Does Spotify need to buy SoundCloud?

Does Spotify need to buy SoundCloud?

As rumours continue to circulate around Spotify’s supposedly imminent acquisition of SoundCloud, it’s worth taking a look at just what the streaming giant will be getting for its money, should an agreement materialise.

If the figures being tossed around the web are to be believed, Spotify will have to part with a frankly staggering sum of money to clinch the deal.

It is thought that a buyout would cost somewhere between $700m and $1b – a truly substantial amount given that SoundCloud has yet to turn a profit.

Still, the German firm does boast Twitter as one of its investors, so it certainly has some clout behind it, but whether or not that is enough to justify such an extravagant purchase remains to be seen.

It’s not so much that SoundCloud’s massive user base wouldn't be of interest to Spotify, despite the latter's stronghold on streaming's subscriptions market. It's more that converting SoundCloud's younger demo into paying customers might be a challenge too far - after all, SoundCloud's own paid-for service doesn't seem to have much traction. Spotify currently has 40 million paying customers to its name, while its nearest rival Apple Music has just reached 17m paying subscribers. If Spotify was able to translate even a small a portion of existing SoundCloud users into its paid-for tier, it could prove a knockout blow. But that's likely to be a tough sell, unless Spotify has an eye on a mid-price offering of its own to widen its base?

One other possible reason for Spotify’s interest in SoundCloud could be linked to its plans to go public next year, so an increase in market share could well be appealing for potential investors. Yet even in this instance, it’s difficult to see how such a deal would significantly bolster Spotify’s profile or bottom line, particularly at that price.

As of yet, neither party has been willing to comment on the speculation, although SoundCloud did make its intentions to sell public earlier this year.

In July, rumours began circulating that SoundCloud founders and investors were considering selling the company, which it values at around $1bn. Although sources claim that it was struggling to find a buyer at that price.

In June, the company raised funds of $70m from Twitter as part of a $100m funding round, which valued the firm at around $700m Bloomberg sources said.

The platform, which currently has around 175 million users, launched a premium service earlier this year, which offers an ad-free streaming service and wider access to songs for $10 (US) / £9.99 (UK) per month.

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