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Soundcloud is said near deal to sell stakes to private equity

LiveMint logoLiveMint 29-07-2017 Lucas Shaw

Los Angeles: Soundcloud Ltd is close to a deal to sell a stake in the company to a pair of private equity firms, according to people familiar with the matter, an investment that will help the beleaguered music-streaming service keep operating for the foreseeable future.

The two firms are acquiring stakes via separate deals, said the people, who asked not to be identified discussing private transactions. The names of the firms or the size of the transaction couldn’t immediately be obtained.

Combined, the two private equity firms would own a majority of Soundcloud, the people said. While the talks are at an advanced stage, they could still fall apart.

A darling of the independent music scene, Soundcloud operates one of the most popular music services in the world, attracting 175 million users with rough cuts from famous artists and mixes from unknown DJs. Yet Soundcloud has failed to generate much money from those users, or build a business that can sustain itself.

The company has been scrambling to secure additional funding before it runs out of money. Soundcloud laid off 40% of its staff earlier this month, and shuttered offices in San Francisco and London. The company lost €45.6 million ($53.5 million) in 2015 on sales of €21.1 million, according to a regulatory filing earlier this year.

Spotify, another Swedish music service, generated more than $2 billion in revenue in 2015 and $3 billion in 2016 thanks to its growing base of paid subscribers.

Little advertising

Unlike rivals YouTube, Apple Music and Amazon Music, Soundcloud doesn’t have a parent company that can depend on sources of profit outside the music industry. And unlike Pandora, the online radio service, Soundcloud has never built much of an advertising business.

Musicians have taken up Soundcloud as a cause celebre. Chance the Rapper, the Grammy-winning Chicago musician, just used Soundcloud to release the song “Big B’s,” his recent collaboration with fellow rapper Young Thug. Earlier this month, the chart-topping artist tweeted he was “working on the Soundcloud thing.”

Soundcloud has previously spoken with rival music services Spotify and Deezer about a potential sale, Bloomberg has reported, but couldn’t agree on a price. Chief executive officer Alex Ljung has rejected the prospect of selling the company, and would prefer to remain independent, the people said. Bloomberg

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