SoundCloud could be facing some dire financial consequences, including being "dangerously low on cash," according to reports from Digital Music News. although the company is valued at more than $700 million, two sources indicated to the publication that the digital music platform could be broke in four or five months if it doesn't secure additional funding.
The issues, which of course haven't been confirmed officially by the company, are reportedly tied to the struggles with negotiating deals with major music labels. SoundCloud has managed to land a deal with the Warner Music Group but still needs to work something out with Sony Music Entertainment and the Universal Music Group. Soundcloud's executive Stephen Bryant used to be an employee at Warner, which may have led to simpler negotiations. The other pair of companies may be seeking bigger upfront payments. For reference, Sony just got $35 million upfront from TIDAL, and Soundcloud should probably be expecting a similar fee.
Why the huge upfront payments? One element that has long given SoundCloud a boost over its competitors (although which now may be a thorn in the company's side) is how popular the service is with DJs who make their own mixes. While streaming one song is relatively simple—play "99 Problems," Jay Z and Universal Music gets paid—mixes that use dozens of samples aren't so simple. Someone needs to figure out who is getting paid and how much is getting paid...and with so many cases of this happening on Soundcloud, it often falls through the cracks. Sometimes this bothers performers, but it always bothers labels, who want bigger upfront payments to make up for the "derivative" royalties they aren't seeing.
As this sort of thing is happening constantly, Soundcloud can't afford to dawdle with its negotiations...because Sony or Universal could bring a lawsuit, which would end up costing way more than a deal. The problem is, outside investors are less likely to throw cash at a company with multiple huge lawsuits potentially looming around the corner.
Stay tuned.
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