On the latest Music Business Worldwide podcast, MBW founder Tim Ingham is joined by Eliah Seton, the CEO of SoundCloud.
Seton joined SoundCloud as the company’s president in 2021, becoming its CEO two years later. In that time, he has marshaled the company past some major milestones, most notably the fact that SoundCloud posted its first-ever annual profit in 2023.
SoundCloud is a significant player in the music streaming market, with a huge catalog: Seton confirms that it currently hosts some 400 million tracks.
However, being a streaming service is just one part of SoundCloud’s story. With tens of millions of artists on the platform, SoundCloud is also a distribution and services provider for the people who make the music.
For Seton, SoundCloud’s real magic lies somewhere between these two points, between being a streaming platform and a distribution and services platform provider for artists.
That’s because Seton and his team are laser-focused on the artist-fan relationship and how SoundCloud can enrich that connection.
It’s fair to say that Eliah and SoundCloud were loudly talking about superfans significantly before most in the music business.
This focus on fans has manifested in a few ways at SoundCloud in recent years, including its famous experiment with Fan-Powered Royalties for independent artists – aka a “user-centric” royalty model.
Fan-Powered Royalties has not only partnered with indie artists, it’s also partnered with Warner Music Group and Merlin.
The biggest headline surrounding SoundCloud this year is the news that the company is headed towards some kind of financial event – either a sale, or possibly an IPO, or some kind of fundraise – that follows investment into the firm in recent years from the likes of SiriusXM, The Raine Group and Temasek.
Read abridged/edited highlights from Eliah Seton and Tim Ingham’s conversation below, or listen to the full podcast – either above, or on your preferred service…
SoundCloud is operating in a world of multiple streaming services and what seems like endless distribution or services companies. What makes SoundCloud unique?
Very simply, SoundCloud connects artists and fans together directly. Hundreds of millions of fans and millions of creators engage together directly on SoundCloud every day. We’re a two-sided platform that’s exclusive to music, and that’s totally differentiated in the world today.
[The recorded music business] is an industry where you spend billions of dollars against trying to reach your end user, but [have] no ability to reach that end user, which in the case of major labels is the fan.
And then at the other end of the spectrum, you have traditional DSPs [digital service providers], who pay so much of their cost structure to content owners and [have] no [ability] to work directly with artists, and really have a broken business model as a result.
In between, though, there’s one place in music that does this, that connects artists and fans together directly at scale, and that is SoundCloud.
Today, we define SoundCloud across two different business segments: What we call our fan business, and our creator business.
The fan business looks like a DSP, it’s an ad-supported and subscription service offering all across the globe, in 19 monetized markets, with 400 million tracks on the platform – the 100 million tracks that traditional DSPs have, and then another 300 million that are from creators who are not coming through those same traditional pipes.
Then the creator side is millions of creators who are coming to the platform to upload their music and find their fans and build their fan base, paying us a subscription, distributing through us.
Earlier this year, SoundCloud announced integrations with a number of new AI-related tools, including Soundful, which enables creators to make original music “in a couple of seconds using artificial intelligence,” and Fadr, a platform that offers AI music tools like vocal removal, song splitting, remixing, etc. What is SoundCloud’s policy on AI? And how are you working with these companies?
First things first: we are an artist-first company, we always have been, we always will be. Obviously we are compliant with all of the relevant laws, with our partnerships with all the rightsholders who have made their voices heard on issues pertaining to AI.
We acquired a set of AI capabilities and machine learning capabilities three years ago, when we made the acquisition of Musiio, and that’s transformed our ability to use AI to enable creators to get heard by fans… and to give rightsholders – major labels, independent labels – the opportunity to find what’s next, find their next signings.
And that’s how we’re trying to use AI, but we also view AI a little bit differently, which is we’ve got this – as I described before – this great engagement, this virtuous cycle between fans and creators coming to the platform and engaging with each other.
Depending upon the research you look at… there are probably 75 million real music creators on the planet. Our view is that AI is likely to 10x that number, and it’s not going to take that long.
I’ve talked a lot about the analogy to photography. Fifteen years ago, nobody was sitting around thinking, ‘Oh, there are 2 billion photographers on the planet.’ And then Instagram came along. And suddenly there are 2 billion photographers on the planet.
That didn’t replace expert photography, it actually enhanced expert photography, but it also gamified it. It allowed anyone to play with photography, right on their phone.
“There are probably 75 million real music creators on the planet. Our view is that AI is likely to 10x that number, and it’s not going to take that long.”
I believe we’re going to see a similar tidal wave in music creation through AI tooling. And even knowing that this happened in photography, it’s hard to wrap our heads around the fact that there could be 500 million, a billion music creators on the planet.
Generative AI tooling is potentially going to be the great democratizer of music creation because all of us across the planet who have access to a smartphone will have access to music creation tools, whether it’s writing a lyric or dropping a beat or collaborating with someone, writing a hook or remixing something, whatever.
So long as we establish the right legal and commercial frameworks around this, we’re going to have hundreds of millions of music creators playing with music, and we’re very excited about what that future holds.
SoundCloud innovated Fan-Powered Royalties, or what you could call a “user-centric” royalty model. More recently, we’ve seen a number of streaming services sign deals with rightsholders for “artist-centric” royalties, to use a term coined by UMG Chairman and CEO Sir Lucian Grainge. From your perspective, what is the fairest way to pay royalties to artists?
For those who don’t know, Fan-Powered Royalties, [as opposed] to the traditional streaming model of pro-rata payments, divides up a fan’s subscription [revenue] against the artists that a fan listens to. This gets more artists paid more. So as an artist-first platform, especially one oriented toward independence, that was obviously a good thing. It was also an opportunity to clamp down on fraud and have a more transparent and just way of splitting a fan’s subscription.
We view it as a product, just like the rest of our platform, that needs to evolve. And we love the fact that there are other players thinking about new models, because the traditional model certainly does not work and certainly does not get artists paid.
And that really brings to mind a very straightforward premise for us here, which underpins our whole roadmap – that streaming is not enough. The vast majority of artists… cannot earn a living wage from streaming alone.
But streaming is also not enough for fans either, at least not the fans that we’re focused on. Sure, for some fans… it’s enough to put a top hits playlist on in the background and call it a day. But our fans are way more engaged than that. Our fans spend way more money on music each year than a passive listener.
“AI tooling is potentially going to be the great democratizer of music creation because all of us across the planet who have access to a smartphone will have access to music creation tools.”
Superfandom and willingness to pay is as old a role as there is in music. Think about all the different examples of this – merch and live [events]. Even in a download environment, 80% of the revenues were driven by 20% of the fans.
If you were in a physical [music] environment, you went to HMV to buy your favorite artist’s catalog in CDs. You spent as much money as you’ll spend for a streaming subscription in an entire year. But in a streaming environment, if I’m looping Frank Ocean’s Blonde all day, every day, and I just can’t get enough, I’m paying the same 10 or 12 bucks that someone who literally forgot that they are subscribed to that service is paying.
Streaming hasn’t killed the superfan, but it has certainly suppressed fandom in a way we’re prepared to unlock.
And let’s be real, streaming is also not enough for streamers. It’s a hard business model to make the math work. And we’re not so interested in the zero-sum game that is defined by a fan-powered model, or a pro-rata model, or artist-centric model, whatever. This in the end is dividing the pie into thinner and thinner slices. We’re more interested in putting new pies on the table. And… we feel like we’re in a position to capture that opportunity.
You’ve been talking about superfans, and monetizing the link between hardcore fans and artists, for some time. Now there’s this narrative rush towards superfans, particularly at the publicly traded music rights companies. What does this mean, both in terms of the industry as a whole, but also to SoundCloud, in your view?
[It means that] the founding purpose of SoundCloud has never been more relevant, has never been more important. It’s the center of gravity in music.
We feel that now is SoundCloud’s moment, given our pole position in connecting artists and fans together directly.
When I was at Warner running ADA, and BMG was our largest partner, I remember one of their biggest commercial successes was a Keith Richards box set. This was like a lacquer piece of furniture. It had music in it, but nobody was listening to the music.
If they wanted to listen to Keith Richards, they were streaming it with their preferred service. But there were 1,200 people on the planet who needed to have this thing, needed to put it on their coffee table, or in their living room. It was a status symbol, it was a badge of their super fandom.
“We feel that now is SoundCloud’s moment, given our pole position in connecting artists and fans together directly.”
These fans have a very high willingness to pay. They want to unlock access to a relationship with an artist that they love. And you need a marketplace to do that. You need a two-sided marketplace that has direct access to artists and fans to facilitate that.
So when we hear about rights holders talking about trying to build relationships with fans, I’m not surprised. They need to do that. What we’re excited about at SoundCloud is that’s what we do every day. We’re a social platform in music, and now finding ways to productize that and monetize that, and put dollars in artists’ pockets through that relationship that they have directly with their fans. That’s going to be the new “pies on the table.”
[There’s a lot of talk about] rising prices at streaming services – that’s not that interesting. What’s interesting is non-streaming monetization opportunities.
You’ve told MBW that SoundCloud is exploring various financial options. One of those options is to acquire, but also, as a profitable growth company, you were considering raising money. You didn’t mention IPO specifically, but that must be one thing that’s possibly on the table. And there have been headlines about a potential sale. Where are you in the process of sale/IPO/raising money?
Our destiny is in our own hands. As anybody familiar with Soundcloud could tell you, that’s not always been the case. But it is now. We’re a profitable growth company – such an important box for us to check in terms of our health. And we’ve got these massive lanes of growth available to us.
We’ve talked about what the tidal wave of new music creators coming from AI tooling could do for our business. That’s obviously a massive, transformational opportunity. [There is also] the international growth opportunity. SoundCloud is a global brand, but we are not a global business. And there’s so much opportunity in closing that gap and creating a real commercial opportunity for us in dozens and dozens of markets around the world where people use our platform and have access to it and an awareness of the brand.
“[There’s a lot of talk about] rising prices at streaming services – that’s not that interesting. What’s interesting is non-streaming monetization opportunities.”
The analogy I talked about with staff is, we have brought this company to base camp. And with those growth opportunities available to us, we are now on the path to the summit. So the question is how do we get to the summit? How quickly can we get there? And who’s coming along with us?
We’re going to take a different approach to this process than I think [businesses] normally do. We’re going to be more transparent about it. We’ve earned the ability to pick and choose what we do, when we do it, and with whom, on our time. That hard work of readying the business for that has been done. And now we’re looking to find our new partners who can come aboard to scale the mountain with us.
We anticipate that later this year, barring unforeseen circumstances, [we] will bring that opportunity to market and explore who the right fit to scale the mountain is for us.
Two final questions: What is your number one ambition as you run SoundCloud today, and in the years ahead? And if you had a magic wand to change anything at all about the global music business, what would it be?
My number one ambition for SoundCloud – this is an easy one. Alex [Ljung] and Eric [Wahlforss] founded this business to empower artists and fans to share and connect through music. The founders poured their heart and soul into it. Hundreds and hundreds of employees have left their mark on this place. But I think we can all agree SoundCloud has not yet had its moment. [What we are doing] is the future of music. It is the now of music. So realizing the vision and having the opportunity to be a steward for this place – and not just make it the healthiest it’s ever been, but to actually scale that mountain and look out from the summit – that’s my number one ambition. And it’s not just mine, but it’s our team’s.
And then one thing I would change about the music industry, it’s hard not to answer – get artists paid. We are a platform that sees not just thousands, not just tens of thousands, but literally millions of creators who are trying to get heard, trying to find their fans, trying to get paid.
And that one thing I would love to wave my wand to change is the one thing that we are looking to transform by virtue of the products and services on our platform. And we’re trying to do that every day, person by person, product by product, and I don’t have a magic wand, but the 400 of us here at SoundCloud are trying to make that happen nonetheless.