SoundCloud Revolutionizes Music Streaming Payments and Launches New Royalty System

One of the most debated concepts in the modern music rights business is user-centric licensing. This model sees Streaming royalties are paid based on the behavior of individual subscribers, with a percentage of each subscriber’s subscription fee being distributed only to artists / labels who have listened individually that month.

This model is in contrast to the current ‘prorated’ streaming payment system, which considers that all royalties from a service like Spotify are pooled at the end of each payment period … after which the recorded music rights holders receive payment according to their market share in the total. play through the platform.

The latest model obviously benefits the world’s pop superstars the most; The older model is believed to benefit independent artists and more specialized genres such as classical and jazz more.

Critics of the ‘prorated’ model point out that it regularly leads to a portion of an individual’s subscription fee being paid to artists whose music they haven’t even played. What’s more, “apportionment” runs the risk of turning broadcasting into a game where only the performers with the most repeated plays in a given month win big. This, in turn, runs the risk of unleashing market manipulation, either by artists / songwriters deliberately creating short songs (to maximize repeat plays) or even in the form of streaming fraud via paid streaming farms.

On the other side of the coin, some studies have suggested that a shift to user-centric licensing would lead to cumbersome administrative costs for services, and even that such a move might not make a material difference to those it is most designed to target. help, so-called “middle class” Artists who may not boast a hugely successful global fan base, but who attract a large loyal audience that streams their music regularly.

SoundCloud is about to settle this debate once and for all.

In an industry first move, SoundCloud is introducing what it calls “fan-driven royalties,” its own brand of user-centric model, which it says will mean “every [SoundCloud] listeners’ subscription or advertising revenue is distributed among listening artists, rather than grouping their works ”.

The “fan-driven” royalties will be released on SoundCloud on April 1 (within 30 days), with the platform suggesting that the move “will benefit rising independent artists with loyal fans.”

How much will these independent artists earn? A new microsite launched by SoundCloud on the subject today hints at the possibilities.

He quotes two independent artists currently operating on SoundCloud: Chevy and Vincent. Chevy currently has 12,700 followers on SoundCloud, Vincent has 124,000.

By switching these artists to a “fan-driven” model and moving them away from “prorating,” based on their recent play counts on SoundCloud, the service estimates that Chevy’s monthly royalties will grow 217%, while Vincent’s will multiply. for five, from $ 120 to $ 600.

It is well known that a consensus has yet to be reached among the top three record companies on user-centric licensing in streaming and that without the collective approval of Universal, Sony and Warner, the concept will have a hard time getting off the ground.

So how has SoundCloud done it?

In short, because the platform has a direct monetized relationship with around 100,000 independent artists through its SoundCloud Premier, Repost by SoundCloud and Repost Select tiers. Artists using these services essentially engage SoundCloud as a distributor / aggregator, either by delivering their music to the SoundCloud platform itself or, in the case of Repost, to other services as well.

Because of this, SoundCloud is able to jointly run two royalty ‘calculators’, keeping most of the artists on its platform paid via ‘proration’, while allowing those nearly 100,000 independent artists to be paid through the fan. user-centric / ”. “enhanced” model.

As such, SoundCloud is poised to begin the first real-world experiment in user-centric licensing, demonstrating exactly how the shift to “fan-driven” and away from “pro-rated” will tighten the economy for artists in their – and other ways. – streaming. services.

SoundCloud experts suggest that their early “fan-driven” royalty tests have proven the opposite of what some research articles feared.

SoundCloud’s calculation of these royalties, we are told, occurs much faster than the usual service calculation of ‘prorated’ royalties, with the burden of additional administration easily handled by machine learning.

“SoundCloud is uniquely positioned to deliver this transformative new model due to the powerful connection between artists and fans that takes place on our platform.”

Michael Weissman, SoundCloud

Michael Weissman, CEO of SoundCloud, said in a statement: “Many in the industry have wanted this for years. We are very happy to be the ones to bring this to market to better support independent artists.

“SoundCloud is uniquely positioned to deliver this transformative new model due to the powerful connection between artists and fans that takes place on our platform.

“As the only direct-to-consumer music streaming platform and next-generation artist services company, the launch of fan-driven royalties represents a significant move in SoundCloud’s strategic direction to lift, grow and create new opportunities directly with independent artists “.

SoundCloud logo

An interesting aspect of all this: with payment calculations “provided by fans” and “prorated” at the same time, it is very possible that SoundCloud will have to pay a surplus on its royalty distributions for some periods.

This is because a clear break between apportionment and “fan-driven” would be a zero-sum game, that is, where one artist within the 100,000 affected “fan-driven” acts (Artist A) could get a higher payment due to the new model, usually it would mean that another artist (Artist B) elsewhere on SoundCloud could get a lower payment.

However, if Artist B remains in the ‘prorated’ pool of artists, SoundCloud would have to cover this increased cost for Artist A, while also honoring the full royalties that Artist B would have received on the ‘old’ model.

“MBW is told that nearly 20% of all current SoundCloud payments to the recorded music industry are made to independent artists who monetize directly on their platform.”

Why is this risk worth it for SoundCloud commercially? Because the promise of “fan-driven” royalties isn’t just a crusade for justice, dummy; it is also a good deal.

For SoundCloud, this is a powerful marketing tool to try to win direct business from independent artists currently being distributed elsewhere, with the promise of a more equitable way of earning royalties.

Something else that helps: MBW is told that nearly 20% of all current SoundCloud payments to the recorded music industry are made to independent artists who monetize directly on their platform; that is, a good chunk of royalty redistribution after “fan-driven” launch Between the 100,000 artists on SoundCloud’s user-centric ‘calculator’.

SoundCloud clarifies that, in addition to whether a listener is a paid subscriber (to SoundCloud Go +) or a free user, “fan-driven” royalties will also be determined by a calculation of “how much [a] fan listen [each] artist in relation to all his listening time in a given month ”.

SoundCloud currently hosts more than 250 million tracks from 30 million creators in 190 countries.Music business around the world

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