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SoundCloud Losing Money Fast As Record Labels Apply Licensing Pressure

29 July 2015, 6:59 am EDT By James Geddes Tech Times
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Music streaming service SoundCloud is reportedly running low on cash just as record labels are pressuring the company to pay licensing fees for content. The company is hoping a new subscription tier will bring in much-needed revenue.

We recently reported on rumors that popular music streaming service SoundCloud is planning on adding a subscription-based tier to its currently all-free streaming service, and that rumor was just confirmed by company co-founder Eric Wahlforss in a conversation with the Wall Street Journal. Now, it appears that the impetus behind the development of the subscription tier is clear: the company is in dire need of cash.

Digital Music News has reported that SoundCloud is hemorrhaging cash so quickly that it might actually run out before the end of the year, unless it can convince a bank or other investment group to hand out more dough until it can figure out a way to monetize its business model. This is despite a recent report valuing the company at $700 million dollars.

One reason SoundCloud is burning through money so quickly is the huge legal expenses the company is incurring. Record labels are growing impatient with talks intended to legitimize the service through licensing deals, with most labels currently uncompensated for the content streamed on SoundCloud. The record labels are threatening to sue the company if talks don't progress faster.

Warner Music Group just inked a deal with the company, but it looks like a one-off, as it included a five percent stake in the company and was brokered by a SoundCloud exec that formerly worked for WMG. The deal includes "derivative works," which refers to partial use of a copyrighted recording in another artist's material, most often in DJ mixes that include snippets of multiple songs.

SoundCloud is the favorite streaming service in the EDM (Electronic Dance Music) community because of these derivative works, and many popular DJs upload their latest mixes to a SoundCloud page. The licensing of derivative works like DJ mixes is a complicated issue in the world of music streaming, and many of the more "legitimate" streaming services, such as Spotify and the new Apple Music, don't generally offer complex DJ mixes because of that issue. It seems as if the unique aspect that differentiates SoundCloud from its competitors is now what is causing it the most trouble.

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