The open-audio platform notes that it will begin directing payment from subscribers to the artists that they are actually listening to. 

SoundCloud announced last month that it would be the very first major music streaming service to begin directing subscribers’ payments only to the artists that they are actually listening to. Such is a move that musicians who are campaigning for fairer pay welcomed. 

As of now, streaming services including Spotify, Apple, and Deezer has a payout model where they practice pool royalty models. This means that the premium fees that users pay for are dished out based on which artists have gained the most global pays. 

 A huge number of unions and artists have criticized this system. According to them, it favors huge artists disproportionately and leaves the emerging ones with only a little pay. 

In addition, they are arguing that many fans and subscribers of niche artists and genres are unknowingly funding music that they never actually listen to.

The New SoundCloud Royalties System

For this reason, SoundCloud announced that beginning in April. It will start to direct royalties that come from subscribers only to the artists that they stream.  

Michael Weissman, the chief executive officer of the music streaming company, said that many in the music industry had wanted the said payment model for years. This is why the company is excited to be the first one to bring it to the market as a better way of supporting independent artists. 

The company also said that the new payment system, called “fan-powered royalties” or a “user-centric model: would serve as empowerment to listeners. It will also encourage greater diversity in terms of musical styles. 

Weissman also added that through the new payment model, artists would be better equipped to grow their careers. They can do such by creating deeper connections with their most dedicated supporters. In addition, fans will be able to directly influence how their favorite artists will be paid. 

Major Record Labels Have Resisted SoundCloud’s Move

Moreover, it is believed that major music labels have resisted the move SoundCloud made. Part of it is because the current system used by streaming services lets them generate massive revenues through a relatively small number of huge artists.

It was also found out by a study conducted by France’s Centre National de la Musique that 20 percent of all revenues from Deezer and Spotify go to only 10 artists. As a result, major music labels were able to amass record revenues over the year that passed. Meanwhile, a significant number of musicians were facing a crisis due to the cancellation of live tours brought by the COVID-19 pandemic. 

This year, label executives told a British parliamentary committee that is currently investigating the streaming economy that shifting to fan-bassed royalty payments may be too complicated. However, SoundCloud said that it was not true, as computing calculations under the new model only took 23 minutes. On the other hand, the old model took 23 hours. 

According to British Ivory chair Crispin Hunt, the most significant takeaway from SoundCloud’s data is that none of its previous modelings has shown accuracy. In fact, when a service runs a user-centric system, the rewards that artists who have an audience are improved significantly. 

Moreover, Hunt pointed out that it proves the distortion in value that is delivered by the existing model. 

A Deeper Explanation of What Fan-Powered Royalty Is 

The pro-rata model is the standard payment system used by streaming services to pay artists and labels. It works by collecting all payments from subscriptions and advertising revenues into an overall pot. After collecting all the revenues, the money is distributed based on the percentage of overall streams that labels and artists received. 

For instance, if a popular artist gets 20 million streams in one month, which counts for fice percent of all streams during that month, the artist will receive five percent of the streaming revenue. 

On the other hand, a user-centric payment system, like the one that SoundCloud is launching, means that the percentage is based individually on every single listener. Meaning, if a listener is paying $10 for a subscription each month, the streaming service cuts seven percent. Then, the remaining $3 will go to the artists and labels. But if that user has listened to only one artist that those listeners are actually listening to, then the entire $7 would go to them. 

This payment model can make a significant difference for smaller artists. This is because their listeners can be dedicated fans who listen to them over and over. However, their overall streams have no match in comparison to huge artists. For this reason. This method is seen as a much fairer method by independent labels and artists. It also reinforcing SoundCloud artists who invest in more SoundCloud plays and followers to their benefit.

Who Can Benefit From SoundCloud’s Fan-Powered Royalties?

Unfortunately, the new system would not apply to all artists whose music is available and monetized on SoundCloud. Rather, only the labels and artists eligible for the streaming service’s UCPS will be those who are distributing and monetizing their music directly through SoundCloud. The reason is that they would be able to set the terms because the relationship is direct with the artists.

Moreover, the French music streaming service Deezer has attempted to try a UCPS in France. Similarly, YG Entertainment Vibe has tried to introduce the system. However, both companies have faced opposition from the industry. This is because the power of influence is lying largely on major labels. Notably, these major music labels benefit from the pro-rata system. 

Long story short, the artists who will receive payments directly through the UCPS of SoundCloud will be the Premier Program’s Pro Unlimited Subscribers as well as members of Repost Select. 

Still, changing the payment model is a significant move for independent and emerging artists and labels. 

Date: May 12, 2021 / Categories: New Stuff, / Author: Joy P