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SoundCloud Introduces Fan-Powered Royalties, Funding Artists

Even in 2021, buying SoundCloud plays is no doubt the next generation music entertainment company growth agenda. In an industry-first move, the open audio platform announced last month that it would launch fan-powered royalties. Such is a more equitable and transparent method of earning money on the platform for emerging and independent artists. 

Fan-powered royalties are basically new payout models that are directly driven by the fan base of an artist. Through this payment model, each advertising or listener’s subscription is distributed among the artists they listen to. This is contrary to the payout models that most music platforms use, where the listeners’ plays are pooled, and only those independent artists with a loyal fan base benefit.

SoundCloud Introduces Fan-Powered Royalties - A New Pay Model for Independent Artists

According to SoundCloud CEO Weissman, many in the industry have wanted the said payout model for years. For this reason, the company is excited to be the first one to bring such to market so it could support independent artists better. He added that the company is uniquely positioned to provide this transformative new model to the powerful connection between fans and artists within SoundCloud

Weissman also noted that purchasing more SoundCloud plays is the only music streaming platform with a direct-to-consumer model and the next-generation artist service company. This is why the launch of the aforementioned payout model is a representation of an important move in the company’s strategic direction of growing, elevating, and creating new opportunities with independent artists. 

How Fan-Powered Royalties Work

Moreover, fan-powered royalties work by leveling the playing field for independent artists by tying payouts directly to their fan base. This way, artists will be equipped better so they could grow their careers. They can do this by creating deeper connections with their most loyal fans. In turn, fans will be able to directly influence how their favorite artists are paid. 

Besides, the new payout is a reflection of feedback from the community of independent artists on the platform who are aiming for transparency, equitable payouts, and control over their very own careers. 

There are approximately 100,000 independent artists on SoundCloud. They are monetizing directly on the platform using the SoundCloud Premier. Also, Repost Select or Repost by SoundCloud will get benefits from fa-powered royalties starting this April 2021. The roll-out of the said new payout model is baked by an extensive artist education campaign. It is also supported by direct ongoing outreach between the community of independent artists and industry partners. 

Why Music Streaming Platforms’ Payout Models Have to Change

France’s Centre National de la Musique conducted a study about payout models for music streaming platforms. It found out that 10 percent of all revenues from Deezer and Spotify go to only 10 artists. 

That allows the major music labels to get huge parts of record revenues over the past year. On the other hand, many independent musicians were facing crises due to the cancellation of live tours due to the COVID-19 pandemic. 

SoundCloud Introduces Fan-Powered Royalties - A New Pay Model for Independent Artists

Currently, music streaming platforms are using the “pro-rata” streaming payment system. It was established at a time when this format is still fairly marginal. Further, it was based on subscribers who consistently listened to songs all day long. The songs they listen to should be formatted over an average duration of about three and a half minutes. Therefore, the distribution of streaming revenues is made based on the overall audience. The track should also be listened to for no less than 30 seconds. 

In the pro-rata model, music streaming platforms calculate the monthly compensation by dividing the listening time of the song by the listening times of all users of the particular service. After that, this amount is multiplied by the collected monthly fees or the total revenue. 

SoundCloud's New Fan-Powered Royalties

In this user-centric model, the compensation received by the right holders is based on the individual users’ listening times. You can calculate this by dividing the track’s number of listening times by a single user by the total number of the user’s listening times. This amount is then multiplied by the monthly fee that the user paid. 

Moreover, the pro-rata model means that the firm pools all of the distributable riches generated every month. That means that an artist’s song can pull in two percent of all subscribers' plays in a particular month. Then they will get two percent of the music streaming platform’s user-paid money. 

While that sounds fair, some argue that its rivals instead adopt a user-centric payment structure. To put this model simply, it means that if a user pays $9.99 each month for a music streaming service and plays nothing but one artist, a disputable portion of the listener’s payment (approximately $6.99 per month) would go to no one but the artist he is listening to. 

SoundCloud Plays Helping Artists Turn Followers into Cash

Moreover, there is a controversial study conducted in Finland in November 2020. It was co-authored by several local music trade organizations. This study has sparked controversies over the pro-rata model. 

The Digital Media Finland published a report that crunched anonymous user data that Spotify provided across premium subscribers who live in Finland in March 2016. This study analyzed more than 8 million streams across a total of 4,493 artists and 10,000 tracks. In the existing pro-rata model of Spotify, songs that are recorded by the leading 0.4 of artists receive 9.9 percent of the money. But if Spotify will apply the user-centric model, those top artists would only receive 5.6 percent of the total payment. 

SoundCloud Introduces Fan-Powered Royalties - A New Pay Model for Independent Artists

Needless to say, it is important for music streaming platforms to change their payment models. This is to ensure that even the emerging artists will get the payment that they deserve. This is because, in the pro-rata model, only artists with a huge following get a significant portion of the payment. 

Date: April 22, 2021 / Categories: Marketing, / Author: Joy P


Joy P

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