Why Is SoundCloud Laying Off Staff?

As the legendary indie platform makes its first layoffs since 2017, what’s the driving force behind the decision?

CEO Michael Weissman emailed SoundCloud employees on the 3rd of August to announce job cuts to around 20% of the company’s workforce. What is the reason for this decision that will affect around 80 of its ~400 employees? 

Are these layoffs down to a contracting economy? Other tech giants have been moderating their workforces – TikTok, Netflix and others are shedding staff, while Apple and Spotify are applying the brakes to hiring. Weissman referred to ‘challenging economic climate and financial market headwinds’ in a statement on LinkedIn. But while market forces will be a factor, they are not the whole story.

In a statement to Attack Magazine, SoundCloud pointed to a ‘significant company transformation’ as a reason for the shake up – and reinforced a ‘commitment to executing our mission to lead what’s next in music’. This lede was missing from Weissman’s statement, but it could be key to understanding why the cuts were made – or at least what they were made for.

Early Days

SoundCloud’s name was built off its user base, and the cultural cachet it created. Since 2007 it’s been a home for boundary-pushing music, constantly informing the zeitgeist.

However, the platform struggled with monetisation and was plagued by copyright claims from the “Big Three” major labels. In 2015, Sony Music pulled all their tracks from the site, justifying that there wasn’t enough earning potential. By 2017, the site was almost out of money, losing $51 million+ annually. It courted acquisitions from Google, Spotify, and Twitter. Valuations ranged from 500 to a billion dollars, but the deals fell through. 

Meanwhile, SoundCloud was facing heat from users and competitors. The core user base of artists and DJs were battling a bloated GUI and frivolous copyright strikes; rival DSPs like Spotify were outperforming it for everyday listening. 

At last, the platform secured a $170 million investment from institutional investors Raine and Temasek. By now the company’s valuation had halved, and there were conditions attached to the deal.

Closing the Gap

Founders and “creative entrepreneurs” Alex Ljung and Eric Wahlforss stepped down from their executive positions, staying on as Chairman and CPO respectively. The new investors appointed experienced corporate operators Kerry Trainor and Michael Weissman to replace them. 

Preceding this boardroom shakeup, SoundCloud dramatically cut 40% of its staff, closing their London and San Francisco offices. These changes were a shock internally. A swath of brand new hires were immediately made redundant – some barely off the plane to their new homes in Berlin. It was a clear signal that changes were underway to address the operational deficit. 

Campaigns emerged to get the terminated employees back on the feet. A spreadsheet titled ‘Hire an ex-SoundClouder’ was shared widely, with stung employees shopping their credentials to Silicon crevasses around the globe. WeTransfer didn’t miss the chance to get a shot across the bow, with a $10,000 dollar offer for all ex-SoundCloud employees to kickstart new projects. 

Under the guidance of Trainor and Weissman, SoundCloud began striding towards profitability. It began offering paid artist distribution, and launched the SoundCloud Go and Go+ premium listener plans. It seems like a line had been drawn in the sand in 2017 – from here on in we’re getting our house in order, and making the business sustainable.

From 2017 to 2022, the yearly losses incurred by SoundCloud have steadily decreased. In their last tax filing, their revenue was $219.6 million – up 31% from the year before. Industry analyst Musically remarked: ‘The platform’s story may now be shifting from “a cautionary tale about the gulf between popularity and profit” to “case study in turning a business around.”’.

If everything is looking so rosy, why are we now seeing a flashback to 2017 with one-fifth of SoundCloud’s workforce getting their P45s? The answer may lie with a new strategy ushered in by Michael Weissman. 

A New Era 

Weissman became CEO in 2021. His vision is to build ‘what a music entertainment company looks like in the future’. But what does this mean? And what steps will he take to get there?

The goal is to move SoundCloud from a “stepping stone” platform, where artists simply start their careers, to a destination that takes creators and listeners every step of the way. That’s from busker to stadium headliner.  Ed Sheeran if you will.

In the last six months, SoundCloud has announced a slew of developments. Artist management, new income streams, relaunching Repost – the focus is on the creators that made their platform. 

If all the artists that had ‘graduated’ from SoundCloud over the years (along with their profits) had stayed inside the ecosystem perhaps the situation would be starkly different. Evidently Weissman wishes to prevent any more “so long, and thanks for all the fish” scenarios from the next generation of stars.

A crucial piece of the puzzle is an acquisition announced just three months ago. Musiio has a proprietary AI technology that “listens” to music, automatically tagging and sorting it based on factors such as feel, genre – even quality. Spotify’s in-house AI dug out an obscure Pavement B-side and made it the band’s biggest hit on the platform. What that capability could mean for SoundCloud’s “diamonds in the rough” catalogue is staggering. 

SoundCloud recently called itself ‘the largest resource for A&R in the world’. What do you get if you build a system designed to retain artists within a large and accessible platform, and then use AI to supercharge the A&R process, automatically placing upcoming hits in front of listeners? That might just define Weissman’s dream ‘what a music entertainment company looks like in the future’ – it certainly speaks to the ‘mission to lead what’s next in music’ described in recent statements to the press.

So Why the Redundancies?

A glaring difference between this round of layoffs compared to those in 2017 is how few ripples this one is making. Sure, it sits amidst a fair bit of industry upheaval, but nonetheless, it seems more rehearsed. No one would appear to have been blindsided by this, which indicates that SoundCloud has been gearing up to shed employees that are not mission-critical.

Musiio’s entire staff have joined the SoundCloud team. Its founders have been appointed with Vice President roles in the departments of Music Intelligence, and AI and Machine Learning. The purchase of this company, and the very existence of these departments, reveal the weight SoundCloud is placing on automated labour in search for profit and progress.

Soundcloud remarked in a statement shared with Attack that this latest round of layoffs ‘​​will enable us to continue executing [this] strategy with more focus and dedication’. Weissman’s strategy is to create a secure ecosystem for artists and encourage paying listeners to follow them. But there’s also an imperative to achieve what is unremarkable for corner shops yet impressive for tech giants: profitability. 

For a long time, GROWTH was etched into every chip in Silicon Valley. But now there’s growing pressure on SaaS tech firms to offer profitability instead. The new SoundCloud strategy may have been constructed with this in mind.

Swerving course from growth to profitability without compromising the new strategy, all with a recession looming? It’s a recipe for harsh cuts. A high value on automation within this new strategy makes it even more feasible that these cuts are going to impact human workers. By trimming its workforce, SoundCloud has signalled its focus on creating an automated hitmaking machine, with monetisation coded every step of the way.  

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