Some rough news today for SoundCloud, the audio streaming site whose content is largely based around uploads from its 175 million users in 190 countries. The company has announced that it is laying off 173 employees, and it is closing offices in San Francisco and London. The moves are being described as cost cutting measures “to ensure our path to long-term, independent success,” in the words of co-founder and CEO Alex Ljung, who revealed the news in a blog post. The startup, which was founded in Berlin in 2008, will continue to have offices in Berlin and New York.
The news comes after a rough period for SoundCloud. After entering into talks but never closing two potential acquisitions, first to Twitter and then to Spotify, Soundcloud arranged a $70 million credit line in March of this year to help the business continue to operate as it worked on closing a round of funding believed to be in the region of $100 million.
Today’s news could mean one of two things: either the funding never closed and/or investors who are considering it have laid down some cost-cutting conditions in order to see it go through. The fact that there is no funding round being announced today makes me guess that the round has yet to close.
SoundCloud — which was co-founded by Ljung and Eric Wahlforss — to date has raised around $193 million. Its current investors include Universal, Sony and Warner Music — who all took stakes as part of the company’s efforts to move away from a strong issue around licensing for tracks uploaded to its platform.
Other backers include as a number of VCs and others including GGV, Index, IVP, KPCB, Twitter (who invested about two years after the acquisition deal fell through) and Union Square Ventures.
At the time of the credit line, the company told us in a statement that it was expecting 2.5-times year-on-year growth at the company:
“We are pleased to have secured a flexible $70 million credit line from Ares Capital, Kreos Capital and Davidson Technology that is ideally structured for a company with our strong credit rating and in our stage of growth,” a spokesperson for the company said in a statement. “This new funding will enable SoundCloud to strategically grow our technology and personnel resources to fuel our expected 2.5 times year-over-year growth in 2017, while building a financially sustainable platform on which our connected community of creators, listeners and curators can thrive for years to come.”
In today’s blog post by Ljung, he noted that revenue has “more than doubled” (notably leaving out the 2.5x figure). But in any case, those revenues are not massive: in the company’s last UK filings, a condition of operating in the UK, it noted that 2015 revenues were at €21.1 million, or $24 million, implying fiscal year 2016 revenues of about €50 million.
But at the same time, SoundCloud’s losses have continued to grow: 2015’s net loss was just over €51 million.
In addition to funding and financial issues, there are questions about what direction the actual business is taking.
SoundCloud has been making a lot of efforts to build out revenue-generating services, currently focused mainly around subscription tiers for premium content for users; special tiers for content creators; and advertising. However, it’s not at all clear how many users it has picked up in these areas, or how well the ad play is working as the company has never disclosed numbers.
It has also faced a lot of changes in its personnel. Most recently, the company parted ways with its chief content officer, Stephen Bryan. It’s chief revenue officer, Alison Moore, who joined last year, appears to still be with the company.
The bigger picture has been a somewhat grim one for the digital music industry: although digital has overtaken recorded, physical music as the primary way that people “purchase” and consume music today, the economics of the business have never added up. Pandora and Spotify, the two biggest streaming companies today, are both operating at a loss. Pandora recently picked up a new investor, Sirius XM, but it appeared to come at its own cost: the company also sold off its Ticketfly ticketing business, parted ways with its iconic CEO and closed its small international operations.
Spotify, meanwhile, is still inching its way to an IPO, but you can see why the company is taking it slow: given the number of casualties and challenges in the digital music industry, I’m guessing the company wants to build up as large of a business as it can, both in terms of users and revenue-generating services, as it can before debuting in the unforgivable public markets.
I wouldn’t write off SoundCloud just yet, though. The company has a massive user base and, for now, at a time when video continues to be what everyone focuses on, occupies a unique place in the market as a platform for creators to share their audio work. Whether that gets superceded by others with bigger pockets, is one big question; as is the other of whether SoundCloud finally figures out a winning formula from making money out of this still-popular format.
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