The digital music merge between Spotify and SoundCloud isn't happening after all. Following months of talks between the two companies, Spotify has given up on its latest effort to acquire SoundCloud.
No Deal Between Spotify & SoundCloud
According to Tech Crunch, an insider source at Spotify familiar with discussions claims that the deal between the two companies has been abandoned. In September, the Financial Times reported that the talks over an eventual acquisition were in an advanced stage. However, after that initial report, things went pretty quiet.
It seems now that the deal has been abandoned this past week. The insider source claims that Spotify ultimately walked away, fearing that an acquisition could impact negatively its IPO preparation. There has been plenty of speculation about Spotify preparing of going public in 2017, but no official announcement has been yet made.
Reasons To Cancel The Deal
The source suggested that Spotify has renounced of its intentions to purchase SoundCloud because it wants to avoid an additional licensing complication in a potential IPO year. According to The Verge, given the potential benefits of the deal, this is a significant move from Spotify.
Negotiation with music labels would imply complexity and financial costs. Because it caters to indies, creatives and remixers, SoundCloud has a far larger catalog of tracks than other online music services. The company was last valued at $700 million, according to Recode.
On two other occasions over the past two years, Spotify was reported to have declined to acquire SoundCloud. A deal was seen back at the time as key to strengthening company's position on a market where its as well-funded competitors ramped up their music services.
Another benefit of an eventual acquisition of SoundCloud could have been expanding Spotify's ad network and user base. According to Digital Music News, SoundCloud's annual revenue reached almost $28 million, jumping 43 percent year-on-year.
This summer, Spotify passed 100 million users. More than 40 million of its users are paying. Meanwhile, according to BBC News, just 18 months after its launch Apple music hit this week 20 million subscribers.
