SoundCloud is losing big money, calls for major cash infusion

Music streaming service SoundCloud is hemorrhaging money, with approximately $70 million dollars lost between 2013 and 2014, according to financial records recently released by the company. The issue is dire enough for the company to call for more capital in the next 12 months, saying that the infusion will be “required.”

Having put a huge stock of cash towards administrative expenses to help grow its service, the Berlin-based company reportedly saw little return on its investment. SoundCloud spent $64 million to generate just $19.5 million in income in 2014.

The biggest issue that SoundCloud has been facing financially centers on the company’s average revenue per user. Though it has amassed an impressive 175 million users, income generated equated to only 11.2 cents per user for the company in 2014. That’s way lower than other streaming competitors. Spotify, for example, reports earning an average of around $41 per user each year, though Billboard has reported a slightly more conservative estimate of $27 per user for the company in 2014. Pandora — which is having its own revenue issues — generated about 100 times as much as SoundCloud in the same year, at $11 per user.

The disparity has a lot to do with differing business models, with SoundCloud users largely supporting electronic and unsigned artists. Accounts to upload music to SoundCloud are free, and a good portion of the site’s traffic is for unsigned bedroom-creators.

In its quest to grow into a big money generator, the company has continuously relied on venture capital money to remain solvent, raising $77 million last year alone. But that will not be enough to fuel it for long, and its a business model that appears unsustainable.

With such an extended history of negative cash flow, it remains to be seen whether or not further investors will be interested in backing the company. That said, SoundCloud executives recently inked distribution deals with all of the world’s major labels, and the service is also looking to add a subscription-based option to pull in more revenue by the end of the year.

If things go well, subscription-based income could create a bump in revenue that just might be enough to put the company back on track.

Still, major deals cost big money, and if the company doesn’t turn around its balance sheet sometime soon, it may be forced to shut down.