Second Coming for Music in Twitter-sphere

Microblogging site invests $70 million in music service SoundCloud

In recent times, music streaming services have been gaining popularity, and have revolutionized the way listeners consume music. Music streaming services has become a teeming space, especially after the 2015 launch of music streaming services by tech giant  Apple Inc. (NASDAQ: AAPL) under the name Apple Music. Recently, e-commerce giant Inc. (NASDAQ: AMZN) announced that it is planning to launch a standalone music streaming subscription services to take on rivals like Spotify, Apple Music, and Tidal. Other tech giants such as Alphabet Inc.’s (NASDAQ: GOOG) Google also have forayed into music streaming to enhance customer interaction on a daily basis. Not far behind is Facebook Inc. (NASDAQ: FB), which is considering launching its own music streaming service. Online social networking and microblogging site Twitter Inc. (NYSE: TWTR), which had earlier attempted to foray into music but stumbled, has invested about $70 million in Berlin-based music service SoundCloud, as per technology website Re/code and reported by Reuters on June 15th, 2016. Read more on how Twitter connects with music.

Twitter’s investment was part of a funding round of about $100 million, which values SoundCloud at about $700 million. The micro-blogging site had once tried this journey into the music realm with the launch of the audio- and music-sharing Twitter Music app in 2013. However, the app failed to gain traction and was scrapped a year later. But with its most recent move, Twitter indicates that it is not ready to give up in what is quickly becoming on industry norm and it is looking for new ways to bring music-based content to its service log.

About SoundCloud

SoundCloud, a platform that enables people to upload and share music and other audio files, was set up in 2008 and became a favorite for a number of musicians and their fans, attracting about 175 million users worldwide. However, the Company became vulnerable to copyright charges when it started hosting unlicensed content, and drew flak from major record labels.

In 2014, Twitter considered buying SoundCloud, but abandoned the deal. Since then, SoundCloud has entered into new licensing deals with record companies and publishers, helping to legitimize its service with the mainstream music business.

However, SoundCloud had to face some financial turmoil since 2013. For 2014, the Company generated $19.5 million in revenue, but incurred a loss of almost $44 million. SoundCloud clearly needed to raise money to stay in afloat, and consequently raised $77 million in debt in 2015. In March 2016, SoundCloud introduced its subscription service, SoundCloud Go, a catalog of more than 125 million songs for $10 a month, along with a free version supported by advertising. The service offers access to a comprehensive library of music from top artists compared to SoundCloud’s existing, ad-supported free service. Hence, Twitter’s investment would enable SoundCloud to remain focused on building value for music creators and listeners alike.

Music bitter for Twitter

After its initial failed attempt at joining the music streaming band wagon in 2013, Twitter announced the launch of a SoundCloud-powered Audio Card, a link to streaming audio that can be included in a Tweet in 2014. This innovative concept has now been expanded to include video as well.

While it is still unclear whether Twitter’s current investment is part of a strategic partnership, Twitter might view the integration with SoundCloud as a way to increase growth and engagement with its user base. On the other hand, SoundCloud may lean on Twitter to promote its newly launched subscription service, which is crucial to the company’s plans.

Win-win situation

Twitter’s investment in SoundCloud comes at a crucial time when both companies are faced with dull growth prospects. Twitter has been facing angry investors for its inability to add users at a rapid pace. With around 140 million daily active users, Twitter has been struggling to add users compared to other social media sites like Facebook, Instagram, and Snapchat.

T1For SoundCloud, Twitter’s investment gives it the much-needed funds since the Company has been struggling with losses despite establishing itself as a popular online outlet for new music. Moreover, its flat valuation indicates slackening growth prospects. Twitter fund injection is surely a shot in the arm for SoundCloud, which launched a new subscription service in March 2016 to take on rivals like Spotify, Apple Music, and Tidal. Most importantly, Twitter’s investment could mean better integration with SoundCloud services as both companies attempt to enhance their user bases.

Twitter’s Q1 FY16 results

Source: Twitter
Source: Twitter

Twitter’s Q1 FY16 revenue increased 36% Y-o-Y to $595 million. Excluding the impact of changes in foreign exchange rates, revenue increased 39%. Advertising revenue totaled $531 million, an increase of 37% Y-o-Y. Excluding the impact of year-over-year changes in foreign exchange rates, advertising revenue increased 39%. Mobile advertising revenue was 88% of total advertising revenue. Data licensing and other revenue totaled $64 million, a 34% Y-o-Y growth. U.S. revenue grew 35% Y-o-Y to $390 million, while International revenue increased 39% Y-o-Y to $204 million. Excluding the impact of Y-o-Y changes in foreign exchange rates, international revenue increased 46%.

Source: Twitter
Source: Twitter

Average monthly active users (MAUs) increased 3% Y-o-Y to 310 million for Q1 FY16 compared to 305 million in the year-ago period. Mobile MAUs represented 83% of total MAUs. Worrying is the fact that Twitter’s MAUs has stagnated for the past year, compared to rivals such as Facebook, Instagram and Snapchat, whose user bases are growing at a fast clip.

T4Twitter’s stock stood at $15.96 at the close on Wednesday, June 15th, 2016, having opened the day at $15.71. The stock touched a low of $15.71 and a high of $16.44, during the session. The stock’s trading volume for the day was at 53,269,056. Twitter’s market cap was at $11.67 billion as of Wednesday’s close.

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