This probably isn’t what Alexander Ljung had in mind for his company’s 10-year anniversary. But when Ljung, the company’s CEO, and cofounder Eric Walforss launched SoundCloud in 2007, the world was a very different place. The traditional music industry was only in mid-collapse, the iPhone had just been born, and streaming music was still an academic pipe dream. Venture capital flowed freely—often in obscene gobs—to the best ideas in tech. And Ljung and Walforrs’s idea—a user-generated social audio platform for musicians and DJs—was undeniably good. Its popularity (not to mention its cultural cache) exploded accordingly.
Fast-forward a decade and it’s hard not to wince. On Thursday afternoon, as news of massive layoffs ricocheted around the world, SoundCloud employees in London mourned together at a nearby pub. In San Francisco, workers reportedly found out the news online before an official announcement could be made: Both the London and San Francisco offices of SoundCloud will be shuttered, leaving only its Berlin and New York offices. Altogether, the company laid off a staggering 40% of its staff, with 173 employees let go across multiple departments.
The dramatic downsizing comes after an especially challenging two years for SoundCloud. Since launching in 2007, the company has become a major force in the online music ecosystem—it’s often the default player for music publications hyping new songs and high-profile artists like Chance the Rapper and Kanye West have long maintained an active presence on the platform (although neither artist has posted anything in a few months). By mid-2015, SoundCloud hit a total of 4.9 billion streams for the first half of that year (an 88% percent increase over the same period in 2014). The company hasn’t shared streaming volume data since then, but last year it claimed to have 175 million monthly listeners. By comparison, Spotify boasts 140 million active listeners.
Despite its popularity and street cred among creatives, SoundCloud has struggled to turn itself into an actual business. Its monetization efforts, which take the form of advertising, premium tools for artists and, most recently, a paid subscription service, were all slow to come to fruition. And by the time its SoundCloud Go subscription tier launched early last year, the music subscription market—led by Spotify and Apple—was already exploding and growing more competitive by the quarter.
SoundCloud has apparently struggled to attract subscribers (the company doesn’t share numbers), judging from how quickly it started offering promotional discounts on its $10-per-month tier—and then proceeded to announce a $5-per-month medium tier with fewer features.
The streaming music business operates on razor-thin margins and is extremely challenging, but SoundCloud finds itself in a particularly tricky position. In recent years, the money-losing company reportedly held acquisition talks with Twitter and Spotify, both of which fell through. In the meantime, its financial struggles have continued. Earlier this year, it posted a $52 million loss for the year 2015, but vowed to turn things around with revenue from its new subscription tiers. In January, Ljung projected 137% growth in revenue this year.
Yesterday, he wrote in a blog post that the company has more than doubled its revenue in the last year. The company raised a $70 million debt round in in March to stay afloat while it sought a reported $100 million in additional investment. It has yet to secure that investment and is once again rumored to be looking for a buyer. This time, French music service Deezer is rumored to be interested.
In addition to the London and San Francisco layoffs, SoundCloud also reportedly made deep cuts at its New York office. According to former employee Patrick Ellis on Twitter, “all of New York engineering” was let go, along with “the entire payments and subscription team.” Further details about which departments were hit the hardest are still emerging. A company spokesman confirmed that the cuts affect “all levels and teams,” but wouldn’t clarify further. A multi-city 10-year anniversary staff party that SoundCloud was supposed to host this week has been abruptly canceled, including parties scheduled for today in Berlin and London, multiple sources tell Fast Company.
Literally the entire payments and subscriptions team, ads-eng, monetization engineering, everybody
— patrick ellis (@pje_txt) July 6, 2017
So what does this consolidation mean for SoundCloud? In the short term, it obviously makes it even harder for the company to operate, build out its product, and compete. And even though Ljung’s blog post frames the cuts as a way to accelerate the company’s “path to profitability and [stay] in control of SoundCloud’s independent future,” it’s hard to imagine that an acquisition is not on the horizon.
As drastic as the cost savings of laying off 173 people may be, streaming music is still an incredibly difficult business for almost any company. And if Ellis’s claims about departures on the monetization side are true, it’s difficult to envision any dramatic growth in subscription revenue for SoundCloud. Even if subscriptions did grow, profits are still difficult to achieve thanks to the enormous cost of licensing music from all the major labels. Not even more established players like Spotify or Pandora have managed to turn an enduring profit.
The most likely scenario, as many in the industry have long assumed, still seems to be an acquisition. Indeed, deep cuts—especially on the monetization side—would make a lot more sense if a more established organization was poised to take over the company. Still, this type of consolidation tends to come after an acquisition, suggesting that something more desperate and urgent may be at play. The downsizing may have been necessary to secure an investment, court a buyer, or simply stave off financial catastrophe. Either way, it was abrupt.
Whatever’s on the horizon for SoundCloud, don’t expect the news cycle to stay quiet for long. The clock, perhaps now more than ever, is ticking.