If the creator economy is booming, why are some of the most prominent creator-economy companies in the music industry’s orbit laying off staff? It’s a question you can expect to be hearing more often, as the excitement around trends in social media and DIY artistry fails to insulate companies serving these sectors from economic headwinds. Or, indeed, hubris.
Yesterday, Patreon laid off 80 staff – around 17% of its workforce – with CEO Jack Conte describing the move as an unavoidable “last resort” in response to what’s happening in the tech industry and the wider economy, as well as overexpansion during the initial impact of the Covid-19 pandemic.
“I’m more confident than ever that the world needs a better economic system for creative people, and Patreon will keep building that system for creators over the decades ahead. However, the pandemic introduced volatility to the broader trend, starting with a rapid acceleration during COVID lockdowns,” wrote Conte in an email to staff, which was also published on Patreon’s blog.
“In response, we built an operating plan to support this outsized growth, but as the world began recovering from the pandemic and enduring a broader economic slowdown, that plan is no longer the right path forward for Patreon.”
The new path involves smaller marketing and creator partnerships teams; reining in recruitment and other ‘internal support functions’; and closing offices in Dublin and Berlin. “Our focus is sharpened, but our mission is unchanged: we will help build a world in which creative people are cherished, respected, and powerful, with tools and infrastructure to help them realize the potential of their imagination,” wrote Conte.
Patreon’s layoffs are not happening in a vacuum. Last month we reported on SoundCloud’s announcement that it was laying off up to 20% of its workforce. It was a move that CEO Michael Weissman described at the time as “necessary to ensure SoundCloud’s long-term success given the challenging economic climate and financial market headwinds”
Speculation about that success continues, with Billboard running a piece yesterday based on leaks from recent all-hands meetings at SoundCloud. Those include the claim that recently-appointed SVP Tracy Chan told staff that “if you track the creator numbers over time, we’re relatively flat. We’re not a growing business… There are tons of articles: ‘the independent sector is growing, the DIY sector is growing’. And we’re not growing as fast.”
What’s the wider wobble for creator economy companies really about? There are undoubtedly huge communities of people making music, making videos and, well, making anything that can be distributed (if digital) or sold (if physical) online.
Growing numbers of them are trying to turn this into their work rather than a hobby, too. Spotify claimed in March that there are now around 200,000 “professionally aspiring” music artists, while smart-links firm Linktree suggested in April that there are around 68 million full-time ‘creators’ across all disciplines.
No wonder so many companies want to sell tools and services to those people, with enthusiastic backing from investors. Patreon was valued at $4bn as recently as April 2021 – albeit at the peak of the “rapid acceleration” of expectations described by Conte this week – when it raised a $155m round.
However, margins in these creator-serving businesses are tough, thanks to the fierce competition and the perception (if not always the reality) of free alternatives. Do enough creators want to pay – and do they want to pay enough – for tools and services that support their businesses?
We can’t help being reminded of a famous blog post from Brenden Mulligan, one of the music/tech startup founders in the earlier days of the digital music shift, in which he suggested that “unless you have created something that’s truly revolutionary, asking this set of customers to pay for a service almost never creates a scalable business”.
In 2015, he was referring to musicians. Seven years on, the challenge for Patreon, SoundCloud and their peers is to prove the principle wrong for artists in 2022 – and for the wider communities that make up the creator economy.