SoundCloud to Let Fans Pay Artists Directly: Exclusive

SoundCloud
Thomas Trutschel/Photothek via Getty Images

The logo of the music streaming service SoundCloud is displayed on a smartphone on Jan. 16, 2019 in Berlin, Germany. 

The company is close to announcing an alternative streaming payout plan.

SoundCloud is preparing to introduce a new payment system that would allow fans to pay artists directly, multiple sources close to the situation tell Billboard, setting what could be a game-changing precedent for the streaming world.

The move would make SoundCloud the first major music streaming service to embrace a direct payment model, a strategy that has been popular with Chinese streaming services like Tencent Music’s QQ Music for years, and one that subscription services like Patreon and OnlyFans have built their businesses around, as musicians and fans around the world clamor for bigger digital music distributors to do the same. A source close to the company says SoundCloud is still exploring several alternative streaming payout models and will announce its plans before the end of the first quarter of 2021. SoundCloud declined to comment.

The new model will be a big shift for SoundCloud, which currently utilizes a “pro-rata” model, the same method used by all major streaming services, pooling subscriber revenue and doling out earnings to the artists who brought in the most streams, directing most of the revenue to the world’s biggest acts. SoundCloud’s 175 million monthly users now have the option to pay up to $10 a month for the company’s on-demand streaming service SoundCloud Go+, but their payments aren’t distributed to artists based on who they personally listen to, and they can’t “tip” or steer their subscription fees toward their favorite acts.

The development comes as British lawmakers grill music executives on the fairness of streaming economics and explore the potential benefits of so-called "user-centric" payment models, like the one SoundCloud has in the works. The heads of Sony Music, Warner Music, and Universal Music’s U.K. divisions testified in front of Parliament on Jan 19th, insisting that the current pro-rata model isn’t weighted in favor of the labels, to which John Nicolson, an MP from the Scottish National Party, remarked, "I think you’re living in cloud cuckoo land."

Bigger streamers like Spotify and Apple currently divvy up subscription fees to record labels based in part on the labels’ market share; labels then pay their artists a share of the revenue that depends on their individual agreements. But critics have lobbied for a system that would better support acts beyond the major-label superstars driving the bulk of the world’s streams while allowing fans to funnel their subscription money to the artists they actually listen to.

SoundCloud can experiment with new payment schemes without approval from major record companies. The streaming service has been focused on artist services lately, launching its own marketing and distribution platform for independent artists called Repost last April after acquiring rights management and distribution company Repost Network in 2019. Repost allows artists on SoundCloud to monetize their music on the platform, and distribute music and collect revenue from major streaming services like Spotify, Apple Music, and TikTok, along with offering promotional tools, for $30 a year, a plan that lets acts keep 100% of their SoundCloud revenue, and 80% of revenue from other platforms.

The move to dig into alternative payment models comes just months into Michael Weissman’s tenure as CEO of SoundCloud, after taking over for former CEO Kerry Trainor at the top of 2021. Trainor, the former CEO of the video service Vimeo, stepped down after spending three years turning around a then struggling SoundCloud. When Trainor took over in 2017 as part of a $170 million rescue package from global merchant bank The Raine Group and Singapore-based Temasek Holdings, Weissman — then the chief operating officer at Vimeo — came with him, joining the streaming service in the same role, before being promoted to President in 2019. Trainor led SoundCloud to major revenue increases thanks to its creator-first products and its subscription offerings, growing revenue by 19% in 2018, and 37% in 2019 according to numbers obtained by Music Business Worldwide, results that led to the company’s first profitable quarter in 2020. That success led to a $75 million investment from SiriusXM last February, an investment that allowed SoundCloud to expand its ad sales agreement with Pandora.

The upcoming changes to its streaming payout model mark Weissman’s first big move as CEO of SoundCloud. But under his leadership, SoundCloud has already begun to expand its focus outside of music, announcing SoundCloud Player One, a live-streamed gaming tournament inside Fortnite featuring eight SoundCloud artists. The tournament, which will take place on February 18th, is viewed as the first in a series of gaming events from SoundCloud, which says nearly half of its users identify as gamers.