Dive Brief:

• SoundCloud, the music streaming service that once had 175 million monthly listeners, fired 40% of its employees and closed its offices in San Francisco and London on Thursday. The 173 job cuts came as the company seeks a path to profitability, co-founder Alexander Ljung said in a blog post.
• The cuts may have been a defensive move, according to the New York Times, which reported that people in the music industry are speculating that SoundCloud may be for sale at a valuation that's much less than the $1 billion it previously sought.
• The company faced pressure from record labels to sign licensing deals and develop a base of paid subscriptions like competitors Spotify, Pandora and Apple Music. SoundCloud launched its mobile app, SoundCloud Go, as a paid service last year.

Dive Insight:

The music streaming business is brutally competitive and requires deep pockets to withstand the costs of acquiring content, developing software and building a subscriber base. SoundCloud's top competitor Spotify's net losses doubled from $258 million in 2016 to $581 million in 2017, according to financial statements cited by Billboard. Other competitors like Amazon and Apple have additional profitable businesses and can support streaming music services to supplement their other core businesses.

Last month, Apple Music lowered its subscription price to $8.25 a month, making it less expensive than the standard $9.99 charged by Spotify and Pandora. "Apple can afford to do this," Mike Goodman, director of digital media strategies at Strategy Analytics, told the Mercury News. "They are not dependent on needing music to turn a profit. It's focused on perpetuating the Apple ecosystem." SoundCloud, however, does not have that support, as it's the only service or product offered by the company.

In similar financial troubles, Pandora founder Tim Westergren left the company last month following struggles to turn a profit while paying out required royalties to artists. Spotify and Alphabet were reported to be possible suitors for SoundCloud, but abandoned the effort early on. In March, SoundCloud said it had received a $70 million line of credit, but its long-term profitability remains unclear. The music platform still has a strong investor base, with significant support from Universal, Sony and Warner Music.

SoundCloud has been driving a lot of effort to expand its revenue-generating services, including subscription tiers for premium content for users; special tiers for content creators; and advertising. However, it's still unclear how many users it has gained in these areas, or how well the ad play is working as the company hasn't disclosed numbers since its 2008 launch.