply collages of other people’s works.

          The network should provide for content creators, not parasites who simply re-use other people’s recordings, often passing them off as original work. I’ve seen a lot of that stuff floating around in Soundcloud (and other sites), tracks assembled by attention-seeking “producers” that are simply made from recordings of other people’s work, with an some added beats to disguise the fact. It’s an insult to musicians and composers. SC often takes down this stuff, and I hope it carries on taking a hard line with this issue.

          Obviously, this should exclude podcasts or mixes / sound collages where creators of the original content have actually given permission. Whether the result is valid as a work of art (i.e. “good music”), is an entirely different issue which I am not addressing here.

  • Elekb

    A Vimeo angle for SC is indeed interesting. Unless a
    better option comes, this should be the way forward for Soundcloud to
    survive and differentiate itself from the competition (and make use of
    its most attractive features) .

  • James

    Compared to soundcloud, YouTube is the vimeo of music.

    well-cited that vimeo has its ear to the ground locally and nurture the filmmaker; they are co-presenters at one of my favorite summer-long film series, for example.

    Maybe there will be some marriage of series and other content requiring original scoring? Open the licensing up to soundcloud musicians? Maybe give the musicians a pro membership in return? Like “in-house” status in exchange for making all the posted tracks available for reuse in film projects for “in-house” membership-level vimeo producers. Have the vimeo producers sponsor the musician’s upgraded membership and in return expose them to libraries, original scoring, dialog mixers, etc….

    • Elekb

      Nice brainstorming!

      I just disagree with the track licensing model you are proposing. SC should allow music creators with or without a Pro membership to choose which tracks they want to make available for Vimeo film creators. Making all tracks available by default will likely drive some composers away from the service. Personally, I wouldn’t be comfortable with those terms of use, control of your own licensing options is important.

      But I can see where you’re coming from. Vimeo would need something in return. Perhaps a half-way option would be to require a minimum number of tracks to be contributed to the community?

  • Matthew Ryan Sims

    I am ignorant as to how stock music works in Vimeo right now, but tying the music creators in SoundCloud directly with video creators in Vimeo would be a nice connection. I could almost picture tags in music and video autogenerating recommended music and video together.

  • sux

    encourage more audio people to subscribe is tough. as creator it is hard to earn enough to pay app. 100 euro/year on top of your website.

    as you nicely put you do not get so much out of it. ultimately of course, streaming quality is a nice parameter to play with. i have the feeling it is a parameter more on the listener side (compare to video turn on/off hd stream). i am not completely convinced that this is in line with the new creator focused business model

  • Tom

    I personally think soundcloud should offer an easy way to buy/sell music and take a small fee of the proceedings, similar to bandcamp but more single-file oriented.
    ATM everybody is trying to sell subscriptions but for people with low or varying income, subscriptions are pure hell – you simply don’t know if you can pay them next month and they add up quickly.
    And since many musicians are in that realm, it would make more sense to get some of the money in the moment an actual transfer happens anyway. Most people are fine with giving something at that moment to the people making it possible as opposed to paying for something that may or may not produce any income.

    And yes, death to autoplay (okay, a toggle will do 😉 ).

    And rethink the whole service, interface and how to engage people.
    Other than having a very nice player to embed, SC has fallen behind massively in that regard.
    Do something for the people you want to do something for you…

  • kevin

    I don’t see Eric Wahlforss staying as a positive; it’s neutral at best. He and Alex have appeared to be equally poor leaders, so it’s surprising either of them would still have a job.

    • As long as it’s token or figurehead and then they can quietly resign in 6-8 months that’s fine. I can’t see how they could remain in an active role in actual leadership going forward. They’re so obviously clueless about how to run their company.

  • AntoxaGray

    It’s funny, because I dont like vimeo because of really poor usability. Soundcloud have good usability, and is better than youtube for songs.

    I never also understood why some people upload videos on Vimeo instead of Youtube. I even sometimes see author upload on vimeo, and then someone takes video (probably not original author) and re-uploads on youtube few months later.

    As long as they dont screw up the interface (dont break what’s not broken) add new payment options, please dont change the interface!

    Add way to better organize songs too. Ability to re-order them manually in playlist, or hide songs you dont like from people that you follow.

    Option to show newest tracks first when searching tags, versus most popular tracks.

  • Great news for now but also a good reminder not to keep all of your eggs or songs in one basket!

  • Joseph Guisti

    I’m surprised I don’t see anyone excited by the possibility that we might get back useful things that we lost when SoundCloud tried to be the next Spotify or whatever they were trying to do.

    I use my phone for almost everything online. My main interaction with SoundCloud was via my iPhone. Overnight, they crippled the functionality and that’s when I essentially broke up with them.

    I went from being able to comment on others’ tracks and see who else commented on them (crucial for building new fan relationships), see comments on my own tracks, and see stats–all from the app. Now all I get is a nice looking but functionally flacid waveform graphic and some totally unwanted autoplays after songs. On top of that, when I use the app, I have to drill down three layers or so just to see my own songs that I’ve posted.

    I quit paying for my SoundCloud creator account following those changes, and after a few years I gave up on downloading new versions of the app in the hopes that functionality would reappear.

    What were they thinking?

  • Khan Saab

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  • viridisvir

    re: “Trainor hopes to increase the number of creators who pay to use SoundCloud Unlimited’s service by adding an even more robust creative toolkit.”

    ^This: they critically need reexamine their relationship with creators since they cheesed ’em off pursuing rank and file listeners.

    Like, how cool would it be if it turned into a more sample-friendly venue where you could find free and paid samplepacks and such?

  • Excellent. Anything that gets current SoundCloud leadership out of the way and replaces them with someone who can lead is good. Fine if they stay on in some token role of course.

    Vimeo is probably a decent model to look at as well: a company that survives in the same ecosystem as YouTube.

    The creator tools have been laughable at SoundCloud for awhile so I hope they beef it up, Vimeos are pretty painless.

    They have a year and a half to make it work (170M vs 100M per year run rate). I wish them luck!

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