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Why Twitter Invested in SoundCloud

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Jun. 24 2016, Updated 1:04 p.m. ET

Twitter actively working to drive user engagement

Twitter (TWTR) is actively working on making its platform significantly more engaging to its users. This initiative is intended to counter the declining popularity of its platform, which is leading advertisers to flock to rivals like Facebook (FB) and Google’s (GOOG) YouTube.

In order to drive user growth and engagement level, Twitter has invested in SoundCloud, an online music streaming service. Citing individuals familiar with the deal, Recode reported, “Twitter has invested around $70 million in the music service, as part of a round that should end up in the $100 million-range.” Both companies confirmed the investment, however, the financial terms of the deal were not disclosed.

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SoundCloud could help Twitter to better integrate music

This is not the first time that Twitter has tried to integrate music on its platform. Earlier, the company launched its own music app but closed the service shortly thereafter, as it failed to gain traction. Twitter also tried to acquire SoundCloud a few years ago, although it backed out of the attempt. The recent announcement could help Twitter to better integrate music on its platform and drive user growth.

SoundCloud has recently signed licensing deals with major players in the music space, including Sony, Universal, and Warner Music Group. The company also launched SoundCloud Go, its $9.99 per month subscription service in the US (SPY), which competes with Apple Music (AAPL) and Spotify. As the chart above shows, Apple Music and Spotify have 15 million and 30 million paid subscribers, respectively.

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