Back in July, it was reported that German music streaming company SoundCloud was “running dangerously low on cash.” While this made barely a ripple in the mainstream news cycle, those in the tech and music industries were certainly paying attention, postulating how it was going to turn out. With ~$125M in cumulative funding, SoundCloud, which would be on its Series E for its next round, seriously can’t afford to be running low on cash; not now.

SoundCloud logo

While ~$125M in funding is nothing to scoff at, one needs to examine the dynamics of where that funding is arguably going given SoundCloud’s precarious position at the moment. In the best of situations, the funding would be going towards furthering Soundcloud’s standing amongst its competitors, which now include Apple Music and Tidal in addition to Rdio and Spotify. And yet, the money is more likely getting sucked up by legal fees as the service braces for a round of massive copyright infringement lawsuits from major labels Universal and Sony. Anyone who knows anything about litigation knows that these cases will most likely take years to resolve, all the while drawing larger attorneys’ fees (not to mention time and effort) from the music service.

What the major label industry really looks like; The Big Three

Warner is conspicuously absent from the intended lawsuits, no doubt because it’s the only one of the Big Three major labels to have struck a licensing deal with SoundCloud already (never mind the fact that Warner also owns 5% of SoundCloud..). While this may sound good for the streaming service on the front end, it actually complicates things even further, as it throws SoundCloud into the middle of two completely different paradigms with completely different dynamics. The reality of the situation is that SoundCloud has found itself alienating the very independent artists who were its biggest supporters since it signed the deal with Warner and began moving towards a more major label-style content service, akin to Spotify and Rdio. While this doesn’t mean that it’s dead in the water by any means, it does point to a larger issue which SoundCloud needs to figure out for itself moving forward.

All of this puts in perspective the fact that SoundCloud can’t afford to be “running low on cash” right now. Now that they’ve entered the major label universe, they need a ton of cash just to continue playing the game, as they need to pay for licensing from Warner (and the other labels eventually), pay out royalties, and keep innovating ahead of their competition. That, in conjunction with their impending legal problems, makes this arguably the worst time to be running low on capital (as if there’s ever a good time!). The lawsuits by Universal and Sony aren’t going to go away overnight, and all those legal hours add up; that’s money that could be spent obtaining licensing rights and paying royalties that is now essentially being sucked out of SoundCloud’s system just so it can survive.

I don’t know what SoundCloud’s next step is going to be, but it needs to figure out a way to take the cumulative ~$125M it has in the bank (or whatever’s left) and figure out its legal quagmire before it does anything else. Otherwise, the legalities are just going to suck the life out of it while its competitors move ahead. That may be easier said than done, though, as it needs deals with the very people suing it in order to survive and be competitive. Could anything be more ironic?