After a stormy summer, Soundcloud’s future seems to be secure for now. But who knows what lies ahead for the music streaming site?
Well, it’s been a strange summer… grey skies, storms, flooding. And it’s been an equally turbulent time for Soundcloud. After laying off 40 percent of its staff and closing its London and San Francisco offices in July, the Berlin-and New York-based music streaming site has now been saved from the brink of going under, thanks to a new round of funding to the tune of around €143.6 million in mid-August. But whether this is enough to turn the tide of its fortunes remains to be seen.
Soundcloud has long been the darling of Berlin’s start-up scene, often cited as proof that a start-up founded here can make it internationally. But despite the site’s popularity and its high-pro le alumni – like Chance the Rapper and Lorde – it’s not had an easy ride.
Launched in 2008 by Swedes Alex Ljung and Eric Wahlforss, Soundcloud challenged the then-dominance of Myspace as a place for undiscovered artists to share their music. In April 2009, it received €2.5 million in Series A funding, the first of various investments based on its massive potential market. But herein lies one of Soundcloud’s fundamental conundrums – how to serve its passionate community of users while also satisfying investors through audience growth and monetisation. In accepting so much funding, the platform may just have sealed its fate.
In the meantime, Spotify (partly owned by music labels) has grown to the ubiquitous streaming behemoth it is today. After various copyright claims, Soundcloud was gradually able to negotiate deals with major labels, and in 2014 launched advertising on its streams to allow select artists and labels to collect royalties. In 2016 it launched Soundcloud Go, a subscription service for listeners, in an attempt to further gain revenue. But the company’s monetary headaches continued. Various talks of acquisition deals with Twitter, and indeed with Spotify, fell apart. In March this year it raised almost €60 million in debt funding, but still rumours persisted that the service wouldn’t make it till the end of the year.
In July these rumours looked to be true. A few days after Soundcloud’s 173 layoffs and two office closures were made public, a tired-looking Alex Ljung gave an honest yet evasive interview at Berlin’s Tech Open Air festival, where he battled acquisition rumours: “We’re one of the largest music platforms in the world. Even just yesterday, we were in the top 20 of all the apps downloaded in the App Store. The platform is still growing. The number of tracks is still growing. So everything in terms of the business is doing well.”
But of course not everything was doing well. Soundcloud turned over €21.1 million in revenue in 2015 – a 21.6 percent increase on 2014. But net losses increased by 30.9 percent to €51.2 million. With the redundancies and office closures achieving a total savings of €16.9 million, the gap between revenue and profitability remained obvious. According to Soundcloud’s figures (not updated in three years), the service has 175 million regular users – no number of paid subscribers has ever been given.
“We’re taking more control of our own future, creating a path to profitability and ensuring our independence,” insisted Ljung in July. Meanwhile, though, reports described the company as a “shitshow” with inconsistent product direction and dwindling cash, and Ljung partying around the world like a rock star. Employees were “advised not to talk to the press”, according to one Berlin Soundcloud worker who refused to speak even under condition of anonymity.
Now, however, the company has just been given another lifeline courtesy of New York – and Singapore-based investors – indeed, Soundcloud’s largest financing round to date. And while Ljung wrote a blog post triumphantly announcing the news, he himself has stepped down as CEO. He’ll be replaced by former Vimeo CEO Kerry Trainor – perhaps a good pick given that he helped Vimeo fend off bigger rivals like Youtube.
While Soundcloud lives to fight another day, there’s still plenty of work to be done to find a way to make its subscriptions more appealing and still keep both Soundcloud’s users and investors happy. It could still be a rough ride ahead.