Rumours that SoundCloud would become the first big music streaming service to adopt user-centric payouts were correct. The company has just announced plans for what it’s calling ‘fan-powered royalties’.
The system won’t apply to the entire catalogue of music that is available on SoundCloud, but just to the tracks uploaded by independent artists directly to the platform: specifically the nearly 100,000 who use the company’s SoundCloud Premier, Repost by SoundCloud or Repost Select features.
The switch will happen on 1 April 2021, and SoundCloud has launched a website explaining how the new system will work, and encouraging artists to “tell your fans” about it to drive listening (and thus royalties) once it’s up and running.
The site includes some examples modelling out how the new system will work. One independent artist called Vincent, with 124,000 followers on SoundCloud, is cited as earning $120 a month under the existing ‘pro-rata’ model of streaming royalties, but the company says this could increase to $600 a month under the new system.
Another artist, Chevy, with 12,700 followers, stands to earn 217% more per month according to SoundCloud, although dollar amounts are not provided in this case.
The site also explains some of the all-important details of how fan-powered royalties will be calculated. The royalties will depend on how much a fan listens to an artist “relative to all of their listening time in a given month”, but also “how many advertisements the fan has consumed” and whether they are paying for a SoundCloud Go+ subscription – the service’s premium tier.
There are some interesting unanswered (for now) questions about the new model: for example, whether it’s being used for recordings only, or both recordings and publishing royalties. Also about how it intersects with SoundCloud’s licensing deals with labels, since a SoundCloud Go+ subscriber may be listening to a mixture of independent and label-signed artists.
The significance of today’s news should not be overhyped. In 2019, the most recent year for which it has published financial results, SoundCloud generated €99.5m from its ‘listener business’ – ads shown to and subscriptions paid for by consumers, as opposed to its ‘creator business’ selling subscriptions to musicians and other audio creators. The service has grown since then, but it’s important to keep the size of its royalties pool in mind before getting overexcited about that pool being divided in a new way.
Still, it’s a very interesting move from SoundCloud, which can unilaterally launch a user-centric system in a way that Deezer, Spotify and other major streaming services cannot, because it has that community of artists uploading and making money directly from its service.
If you want to dive deeper into the user-centric topic, we’ve got plenty to read in our archives. Here’s our primer on what the model is and how it works, for example, and here’s our report on the latest study of user-centric’s potential impact, which was conducted in France.
User-centric payouts have also been a key topic in the UK parliamentary inquiry into the economics of music streaming. SoundCloud’s Raoul Chatterjee offered a cautious – curiously so, given that it was only a couple of weeks before the launch of fan-powered royalties – assessment of the model.
“It’s definitely an interesting area, and as an artist-first platform we’re always looking for ways to make payouts to artists fairer,” he said. “But the whole investigation into user-centric is a very detailed and complex investigation that needs to be taken. It’s one potential path we’re exploring… and it would require industry-wide conversations and support to be impactful.”
The three major labels offered mixed views on user-centric’s potential in their most recent submissions to the inquiry, but in a session featuring representatives from Spotify, Apple Music and Amazon Music, all three DSPs indicated a willingness to explore the model – but also stressed the need for wider industry backing.
Meanwhile, a recent episode of our Music Ally TV Show asked Deezer why it has struggled to get a user-centric pilot off the ground in France, and heard from the company about why it still thinks the model could be beneficial.