Music streaming service Spotify AB is in advanced talks to acquire audio distribution platform provider Soundcloud Ltd., according to a report published Wednesday.

The Financial Times notes that their sources are unclear on how much Spotify would pay for Soundcloud, and that the discussions could still collapse.

Soundcloud raised $100 million Series E in June on a valuation of $700 million, meaning that the company, along with its investors, would be looking for a premium on top of that valuation, perhaps as high as $1 billion.

The acquisition of Soundcloud would add around 175 million unique visitors on top of the over 100 million free and paying users Spotify currently has. It hit 100 million users in June and 40 million paying subscribers earlier this month. Competitor Apple Music is believed to have 17 million paying subscribers.

Soundcloud though is a different type of service, and while it has been offering a paid subscription service since March this year, the platform itself is different to others in that it allows users to upload their own music and content (in particular podcasts) with some referring to it as the “YouTube of music.”

The ability for users to upload their own music means that Soundcloud currently offers over 125 million tracks, many of them from independent and upcoming artists that are not available on other services.

Consolidation

Spotify buying Soundcloud would not only combine the forces of two of Europe’s largest tech startups, it would also strengthen Spotify’s hand at a time it continues to face increasing competition and pressure from music labels to drop its free, ad-supported streaming service.

Primarily because it deals with independent and upcoming artists, Soundcloud has not had anywhere nearly the same issues Spotify has when it comes to offering ad-supported music. Spotify introduced advertising last year but has yet to make a profit.

“The big question for the streaming market is whether you can be a standalone company in a category when you have companies like Amazon and Apple looking at music as a loss leader, just to sell more iPhones or Echo speakers,” Skype and Rdio C0founder Niklas Zennstrom told FT. That’s a key point in that the only way you can compete in a space like this is by creating strength in numbers. Spotify and Soundcloud combined could do just that.

Going into a potential acquisition, Soundcloud had raised around $200 million from investors including Twitter, Doughty Hanson Technology Ventures, Eniac Ventures, GGV Capital, Index Ventures, Institutional Venture Partners, Kleiner Perkins Caufield & Byers, Tennenbaum Capital Partners, The Chernin Group and Union Square Ventures.

Image credit: Soundcloud