When SoundCloud launched its fan-powered royalties (FPR) system in 2021, it felt like an interesting experiment: an alternative system of payment that the platform could test out on its creator base of mostly DIY artists. Since then, the conversation around how artists are paid has evolved rapidly, whether via the UK Parliamentary inquiry into streaming economics, artist-led campaigns like Broken Record, or UMG boss Sir Lucian Grainge calling for the evolution of streaming’s economic model.
One major label has already signed up for FPR on SoundCloud: WMG, in July 2022 – and now, indie licensing agency Merlin has announced a global licensing deal that lets Merlin members and their artists participate in FPR on SoundCloud. Jeremy Sirota, CEO of Merlin said, “this partnership provides our members and their artists with new revenue opportunities, as well as empowering fans to directly support their favorite artists […] this collaboration will strengthen Merlin’s community of independent rightsholders and provide them, and their artists, the tools to build closer relationships with fans.”
FPR works as a hybrid of the pro-rata and user-centric payout model, where a share of each listener’s subscription or advertising revenue is allocated to the tracks they listen to, rather than their plays solely being pooled and distributed via a pro-rata model. The intention is to divert more money to artists from superfans, and offer more insight onto fan listening behaviour. (If you’d like an easy-to-understand primer on how FPR works, we have one right here; and here we unpack the meaning and consequences of the various artist-centric models.)
AI has stirred the pot recently, and is causing the merits of the existing pro-rata system to be tested again. This week’s removal of some of Boomy-generated music from Spotify was not about AI music being a problem, but rather around bad actors using it to manipulate streaming payouts under the pro-rata, per-play system. (When Andrew Batey and Morgan Hayduk of streaming analysis platform Beatdapp appeared on the Focus podcast, they “confidently” said that “at least 10% of all streaming activity is fraud.”)
A Midia report commissioned by SoundCloud in 2022 said that if artists being paid on an FPR basis could, “grow their superfan base to more than 20% of their audience, they stand to increase their earnings more than tenfold compared to pro-rata…” As we noted back then, for this to happen, streaming services to build more tools to help artists nurture those superfans on-platform, and that lots more key stakeholders – both rightsholders and DSPs – need to get on board.
Notably, big DSPs like Spotify are not averse to changing the payout system: Spotify’s Loud & Clear website sets out the company’s official position: “We are willing to make the switch to a user-centric model if that’s what artists, songwriters, and rights holders want to do. However, Spotify cannot make this decision on its own; it requires broad industry alignment to implement this change.” With both WMG and Merlin on board, attention will turn to other big rightsholders, to see if they will join them under SoundCloud’s FPS system. If they do, SoundCloud could prove to be the testing ground for a whole new model that may roll out to other DSPs.
Music Ally’s next Learn Live webinar will help you understand what’s required for artists to thrive in new international markets!