Music streaming service Spotify is in talks to acquire fellow music streaming service Soundcloud as the battle for leading the future of digital music commences.

Spotify has recently raised £695m in debt financing, allowing a lot of money and resources to be used for a potential expansion and it has its eyes on Soundcloud. Value at roughly £600m, Berlin- based Soundcloud has a 200m member community, a huge catalogue of music and 135m tracks from genres including hip hop, EDM and DJ remixes,  however they have never turned a profit. In 2014 it operated a loss of £30 million and since then it has not released user numbers or business figures.

Last month Spotify hit 40m paying subscribers a week after Apple music announced its service had expanded to 17m subscribers.

While Spotify attracts a more mainstream audience (Justin Bieber, Drake, The Weeknd and Kanye Wests count among the platform’s most-played artists), SoundCloud has established a more diverse ethos.

According to people close to Spotify management, they had talks with SoundCloud last year about a possible acquisition but hesitated at its asking price. After its £60m Twitter investment, Spotify considered the deal again, although the deal fell apart after a brief round of negotiations, the people said.

Spotify spends around 80 per cent of its revenue on licensing fees however SoundCloud’s focus on original content and new artists could bring overall costs down for the company.

The benefit for Soundcloud isn’t just financial as the deal could potentially help with the site’s numerous licensing issues. Unlicensed music is frequently taken down from the site, and its copyright detection systems are less than perfect, with musicians frequently complaining about original mixes being taken down because of mistaken copyright claims.

With Soundcloud’s new subscription service the two are becoming more similar than they have ever been before so Spotifiys potential buy would combine the talent and grow the digital music business.

It is currently unclear how much Spotify would pay for the company as they warned that the discussions could still collapse  

Neither company has yet commented on the news.