SoundCloud Ltd.'s platform focuses on free media content, and many music lovers have taken it up on the offer. With nearly 200 million subscribers, SoundCloud’s listening base is over twice as large as the user base of its competitor, Spotify. Still, the company has struggled to monetize its service. From 2013 to 2015, SoundCloud reported an operating loss in each year with an aggregate loss of $85 million. With this in mind, SoundCloud has embarked on multiple strategic initiatives that will result in revenue.

SoundCloud Go

In 2016, SoundCloud began offering a subscription-based monthly service to United States residents. Soundcloud Go utilizes the licensing agreements SoundCloud has made with Sony Corporation (NYSE: SNE), Merlin Network, Warner and Universal Music Group Inc. For $9.99 per month for Android users and $12.99 for iOS users, listeners receive an expanded catalog of songs, advertisement-free service and the ability to listen to tracks offline.

SoundCloud Pro

SoundCloud offers content developers multiple tiers of service for uploading and distributing their songs, podcasts and other content. SoundCloud Pro allows users to upload twice as much content as the limit on free accounts. Additional statistics are provided regarding play counts by country. In addition, playlists and tracks can be pinned to the top of an artist’s profile via the Spotlight feature. The monthly subscription price for SoundCloud Pro is $7 per month or $63 for an annual subscription.

SoundCloud Pro Unlimited

An additional service tier for content developers is SoundCloud Pro Unlimited. In addition to the benefits of SoundCloud Pro, this monthly subscription has no upload limitations. Statistics are provided based on listener geographical location by city, and information regarding the web pages and apps that an uploader’s trackers are played from are provided. Finally, users with this subscription may sign up for SoundCloud Go for a discounted price of $1.99 per month. The SoundCloud Pro Unlimited subscription is $15 per month or $135 for an annual subscription.

On SoundCloud: Invite Only

SoundCloud’s invite-only tier of its On SoundCloud program allows content uploaders to monetize their media through advertising. SoundCloud offers four advertising products including standard display advertisements, allotted time prior to songs, native advertisements for branch channels and customized sponsorships. For artist-driven campaigns such as music competitions hosted by recording companies, SoundCloud retains an undisclosed portion of advertising.

Indemnity

SoundCloud’s contract negotiations with music license holders have included indemnity for previous copyright violations. For example, SoundCloud’s licensing agreement with Warner Music Group in 2014 stipulated no recourse could be taken on previous offenses. Although this is not a direct or continual way to make money, this clause in the licensing contracts has essentially provided income for SoundCloud. While not an actual revenue stream, the indemnity clauses in license agreement contracts have financially benefited SoundCloud.

Private Equity

SoundCloud has periodically held open investment periods in which companies may directly invest and financially support the music provider. Series A venture capital financing in April 2009 resulted in 2.5 million euros ($2.8 million) while Series B earned $10 million. The next two rounds of private investing earned $50 million in 2012 and $50 million in 2014. In June 2016, SoundCloud raised $70 million from Twitter Inc. (NYSE: TWTR) during SoundCloud’s Series E round of financing. The audio distribution platform provider earned around $100 million in its most recent round of fundraising.

Debt Financing

Although not a revenue source, SoundCloud has relied upon debt financing to assist with cash inflow. In 2015, SoundCloud received approximately $35 million of debt financing from Tennenbaum Capital Partners. In addition, SoundCloud received the right to receive an additional $70 million of convertible bonds.

The Bottom Line

SoundCloud has heavily relied on private investors and debt finance to support operations. However, the company has turned its attention to monetizing its service and capitalizing on its large user base. By tapping into its customer base and generating revenue through monthly subscriptions and advertising, SoundCloud is attempting to rectify its string of underwhelming operating losses.