Swedish streaming music service Spotify may be in talks to purchase fellow music service SoundCloud. The companies are in “advanced talks,” according to a recent report from The Financial Times, which cited anonymous insider sources that had been briefed on the talks.
According to the article, an announcement of the acquisition could be imminent. As of this post, SoundCloud and Spotify spokespeople have declined to comment to multiple sources regarding the reported purchase.
SoundCloud, like many music streaming services, has been struggling with yearly financial losses for some time now and the recent launch of its paid SoundCloud Go service has not been enough of a success for the company to fix its balance sheet.
The service does boast one of the highest unpaid user bases in the music world, with 175 million monthly users flocking to the site to listen to and share the latest music. SoundCloud also has among the largest catalogs of tunes around, with 125 million tracks available to users for free. Those tracks are largely all from relatively unknown artists and it is a popular platform for unsigned and emerging artists who often use it to gain exposure early in their careers.
The catalog of new music and free user base are obviously appealing to a company like Spotify, which currently has 40 million paid and 100 million ad-based users. There are questions how the Swedish company would pay for an acquisition of SoundCloud’s size. As of July, Twitter, a major investor in the service, had the company valued at $700 million.
Spotify raised $1 billion in debt-based funds this year as part of a financing deal which seemed to indicate it will go imminently go public. Most companies avoid large acquisitions — especially of companies as unprofitable as SoundCloud — before an IPO.
Plus, a significant portion of that $1 billion will likely be needed to cover Spotify’s own annual deficits. The company lost nearly $200 million last year alone. Though it has seen significant growth in paid users year-over-year, it is likely putting a serious amount of cash back into growing its own brand pre-IPO.
Digital Trends will update this story as we learn more.