In an effort to expand the services it provides artists beyond streaming their music for royalty payments, Spotify acquired SoundBetter, which is an online marketplace where musicians, producers and artists can connect on various projects. It’s also attracts people seeking music tracks they can distribute to others who may be interested in licensing them.

SoundBetter’s registered users number approximately 180,000 and the platform has paid out over $19 million to various producers and musicians to date at a monthly rate of about $1 million, making money on commissions earned on each deal made through the website.

How much Spotify paid for SoundBetter has not been disclosed, which means it’s unlikely to be very significant for the $24 billion streaming behemoth with 232 million users, of which 108 million are Premium subscribers. SoundBetter had been funded by investors including Eric Ries, Foundry Group, Verizon Ventures and 500 Startups back when it was AOL’s Nautilus. Its most recent funding was in 2015 from Drummond Road and several others in the form of convertible debt.

According to a company spokesperson, the acquisition will not cause SoundBetter to be shut down. Business will continue as usual while Spotify work together to integrate SoundBetter’s range of services into Spotify for Artists, which now provides musicians and others with the analytics they need on Spotify tracks and a variety of other services, to help them better market themselves.

CEO Shachar and CTO Itamar Yunger founded SoundBetter back in 2012 to provide two primary services. The business is primarily an online marketplace set up as a place where musicians can find singers, producers, sound engineers, as well as other music and audio pros to enhance their tracks (much like Behance or Fiverr, but just for music). In June 2019, the company launched Tracks, a new marketplace where people can license their finished music, in direct competition with Soundcloud and Epidemic Sound, which valued its company at $370 million to raise money earlier this year).

What’s interesting is that Spotify had previously tried launching a direct music distribution website by investing in DistroKid, which distributes music through cross-platform uploads. But none of that worked out so the effort ended a few months ago in July. Looking back, that decision makes sense in order to set the stage for SoundBetter.

The acquisition of SoundBetter suggests that Spotify will continue to invest in an array of services that artists and others in the industry can benefit from behind-the-scenes. There are a number of reasons why this should occur.

First, the financial predicament that most musicians find themselves in. They have complained for years about how little money they make from Spotify. By having access to additional services they can hopefully make more money, or become more efficient in creating music, which will help that relationship.

Second, it should improve the bottom line for Spotify’s streaming business. The company claims it’s paid out over $14.3 billion (€13 billion) to rights holders since they first launched (they pay money out for each stream). They are also continually renegotiating label deals, but Spotify is still losing money from its business model, although the loss has been shrinking.

Third, they need to diversify their services to remove some pressure from their streaming business. Aside from their profitability problem, the company was criticized last quarter for not making it’s own targets for growing subscriptions, which caused its share price to drop.

Spotify VP Product Creator, Beckwith Kloss said, “As we expand our tools and services for creators, we want to provide them with the needed resources to thrive and we can do this with SoundBetter.” He added, “It excites us that creators can make money through SoundBetter, while benefiting from its network of industry professionals – from songwriters to instrumentalists to producers, as they enhance their tracks.”

Over the years Spotify has amassed a growing number of assets that expand our music streaming business. A lot of our attention recently has been on spoken word content. Through SoundTrap, which we acquired in 2017, we’ve been providing cloud-based studio services. We also acquired Anchor last year, which is a podcast platform.

However, music is still the heartbeat of the platform, as paid streaming continues to grow. Which means Spotify must continue to enhance that aspect of the business in order to compete with Apple and other companies offering services to artists that circumvent traditional labels.

Prior to being acquired, SoundBetter had already been offering services to a fair share of big names, which included a Beyonce songwriter, George Michael mastering engineer, Herbie Hancock engineer, Hoobstank drummer, Jamiroquai guitarist, Joe Cocker bass player, Kanye West producer, Morrissey guitarist, The Killers’ mixing engineer, and other professionals.

Being acquired by Spotify will give SoundBetter so much more reach: Spotify for Artists now has 400,000 registered users, but by being a digital music distribution cornerstone, Spotify hopes that by offering an expanding mix of the right services, including those that SoundBetter offers, they will attract even more registered users.

Shachar Gilad, Co-Founder and CEO of SoundBetter said, “Our platform provides the most comprehensive worldwide marketplace for audio and music production pros for hire with an industry community reaching 14,000 cities in 176 different countries across the world.” He added, “We are incredibly excited that we can now take advantage of Spotify’s global scale, vision and resources to expand our reach and provide more money making opportunities for artists.”