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The Raine Group In Talks to Take Stake in SoundCloud

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Guest Post By: by Dawn Chmielewski

The Raine Group is exploring an investment in SoundCloud that could help the struggling music service survive on its own, sources tell Billboard.

The boutique merchant bank, which has taken stakes in millennial news outlet Vice Media, Brian Grazer’s and Ron Howard’s production company Imagine Entertainment, and video news network Cheddar, among others, has been in talks with SoundCloud for weeks, but an agreement has not been finalized, these sources say. In exchange for its investment, Raine is expected to provide SoundCloud with expertise that could help one of the world’s most popular music services achieve profitability.

Raine’s team includes the founder of the music law firm Davis Shapiro, Fred Davis, who joined Raine in 2014 and has worked with an array of digital music companies including Spotify, Shazam, Last.FM and Rhapsody.

SoundCloud recently laid off about 40 percent of its workforce and consolidated operations into an office in Berlin. Chief Executive Alex Ljung described the cuts as part of a long-term plan to help the service remain independent, a goal that Raine’s investment would support.

How SoundCloud Ended Up on the Brink of Disaster

SoundCloud has been the focus of takeover speculation in recent months, with Deezer among those exploring a possible acquisition, sources told Billboard. The service, which reaches 175 million users, has attracted interest because of the unique space it has carved out in the digital music market as a platform where artists can post raw tracks and invite collaboration.

“The blurring of the line between audience and creator is the fuel in the engine of Gen Z experiences such as Snapchat and Instagram,” wrote veteran media analyst Mark Mulligan. “Other than lipsyncing apps like Musical.ly and Dubsmash, SoundCloud and YouTube are pretty much all the music business has in this space.”

SoundCloud started selling advertising and struck its first major-label licensing deal with the Warner Music Group in 2014, signing deals with Universal Music Group and Sony Music Entertainment two years later as it introduced a monthly subscription service in 2016. Still, the company has been losing money — about $53 million in 2015.

The German music company began searching for potential partners last year, when it retained the investment firm Doughty Hanson & Co. to explore options that could lead to a sale. At the time, it struggled to find an acquiring party willing to value the company at $1 billion.

One high-profile suitor, Spotify, walked away from a deal last year, amid fears that the merger would slow the Swedish music giant’s plans for an initial public stock offering, sources tell Billboard.

Raine and SoundCloud declined comment.