German streaming music company SoundCloud has amassed an enormous following while maintaining a roguish status in the growing industry for online tunes. Its 175 million users have been able to access remixes, covers and mash-ups for free — a source a friction with the music industry.
But now the Berlin firm is going mainstream by launching a subscription-based service in an effort to increase revenue and grow its audience beyond the music aficionados, DJs and aspiring rappers that make up its loyal fan base.
It won't be an easy path for the 8-year-old company. SoundCloud is entering a crowded space led by Spotify, Apple and other tech companies that have developed a stable of users by offering virtually unlimited music access for a monthly fee. Stockholm-based Spotify has 30 million paying subscribers, while Apple Music is trying to catch up after launching last summer.
Some entrants have struggled to differentiate themselves, including Rdio, which was recently acquired and shut down by Internet radio giant Pandora. Companies including Google, Rhapsody, Deezer and Jay Z's Tidal have their own options for online music consumers.
"There's a lot of incumbents in this space," said Vickie Nauman, a Los Angeles music industry consultant. "With SoundCloud, the biggest question is whether or not they can serve a unique audience."
SoundCloud hopes its network of dedicated fans and wide array of underground artists will give it a competitive advantage over other companies that offer a similar library of songs for the same price of $9.99 a month.
The new SoundCloud service will add tens of millions of licensed tracks from major and indie label artists. The expanded SoundCloud library will have 125 million tracks, compared with the 30 million offered by most established streaming companies.
Still, analysts said the service must maintain its hipster edge in order to succeed. The audio-sharing site is best known for letting users easily distribute their mixes, mash-ups and cover songs, not for finding the latest top-40 hits from Katy Perry and Meghan Trainor.
"I really hope SoundCloud stays the course and remains the cool kids," said Ted Cohen, managing partner at the digital entertainment consultancy TAG Strategic in Los Angeles. "Otherwise, you're living in a 'me too' world."
The new service, dubbed SoundCloud Go, charges $9.99 a month for commercial-free access to its library after a one-month free trial and gives users the ability to save songs to their phones and tablets. Those who don't pay will still have access to the free version, which plays ads.
SoundCloud's subscription offering comes nearly five years after Spotify first launched in the U.S. However, executives balked at the notion that the company is late to the game, noting that paid streaming is still a young industry and is growing fast.
"Our view is that we're early in the transition, and that the marketplace needs differentiated offerings," said Stephen Bryan, chief content officer at SoundCloud.
Revenue from streaming made up 34% of U.S. music industry sales last year, up from 27% in 2014, according to the Recording Industry Assn. of America. And even if SoundCloud converts only a small fraction of its users into subscribers, it will be represent a substantial boost to the overall market, music industry experts said.
SoundCloud co-founder Eric Wahlforss acknowledged that the business of streaming music is competitive. Yet, he argued, the company's vast catalog and its assortment of 12 million users who upload and share their own tracks will set SoundCloud apart.
"Even though there are a few other players out there, SoundCloud has a very clear place in this space," said Wahlforss, who serves as the company's chief technology officer. "One of the things that makes SoundCloud really great is that we have so many creators and so much content that isn't available anywhere else."
By launching a paid streaming service, SoundCloud is hoping to put its past clashes with artists and music labels behind it.
SoundCloud has long maintained a complicated relationship with traditional players in the music industry. Record labels use it as a way to promote up-and-coming artists, and even new tracks from established players like Drake and Lorde.
But rights holders have not always been aligned with the German upstart. Sony pulled its music from the site last May over royalties, and the British songwriter group PRS for Music accused SoundCloud of failing to license its songs (SoundCloud eventually settled with PRS and forged a licensing deal).
In 2014, SoundCloud added advertising to its service to generate revenue and compensate rights holders, including artists and songwriters, for the first time.
In order to launch the new service, SoundCloud had to strike complicated licensing agreements that would let rights holders collect royalties from the service and allow the service's users to remix and mash-up copyright-protected work. SoundCloud users in the past have been plagued by takedown notices from labels that objected to the unlicensed use of their music.
SoundCloud signed a licensing pact with Warner Music Group in 2014, followed by Universal Music Group in January. The remaining holdout, Sony Music, announced a deal with SoundCloud this month.
Under the terms of label agreements, the artists and companies will have the freedom to choose what songs are available on the free version of the service for promotional purposes — and which will be kept behind the pay wall. The pacts will also help protect users from running afoul of copyright law, executives said.
"These deals for the first time fully legitimize and fully license SoundCloud's community," said Michael Nash, executive vice president of digital strategy at Universal Music Group. "It was very important for us to harness all of the creativity on the platform."