Rumor has it Universal Music Group and Sony Music are gearing up to sue SoundCloud for ‘massive’ infringement

SoundCloud has been busy striking revenue-sharing deals with various stakeholders in a bid to pave the way for a paid service offering, but there could be a bumpy road for the music-sharing site. That’s because the Berlin-based outfit has failed to reach an understanding with Universal Music Group and Sony Music Entertainment, two record labels that together manage more than half of the world’s commercially produced music.

First came a report in October that Universal had withdrawn from the parleys altogether. Then, in March, we saw a miffed Sony pull some of its music from the site. Now it sounds as though things are about to get worse: Digital Music News reports that the two labels, along with the RIAA (Recording Industry Association of America), are rolling up their sleeves to take legal action against SoundCloud for what they see as “massive copyright infringement.”

One of the many unnamed executives the site talked to said the labels are unhappy with SoundCloud’s attitude toward the whole issue and the pace at which the talks are proceeding. Per the report, the main sticking point is SoundCloud’s insistence on offering a free, ad-supported tier a la Spotify. It seems the record labels agree with Taylor Swift and view this business model as diminishing the value of their product.

A model licensing contract prepared by SoundCloud for independent publishers leaked onto the web earlier this month and spilled the beans on the site’s subscription plans. Based on its contents, it appears the site is working on two paid tiers: an ad-free yet severely limited “Additional Subscription Features” service, and an unlimited “SoundCloud Full Catalog Subscription Service.” But it’s also clear from the document that the site has every intention of offering a free, ad-based service as well.

Why this matters: You’d expect a site that claims to have 175 million active monthly users and more than 10 million content creators (many of them A-listers) to enjoy a fair amount of leverage in such negotiations, but things clearly work differently in the music industry and it’s the labels that have the final say. Even if this rumor is completely unfounded, the fact remains that this licensing row is already exacting a heavy toll on SoundCloud in that a rapidly increasing number of takedown notices is forcing many DJs to look for alternative platforms.