SoundCloud gets a huge lifeline

SoundCloud Ltd., the popular but financially strapped digital music service, is getting a lifeline from new investors who have agreed to pump $170 million into the company.

The new investment keeps the Berlin-based company alive but comes with strings attached. SoundCloud Chief Executive Officer Alex Ljung is being replaced by Kerry Trainor, the former head of the online video service Vimeo. The company is also shifting its business strategy, to focus on selling more tools for artists, podcasters and other content creators to share material online.

Trainor said the company will compete less directly with larger rivals Spotify Ltd. and Apple Music, an acknowledgment that the company’s costly years-long effort to build a rival subscription service wasn’t successful.

Raine Group and Singapore’s Temasek Holdings have agreed to inject the new money, however SoundCloud had to accept a steep drop in its valuation. The new funding round valued the music streaming company at $150 million, compared with the $700 million valuation it was said to have received last year. SoundCloud’s earlier backers had to accept a mark down on those earlier investments as part of the deal.

“We see an incredible opportunity for growth in this business,” said Fred Davis, a partner at Raine who is joining SoundCloud’s board of directors. Raine, a boutique investment bank, has also backed Vice Media, DraftKings and Imagine Entertainment.

SoundCloud will refocus its business around selling tools for musicians and other content creators. The company already has a service called SoundCloud Pro that allows people to pay to upload content to the site, while offering analytics tools and data about who’s listening. It’s a similar business model that Trainor built at Vimeo, which is owned by IAC/InterActiveCorp.

“That’s a great business,” said Trainor, a former executive at Yahoo! Inc. and AOL, who said the company is on track to have $100 million in revenue in 2017. “SoundCloud can do more.”

SoundCloud spent years negotiating with record labels to build a $9.99 per month subscription service to match Spotify and Apple, but the resulting product hasn’t gained traction. It introduced another $4.99 subscription more recently that has fewer tracks from major artists. Trainor said SoundCloud will continue to offer the suscriptions, but that it won’t be the central focus of the company.

“The core of our company is the creators,” said Ljung, who is becoming chairman of SoundCloud. Co-founder Eric Wahlforss will be chief product officer. Michael Weissman, the former chief operating officer at Vimeo, will join SoundCloud in the same role.

The service has more than 175 million users and is home to more than 160 million tracks, making it a favorite destination for discovering up-and-coming artists and listening to podcasts. But the company has never been able to turn its popularity into a strong business.

Most of the content available on SoundCloud is free and efforts to introduce paid tiers didn’t take off with customers. Past negotiations to sell the company were never completed, and the company took on debt earlier this year to keep its doors open. The company last month cut 40 percent of its staff and closed offices in San Francisco and London.

“They made the changes that needed to be made to get the cost and operations in line to take the business forward,” said Trainor.

Now read: SoundCloud has enough money to last “80 days”

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SoundCloud gets a huge lifeline