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Twitter Is Considering a Deal to Buy SoundCloud

Would it solve Twitter's growth problem?

Shutterstock / Leigh Prather
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Twitter may try to buy its way out of its growth problem by making another move into music.

The company is considering a deal to acquire SoundCloud, the music and audio-sharing company, according to people familiar with both companies. UPDATE: Twitter has walked away from the deal, by letting an exclusive negotiation window lapse, according to a person familiar with the discussions.

Berlin-based SoundCloud is a free service that lets users upload and share audio files around the Web; it likes to describe itself as the “YouTube for audio.” In October 2013, the company announced that it had 250 million users.

If the deal goes forward, and that’s by no means a certainty, it would likely be Twitter’s most expensive acquisition by some margin. Earlier this year, SoundCloud announced a $60 million funding round that valued the company at $700 million. Last fall, as Twitter was preparing to go public, it acquired mobile ad company MoPub in a deal that valued that company above $300 million.

A deal would also be Twitter’s second attempt to take advantage of the fact that some of its users talk about music and share links to songs they like. Last year, Twitter launched a stand-alone Twitter Music app, but the service never took off, and Twitter killed the app in March.

Both companies declined comment.

SoundCloud’s self-reported user base is the same size as Twitter’s, and the two likely have a significant degree of overlap. But like Facebook’s Instagram deal, and Twitter’s MoPub acquisition, a SoundCloud deal would give Twitter a way to expand its reach independent of its core service.

That has been an issue for the company since it went public, and it has posted growth numbers that have disappointed investors, who worry that Twitter may end up with a user base that is significantly smaller than the billion-plus that Facebook has acquired.

During Twitter’s latest earnings call, company executives began arguing that investors should focus on the reach that Twitter’s messages and ads can have even when they don’t appear on the service itself.

And a Twitter deal could appeal to SoundCloud, because it would give the audio company a real shot at selling ads in front of or alongside its music streams.

SoundCloud already offers a paid service for power users, which gives them additional bells and whistles, and last year it announced a move into “native ads.” But it doesn’t have anything like the advertising operation that is set to generate more than $1 billion in revenue for Twitter this year.

A Twitter deal will also likely up the pressure on SoundCloud to reach a deal with the big music labels to distribute their songs. SoundCloud doesn’t have any deals now, which puts it in a gray area similar to YouTube in its early days: Some copyrighted songs are on the service without the owners’ permission, but others are uploaded by artists and labels that value the distribution SoundCloud provides.

That has caused friction for SoundCloud and Twitter in the past. Last year, as Twitter was preparing to launch its Twitter Music app, it had planned on including SoundCloud as one of the services that would provide music within the app. But the company scrapped those plans after music labels complained that SoundCloud didn’t have licenses.

The two are already linked in several ways. Twitter’s users frequently pass along SoundCloud links in their messages; earlier this year, a survey found that Twitter users share SoundCloud links more than any other music service, including Spotify.

Union Square Ventures, which was one of Twitter’s earliest investors and still owns a stake in the company, has backed SoundCloud; Twitter board member Peter Chernin is also an investor in SoundCloud, via his Chernin Group.

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