Twitter has been trying hard to get into the music business, but keeps on coming up empty. First there was its ill-conceived #Music service which died on the vine about a year after it was launched due to low adoption numbers, and now the company reportedly has nixed a deal to buy the Berlin-based Soundcloud music streaming service.
It was only last week that a deal between the two looked imminent, but the Twitter looks to have bowed to pressure from stockholders and the investment community alike, both of which took a dim view of the acquisition.
On one hand, Twitter-Soundcloud looked to be synergistic in may ways. Twitter has a large number of influential music celebrities that use the platform and have extremely large followings, so incorporating some sort of a music service seems like an ideal match. Soundcloud has roughly the same number of active users as Twitter, and any added users (there’s some overlap between the two) could possibly provide a needed boost in Twitter’s plateaued user numbers, which in turn could help it’s slowly dwindling stock price. That’s the theory, but as we well know, reality is frequently a different story, especially in this case. Here are three reasons why Twitter might have chosen not to consummate the deal.
Reason #1: User Attrition
While Soundcloud might look attractive because of its 250 million or so users and $700 million estimated valuation, it has it’s own set of problems. Like Twitter, there’s ongoing user attrition, especially with the DJ community, who are leaving for other services like MixCloud, MixCrate and Play.fm.
One of the reasons is that Soundcloud uses Audible Magic technology to identify unlicensed songs, which then flags Soundcloud, who then issues a take-down notice much like YouTube does in similar cases. Unfortunately Audible Magic, or any other content identification service for that matter, isn’t perfect and many times users are directed to take down their own compositions. No one wants the hassle of having to defend their own material, and the three strikes and your account is cancelled policy forces many users to make the decision to jump to another service.
Reason #2: Revenue
Then there’s the fact that Soundcloud really isn’t set up for advertising in the same way that other music streaming services are, so its revenue appears to have a ceiling. Power users can bump up to several premium service tiers to receive additional bells and whistles like unlimited uploads and extensive stats on who’s listening, which does generate more revenue for the company. As with other platforms using the same freemium strategy, the majority its users will never jump to those tiers unfortunately.
Reason #3: Licensing
But perhaps the biggest red flag is that Soundcloud doesn’t have any licenses from music labels or publishers the way that YouTube does (Soundcloud is sometimes referred to as the “audio YouTube”). For a giant company like Google (which owns YouTube), obtaining these licenses doesn’t hurt its bottom line all that much, but for a smaller entity like Twitter or Soundcloud, it could be prohibitively expensive. Music licensing has caused so many great ideas to be stillborn not only because of the money involved, but because of the hassle of dealing with multiple large and small finicky entities, which often means that any milestone timetable is thrown completely out the window. Just the thought of having to engage in these discussions should have been enough to give Twitter execs night sweats and panic attacks, and rightfully so.
At this point, the last thing Twitter needs is another headache when it has plenty already in-house. It needs a way to kick up its stock price, and while an acquisition might be a way for that to happen, Soundcloud isn’t the one. For once, a company has seen the light before it was too late.
