It’s a big news week for acquisition rumors: hot on the heels of a potential Twitter takeover, Spotify is reportedly in “advanced talks” to purchase SoundCloud, one of its biggest rivals in the music streaming sector. It’s a hotly-contested and challenging space: Apple Music and Tidal both continue to struggle with user growth, and new rivals like Amazon and Pandora are launching music-streaming services of their own. Within the past year alone, major players like Rdio have shut down, while others like the French streaming service Deezer have shelved plans for an IPO.
Even Shrinking User Numbers Are an Opportunity
Despite reports that SoundCloud’s user growth has slowed, Verto Analytics data shows that as of August 2016, SoundCloud had 43 million monthly users in the U.S. (among adults, ages 18+), which still puts it well ahead of Spotify’s 34 million users. While SoundCloud enjoys a slightly greater overall reach, it suffers when it comes to engagement, and especially when it comes to mobile user engagement; the 20% stickiness rating for its mobile app lags behind Spotify’s 28% (stickiness compares daily users to monthly users to quantify the most engaged users). As shown below, Spotify’s users spend far more time per month with the Spotify app: Spotify’s app has a far greater reach among internet users, and these users access the app far more times per month than they access SoundCloud’s app. And even though SoundCloud’s website attracts the vast majority of its traffic, with 42 million monthly users, those users only visit a couple times per month and don’t stick around long: the average session duration is less than two minutes, which is shorter than the average song.
But What About the Crossover Audience?
Clearly, Spotify has figured out how to engage its users and keep them engaged, but it hasn’t been able to develop the sizable user base that SoundCloud currently has. While this may be due to the fact that some of Spotify’s content is paywalled, SoundCloud’s existing user base represents a large and attractive approachable market for Spotify: Verto Analytics’ latest data reveals that 11.8 million users accessed both Spotify and SoundCloud. For Spotify, that means that more than 31 million current SoundCloud users haven’t used Spotify in the past month – a figure nearly equivalent to the number of existing Spotify users. Converting even a fraction of this audience into paying Spotify subscribers could significantly boost the company’s revenue as it approaches its planned IPO.
Both companies stand to benefit from a potential merger: Spotify could potentially double its user base, and SoundCloud could gain access to tools that would improve its user engagement. While there are many questions still to be answered – for instance, how to merge SoundCloud’s massive 125 million-track library with Spotify’s 30 million sings – a SoundCloud/Spotify merger spells potential trouble for other major players in the music streaming game, from Apple to Amazon.