how subscription billing can save a popular music provider

1

How Subscription Billing Can Save a Popular Music Provider

© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.

2

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.

http://www.musicbusinessworldwide.com/ouch-soundcloud-losses-show-a-broken-business-model-in-desperate-need-of-a-fix/














http://www.nytimes.com/2016/03/30/business/media/soundcloud-starts-subscription-plan-taking-on-spotify-and-apple.html?ref=business&_r=1









3 © 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.

A subscription service lets SoundCloud Go users save online music to their phones.


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.

https://www.vindicia.com/solutions/subscription-billing/











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.







About the Author: Bryta Schulz

Bryta joined Vindicia in 2013 and serves as Senior Vice

President of Marketing. She is responsible for building brand

awareness, creating go-to-market strategy and promotion, and

driving growth. With over a decade of executive level marketing,

product management and PR experience, Bryta has led

marketing teams in enterprise technology and SaaS companies.

Her experience includes heading product marketing at GoGrid,

PGP, RSA and Symantec and business development and

product management positions at Xcert, Thales, and

Persistence Software. Bryta holds a MA in Translation from the

Johannes Gutenberg University Mainz and an MBA from the

University of Reutlingen.

Visit our Blog for more information.

https://www.vindicia.com/blog/

8

Like us on Facebook facebook.com/vindicia Follow us on Twitter @Vindicia Connect with us on Linkedin linkedin.com/company/vindicia

Thank You
