Why Is Twitter Investing In Online Music Platform – SoundCloud?

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Recently, Twitter‘s (NYSE:TWTR)  CEO mentioned in an interview that, earlier this year, the company invested $ 70 million in SoundCloud, an online music platform to support its efforts with creators. Twitter already had a relationship with SoundCloud, which it considers to be a “great partner over the years”.  Moreover, two years ago, it was in discussions to acquire SoundCloud, but eventually backed out. SoundCloud, which was a free platform to upload and share music, is now venturing into a subscription based service after acquiring several music licenses. However the company is cash strapped and Twitter’s investment provides it with the much needed funds for this initiative. While an immediate benefit for Twitter is not visible, according to the company,  SoundCloud’s technology can prove beneficial for its efforts with creators. We believe if eventually Twitter plans to integrate SoundCloud  with its platform and uses online music streaming as a way to increase user growth and engagement, this investment can drive long term revenue growth for the company.

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SoundCloud’s free platform, which allows users to record and promote their original music, has seen significant traction and has around 175 million monthly listeners.  Still, it faces a tough road in the subscription service space. With players such as Amazon and Google aiming to dominate this space, it will be tough for smaller companies to be profitable.  A partnership between Twitter and SoundCloud can enable both companies to leverage each other’s user base and create a social music platform which can engage and attract users. If Twitter is able to integrate SoundCloud  with its platform in the long term, it can enable the company to compete better with other social media players. SoundCloud’s music licenses, which it will use for its subscription service, can also prove to be an asset for Twitter. The company recently signed a deal with Sony Music which gives it access to artists including Beyonce, Justin Timberlake and Bruce Springsteen.  It already has deals with Warner Music Group, Universal Music Group and Merlin – a network of independent labels.  These licenses and a partnership with Twitter should make SoundCloud’s a strong competitor to big players such as Amazon and Google.  As it moves forward, Twitter can leverage this user base for growth.

 

As Twitter struggles to grow its users, integration with SoundCloud can act as a catalyst to grow its user base and create a positive impact on Twitter’s valuation.  While an immediate benefit from the investment is in SoundCloud is not visible, it could hold a strong potential depending on where Twitter plans to take this partnership.

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