The SoundCloud bankruptcy scare in 2017 shocked the music streaming industry. The music streaming platform was only saved at the last moment by a $170 million investment from an American investment bank and a Singaporean investment firm. Just months earlier, SoundCloud had laid off nearly 40% of its staff and closed two offices. But how did one of the world’s most popular music platforms end up so close to collapse?
The surge in SoundCloud’s popularity
SoundCloud, a Swedish-founded music platform based in Berlin, grew quickly after its start in 2007. The platform had managed to double its user base in just six months in the beginning of 2012. Just when you thought the platform couldn’t grow any quicker, it did. From 2012 to 2015, it went from 15 to 150 million users.
Problems with SoundCloud’s business model
Even though SoundCloud grew so quickly, its business model had serious flaws. For every year SoundCloud grew larger, so did its losses. In fact, SoundCloud lost money every year from its start in 2007 up until 2023.
SoundCloud’s business model struggled to combine copyright enforcement, artist payouts and user-generated content. It often led to problems with record labels who removed their music off the platform. SoundCloud’s monetization system was unclear and inconsistent.
Many artists earned little to no money from the platform, causing creators to leave for competitors. Salva, a producer who worked with Future and Young Thug told the Verge that he has 25 million plays but received zero dollars in return from the platform.
SoundCloud was even close to an acquisition twice but the deal fell through both times. The first time from Twitter in 2014, which ultimately made the conclusion that “the numbers didn’t add up”. Spotify reportedly walked away from acquisition talks in 2016, partly because it wanted to keep its balance sheet clean ahead of its planned IPO.
Why SoundCloud nearly collapsed in 2017
After reporting bigger and bigger losses each year, SoundCloud was near a collapse in 2016. After posting a net loss of $74 million in the fiscal year of 2016, the company had to cut costs. So in the summer of 2017 it was announced that the company laid off 40 % of its staff. A total of 173 employees lost their jobs. Through this, it also closed two offices in San Francisco and London. By this stage, many thought the end of SoundCloud was certain.
In August of 2017, SoundCloud was to hold a funding round. Axios’ Dan Primack said, in his daily email the day before the funding, “tomorrow is do or die for SoundCloud”.
But just as SoundCloud hit rock bottom, everything changed. On August 11, it was announced that the investors The Raine Group and Temasek had invested $170 million in the company. Many described the deal as a bailout package. The CEO Alexander Ljung stepped down and was replaced by former Vimeo CEO Kerry Trainor.
The changes worked, but took a long time to realize. In the fiscal filings of 2018, SoundCloud wrote “Since the August 2017 financing and throughout 2018, SoundCloud has taken significant steps to improve its financial health including retiring all outstanding debt, reducing certain fixed operating expenses, and cash flow burn, improving its cash collection processes and renegotiating certain rights holder contracts.”
The post-tax loss was cut in half while the revenue continued to grow in 2018. The following years were surprisingly successful for SoundCloud and the staff slowly began to expand in numbers.
In 2023, the company turned to profit for the first time in its 16-year long history and in 2025, SoundCloud announced that it would eliminate its distribution revenue share, so that artists now can keep 100 % of its distribution royalties. SoundCloud managed to save itself from bankruptcy and made vital changes to satisfy the users and customers.
Conclusion
SoundCloud’s near-bankruptcy in 2017 was the result of years of rapid growth without a sustainable business model. While the platform became hugely popular and helped launch new artists and genres, it failed to generate enough revenue and balance the demands of users, artists, and record labels. Its messy monetization system, low artist payouts, and conflicts with major labels weakened the company financially and drove many creators to competing platforms. Since then, SoundCloud has since become an important platform for emerging and underground artists.
The emergency $170 million investment ultimately saved SoundCloud from collapse, but only after drastic measures such as layoffs and leadership changes. In the years that followed, the company slowly recovered by restructuring its finances and improving its business model. SoundCloud’s story highlights how even fast-growing tech companies can face collapse if they fail to build a sustainable and balanced economic model.