How do SoundCloud’s ‘fan-powered royalties’ work for artists?


When people in the music world call for user-centric payouts to replace the current pro-rata system used by most streaming services (primer here if needed) it’s usually part of a bigger push for transparency around the streaming economy.

With that in mind, now that a few DSPs are actually testing user-centric systems, it would be good to have maximum transparency about what their impact is for artists.

SoundCloud revealed its ‘fan-powered royalties’ plans in March 2021, applying them to the community of independent artists uploading their music directly to its platform – thus swerving the need to convince labels to take part.

In September 2021 it said that Portishead’s cover of ABBA’s ‘SOS’ – released as a test for the new system – earned more than six times the revenue it would have under a pro-rata model. Then, in April this year, it claimed that on average, artists are earning 60% more royalties through the system than they would have done pro-rata.

Interesting, but it’s a handful of carefully-chosen stats. Now SoundCloud has commissioned Midia Research to publish a bigger report on the impact of fan-powered royalties, based on analysis of the earnings of 118,000 musicians taking part in the system.

The report claims that 56% of those artists “are better off under FPR than pro-rata”. There is some interesting material breaking down what kinds of artists are most likely to be part of that 56% too: it’s those lower down the pyramid in terms of listener numbers.

64% of artists with between 100 and 1,000 listeners earned more from FPR than they would have from pro-rata, and 65% of artists with between 10,000 and 100,000 listeners. By contrast, only 38% of artists with more than 100,000 listeners were better off under FPR.

SoundCloud and Midia say this is about the mixture of ‘active fans’ and ‘superfans’ within these artists’ listeners, but it’s very clear that they don’t want the wider music world to read the report and assume that FPR is bad for bigger artists. Instead, they are claiming that this, too, is a result of the pro-rata system.

“FPR provides an opportunity for superstars to change their strategy and build deeper fandom. Superstars tend to have more passive fanbases, not because they necessarily want to, but because it is what the pro-rata streaming model incentivises,” is how the report words it. “Regardless of an artist’s size, operating under the FPR model frees artists from this reliance on passive fans, instead rewarding them for focusing on building deeper fandom.”

There is more to dig in to within the report, including the claim that for those SoundCloud musicians with between 100 and 100,000 listeners, less than 2% of their fans are generating more than a third of their royalties under FPR.

“Artists who earned more in FPR had twice as many superfans than artists who earned less,” is another conclusion – based on Midia’s methodology breaking down listeners into active, passive and superfan categories based on the royalties they generate for a given artist.

“With FPR, artists have the potential to double their streaming income simply by building their superfan numbers to 2-3% of their audience. Furthermore, if they can grow their superfan base to more than 20% of their audience, they stand to increase their earnings more than tenfold compared to pro-rata…”

There are two things that need to happen for this to be a truly meaningful trend. The first, dealt with in the report, is for streaming services to build more tools to help artists nurture those superfans on-platform, rather than gearing their services towards “lean-back listening”.

That’s already SoundCloud’s strategy, so while of course a report it commissioned would back that approach, it does ring true as a positive evolution for music streaming.

The second thing? If user-centric systems are to really shake up artists’ incomes and relationships with fans as the report proposes, it can’t just be about SoundCloud.

Yes, Tidal has user-centric plans including a model that it hopes will work even if labels opt out. Yes, Deezer still wants to go user-centric, although labels opting out has been exactly the problem scuppering its plans for a trial so far.

But as for the biggest streaming services, their position remains essentially that they’re not against the idea of user-centric; that some of them will contribute data to research studies on the model; but that they’ll need agreement across the music industry before they can even think about a switch from pro-rata. Agreement which they know is a huge challenge.

SoundCloud’s ability to launch its FPR system without needing that agreement, due to its community of independent artists, is at least starting to provide more data to work with. Will it nudge the top tier of streaming services to push harder for trials? Will it convince the remaining doubters in the rightsholder world to accept those trials?

Time will tell on both counts, but at the very least, the Midia report has widened the debate beyond pure payout comparisons between user-centric and pro-rata. Zeroing in on the conversation about superfans’ importance, how artists can nurture them, and how streaming services can help, is a positive development.

Written by: Stuart Dredge