On SoundCloud, it’s no longer about how many streams you have – it’s about how many fans are streaming you.
Starting on April 1, SoundCloud will change the way it pays independent artists, becoming the first major streaming service to implement a so-called “user-centric” payment system.
The move to offer what the audio-sharing platform is calling “fan-powered royalties,” which Billboard broke news of last month, marks a watershed moment for the music business. Until now, rights holders have collected streaming revenue based on a pro-rata model, which pools subscriber revenue and then doles out earnings based on the rights holders’ share of total streams.
Effectively, if Taylor Swift gets 5% of all streams on Spotify in June, she and her label will get 5% of your monthly subscription fee, even if you never listened to one of her songs. But support has been swelling for a user-centric payment system, which would allow artists to get paid based on how many fans listen, instead of how many streams the artist accrues.
Under SoundCloud’s “fan-powered” model, if a user paying $10 a month only listens to five artists, those five artists will get a split of that $10 — after SoundCloud takes its cut — no matter how many times the user listens to each of them.
“Many in the industry have wanted this for years,” Michael Weissman, SoundCloud’s CEO, said in a statement. “We are excited to be the ones to bring this to market to better support independent artists. SoundCloud is uniquely positioned to offer 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-powered royalties represents a significant move in SoundCloud’s strategic direction to elevate, grow and create new opportunities directly with independent artists.”
Artists signed to the three major record companies, however, won’t see their SoundCloud payments change next month, because of the licensing deals SoundCloud already has in place with those labels. The streaming company would need to renegotiate those agreements in order to bring its fan-powered model to the full lineup of artists on its service.
In fact, the fan-powered royalties will only apply to artists who upload their music directly through one of SoundCloud’s monetization programs: Premier, Repost, and Repost Select. SoundCloud says it has “nearly 100,000” independent artists earning money through those three programs. Indie artists who don’t participate in those special plans will still get paid under the standard pro-rata model.
SoundCloud tells Billboard that nearly 20% of its payouts to the recorded music industry are made to independent artists who upload through SoundCloud. The company expects revenue to go up for smaller and mid-sized artists under the new payment scheme, but the biggest indie artists under their direct upload programs are expected to see a decrease in revenue.
If implemented widely across streaming services, the user-centric payment system would likely lower streaming revenue for streaming superstars like Swift and BTS, whose fans have conducted coordinated streaming campaigns to push those artist’s releases to the top of the charts with astronomical first-week streaming totals.
Under the current pro-rata system, those massive streaming numbers result in a larger payout for the rights holders of those songs; under a user-centric payment system, the payout would depend more on the size of the fan club. The move could also prevent streaming scams that take away money from legitimate artists and rights holders. Under a user-centric model, a single account holder streaming the same song 100,000 times wouldn’t have much impact, outside of the single user’s subscription fees going directly to the song’s creator.