Streaming mega-giant SoundCloud is now close to exhausting its available financing, according to three individuals close to the organization. SoundCloud, whose valuation recently soared past $700 million on an estimated $123.3 million in cumulative funding, is not only “dangerously low on cash,” but also faces significant obstacles finalizing its next round, according to details expressed in confidence to Digital Music News.
A separate source explained that SoundCloud is at risk of exhausting readily-available funds and will likely require an ’emergency bridge,’ either from existing investors like Union Square Ventures, or alternatively, a bank, by the end of this year. On timetable, sources couldn’t specify the exact ‘runway,’ or exact time remaining under static financial conditions and no additional funding. But two sources agreed that the situation could become quite serious if additional funds aren’t secured by the end of this year, ie, within 4-5 months.
“The issue is definitely with the [major] labels.”
The news closely follows rumors of intensifying licensing demands from the major labels, and imminent legal action. Last year, Soundcloud closed an important round with Warner Music Group, though that is now being viewed as a ‘one-off’ brokered by crony ex-WMG-turned-SoundCloud exec Stephen Bryant. The WMG deal involved a percentage stake in SoundCloud of up to 5 percent, according to sources, as well as a publishing pact with Warner/Chappell Music Publishing and consideration for all-important ‘derivative works,’ which refer to samples and snippets of copyrighted works that are frequently threaded into DJ mixes.
Of course, DJs and EDM are a critically-important component of SoundCloud, which makes derivatives an equally important consideration. Currently, startups like Dubset Media Holdings are pushing to broker a derivative works exchange, a multi-billion marketplace that often involves dozens, if not hundreds of samples within one DJ mix. Right now, derivative licensing solutions are somewhat crude, making it difficult for mega-streamers like Spotify to license mixes and DJ sets. Currently, Spotify has 30 million tracks, all of them fully licensed, while SoundCloud boasts more than 100 million, with few properly licensed.