On March 27 in Berlin, Eric Wahlforss, cofounder of German music streaming company SoundCloud told an audience of politicos, entrepreneurs, and the media how important the city of London has been to SoundCloud’s success.
SoundCloud wouldn’t have grown into the widely-used music platform it is today without its London office — opened in Soho in 2008 — and London is a “crucial place” for the company to be as a global platform, Wahlforss said.
However, on Thursday this week, SoundCloud announced that it is shutting down its London office as part of a wider company restructure, despite revenues more than doubling in the past year. The company’s San Francisco office is also being shut down, leaving just its headquarters in Berlin and New York. The company’s headcount will go from 420 to around 250.
Touting London’s credentials at the UK trade mission event in March, Wahlforss said: “We raised a seed round here [in Berlin] but very quickly, however, we started going to London on a regular basis.
“London was always the more established and the more professional hub. It was where the capital was and still is to a large extent. And so that was incredibly important to us early on in the history of the company.” Many of the world’s major music labels also have a significant presence in London, including Warner Music Group, Universal Music Group, and Sony Music.
Wahlforss added: “I go there [London] regularly and it’s a crucial place for us to be as a global platform.”
But SoundCloud can no longer afford its team of approximately 20 people at an office on Stephen Street — a part of London that’s considerably more expensive than Berlin. The London office was home to engineers, lawyers, and artist relationship managers.
Hailed as one of Europe’s most promising startups, SoundCloud has around 175 million listeners, who tune in to hear up-and-coming artists as well as big names, but the company remains unprofitable.
SoundCloud CEO Alex Ljung, said in a blog post on Thursday that cutting 40% of SoundCloud’s employees will work to ensure the company’s “path to long-term, independent success.”
“With more focus and a need to think about the long term, comes tough decisions,” he wrote.
“By reducing our costs and continuing our revenue growth, we’re on our path to profitability and in control of SoundCloud’s independent future.”The blog did not state how much SoundCloud expects to save from the restructuring.
SoundCloud employees in London told Business Insider on the day of the cuts that they were surprised by the scale of the redundancies, announced internally by Ljung internally via a conference call.
“It was a sudden announcement,” one employee said. “Nobody saw it coming.”
The person added: “The employees know as much information as what is available in the media. We do not actually know what is going on or what the next steps will be.”
SoundCloud has raised over $US190 million (£154 million) in funding. It was considering a $US1 billion (£820 million) sale, according to a Bloomberg report last July, with Spotify and Twitter rumoured to be among the potential buyers. However, a report from Recode published in March suggested that SoundCloud was considering offers in excess of $US250 million (£200 million).
SoundCloud’s future has been a matter of debate for some time as the company struggles to find a reliable revenue source. SoundCloud started out as a free streaming service in 2007, which helped make it popular among new artists. It introduced advertisements in mid 2015 ahead of the launch of its $US9.99 subscription service, which launched in March 2016 to compete with Spotify, Apple Music, and Amazon Music.
The last official numbers show SoundCloud incurred a €51 million (£45 million) loss in 2015, slightly higher than the €39 million (£35 million) loss it recorded in 2014. The company’s revenues in 2015 were €21. million (£19 million).
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