In January, SoundCloud executives were bullish about the company’s future. “What we’re trying to pull together is the next great, big iconic music company of the future,” CEO Michael Weissman told Billboard. “And we have all the pieces.”
Seven months later, SoundCloud announced that it was cutting 20% of its workforce. (That number was 359 employees as of December 2020, the last year for which a public filing is available.) In an email to employees, Weissman said the layoffs were needed due to “the challenging economic climate and financial market headwinds”; in a meeting the next day, he added that “inflation and geo-instability” stemming from the first half of the year “acutely affects our advertising business.” Still, Weissman’s email to staff underscored that SoundCloud would remain “laser focused on our mission to lead what is next in music.”
Comments from inside a pair of SoundCloud’s recent all-hands meetings — one open to every employee, one for those on the creator team — however, indicate that some staffers are trying to figure out how to achieve the company’s lofty goals with a now-reduced workforce. Offering unvarnished opinions behind closed doors, employees and even a senior executive worried about several key components of SoundCloud, saying that its creator business lacked robust growth, that competing distributors offer more artist-friendly rates, and that the company’s “product is not working super great,” among other things.
These comments speak to the challenges faced by a growing number of music companies that are hoping to service independent and DIY artists — offering marketing and distribution, for example — and harness their power amid stiff competition, especially at a time when the economic climate is uncertain.
In an interview, Eliah Seton, SoundCloud’s president, said that “every day the list of companies that are going through cost reductions [layoffs] grows.” He added that, with “the last several months of driving transformation through the organization, and then the cost reductions, we understand that’s a lot for people to live through. Change can be difficult.”
But Seton emphasized that “as we’re driving this change in the organization, we want to be clear that we’re doing this from a position of strength.” “We’re [experiencing] double digit growth right now,” he said.
Still, Tracy Chan, who recently joined SoundCloud as a senior vice president, was blunt about the challenges the company will face in the coming months during the staff meeting. “When these kind of mass events [layoffs] happen, quite frankly things are gonna break because there are people who had specialized knowledge [who were fired],” Chan said, according to employee recordings of all-hands meetings that were reviewed and verified by Billboard.
“In talking with a lot of folks, there are certain kinds of processes or internal products that we wish worked differently,” Chan added minutes later. “There’s gonna be a lot of stuff where we have to figure out, what do we do now?”
One of Chan’s chief concerns with SoundCloud’s current outlook, according to his comments from one meeting, is that the creator business has plateaued. A source familiar with the company’s operations says it initially hoped to increase its creator subscription total from under 600,000 to 1 million by the end of 2022. But Chan told his colleagues in August that “one thing that’s important to call out is [that] if you track the creator numbers over time, we’re relatively flat. We’re not a growing business.”
“There are tons of articles [about] ‘the independent sector is growing, the DIY sector is growing,’” Chan continued. “And we’re not growing as fast. This is going to necessitate us taking a different strategy.” (Overall, SoundCloud is “a growing business,” the SoundCloud spokesperson said.)
Creators who do choose to work with SoundCloud can currently sign up for its distribution service, Repost, for $30 a year; those acts keep 80% of the royalties they make from other streaming services, while Repost keeps 20%. One employee wondered aloud whether this model was the most enticing for rising artists in a crowded distribution landscape where rival companies offer lower rates: “I’m thinking of the other distributors, our competition, they pay 100% of royalties, and we’re taking a 20% cut… for the regular Joe uploading music that they want to monetize, what’s the value they’re getting as opposed to another distributor giving them 100%?”
“There is the reality of competition and what others are doing,” Chan acknowledged. “Quite frankly there are other players where you get 100% [of their royalties] or the monthly or annual fee is so low or free that it just makes sense to go with someone else. What is going to be different about us?”
While Chan argued in the all-hands that no competitors have access to SoundCloud’s “170 million-plus fans,” he expressed less enthusiasm about the company’s product: “Despite the product not working super great or being super easy, [the hardcore fans] are still coming in, they’re still finding the artists that they love.” (A second executive made a reference to “solv[ing] the tech stack, platform-specific issues we have” as well.) A SoundCloud spokesperson acknowledged that “the core product hasn’t changed much in the last few years” in a statement to Billboard but said there are plans to update it.
Another recent addition to SoundCloud’s business has been “the roster,” a group of artists that the company has signed deals with, like a more traditional record company. Members of the initial cohort of eight acts included Lil Pump and Tekno. A source at SoundCloud says the company hoped the roster would grow to 20 artists in 2022 and generate $5 million this year. But in the same meeting with Chan, a member of the A&R team worried that SoundCloud isn’t currently able to provide these high-priority acts with the accounting information they need.
Artists on the roster “have lawyers, they have seasoned managers,” he pointed out. But “some of the financial data that we’re providing to them isn’t necessarily — doesn’t suffice for them to make business decisions.”
“Plus one to all the things,” Chan answered.
Despite SoundCloud’s layoff announcement, cuts are not yet complete — no employees in the Berlin office, one of its three main locations, have been fired yet, because the company still needs to negotiate with the local works council. (“In the interest of our employees, we hope to come to a fast resolution,” a SoundCloud spokesperson told Billboard in a statement.) This lag is adding to what appears to be an atmosphere of unease within SoundCloud: Anonymous questions submitted during a third all-hands meeting referenced frustration with senior leadership.
In response to a detailed list of questions about the concerns expressed during the all-hands meetings, a SoundCloud spokesperson stressed that the company is still growing. “Certain parts of our business saw big increases during Covid, such as subscriptions, largely because artists were home making music,” the spokesperson said. “As we’re seeing in the creator business overall, some of those trends have since normalized, but we are higher than pre-Covid levels.” SoundCloud hoped to bring in $82 million in ad revenue in 2022, according to one source with knowledge of its operations; the company spokesperson said that the economy’s impact on that advertising revenue target “is largely in line with the [negative] overall trends across the industry.”
SoundCloud’s spokesperson went on to note that the company plans to “rethink and rebuild our product suite” — including both distribution services and financial tools — and aims to “improve and innovate on [the core product] under the leadership of newly installed product and tech veterans.”
During the staff meeting, Chan returned more than once to the “special” qualities of SoundCloud, even as he discussed some of the company’s current obstacles. Seton struck a similar tone during his interview. “We are the one destination in music that has direct access to both fans and artists at scale,” he said. Later he added, “we feel this is SoundCloud’s moment.”
