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Spotify’s Acquisition Of SoundCloud Look Like It’s Off

SoundCloudIt looks like all of those rumors about Spotify buying SoundCloud have turned into nothing more than words on paper. Word is now out that any hopes of a deal between the two companies has been squashed, although months of talks almost lead to a deal.

Why? Although it hasn’t been officially announced, Spotify is planning on a public offering in 2017, and there were fears that this particular acquisition could negatively impact the IPO. The fact that Spotify hasn’t turned a profit yet and owes loads of money is bad enough, but at least it’s generating lots of cash and growing. You can’t say the same thing for SoundCloud, however. Despite many different attempts to both gain more users and get them to pay for the premium service, that hasn’t happened, so the company’s health is definitely in question.

The other question that potential investors and underwriters had was about the synergy between the companies. For SoundCloud, the acquisition would be a life preserver. For Spotify, it would gain some potential users, and perhaps provide them with an easy path to post their music on Spotify, but it’s difficult to see how that helps Spotify enough to justify a potential billion dollar investment.

Another negative is the fact that Spotify would have to enter into another round of negotiations with record labels and publishers for new SoundCloud license agreements. These licenses are the biggest hurdle for any company either trying to get into, or already in the music distribution business, and investors know how difficult they can be. As a result, it’s a headache that Spotify can’t afford to take at the moment.

If Spotify does go public next year and is flush with cash (after paying off investors that is), look for the company to revisit the SoundCloud acquisition again. Until that time, SoundCloud has to hang on.