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SoundCloud, Warner Music Group Strike Deal on Fan-Powered Royalties

The agreement means that Warner's artists will shift to a user-centric payment model for royalties earned on the SoundCloud platform.

SoundCloud has finalized a deal with Warner Music Group that would allow WMG’s artists with songs on the SoundCloud platform the ability to get paid based on the number of individual users streaming their music, rather than by market share of total streams, sources tell Billboard.

The revenue model is part of SoundCloud’s Fan-Powered Royalties initiative, which it launched last March with the aim of re-tooling how the platform doles out streaming revenue to rights holders and providing more detailed data to help support independent artists on the platform. In practice, it allows independent creators who own their rights and upload their works to SoundCloud through its Repost system the ability to get paid according to how many fans stream their music, rather than the current industry standard “pro-rata” model, in which subscriber revenue is pooled together, then distributed to rights holders based on their share of total streams. Effectively, if one user who pays $10 per month listens to five artists, those five artists would split that $10 (after the streamer’s cut), rather than a portion of the subscriber’s money going to a Drake or Taylor Swift due to their share of overall streaming.

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SoundCloud is the first music streaming service to offer the payment system to independent rights holders, and Warner Music Group is the first label to sign on. Until now, SoundCloud’s Fan-Powered Royalties program was only available for artists who controlled their own works, due to licensing agreements in place with the labels; as of January, SoundCloud told Billboard it had been in talks with all three major labels and the indie trade group Merlin to renegotiate their agreements to allow for fan-powered royalties, with one major in particular close to finalizing the deal. Now, with the new Warner agreement in place, WMG artists will switch to the payment system for royalties earned on the SoundCloud platform. (Other streaming revenue from the likes of Spotify, Apple Music or Amazon Music work on the pro-rata model and would not be affected.) Reps for SoundCloud and Warner declined to comment.

“It changes streaming from what today is just accessing a catalog of music into truly more of a community platform,” SoundCloud CEO Michael Weissman told Billboard in January about FPR. “We can provide an enormous amount of information back to artist managers and major labels to actually get at the heart of this, which is, ‘Who are the 10,000 people who are my true fans? That over 30% of their listening time is going to that artist?’”

That speaks to some of the additional benefits that SoundCloud says FPR could have for artists, which could go beyond helping indie artists get a higher cut of revenue and delve further into helping them build marketing opportunities, cultivate their fan communities or route tours, for example, and could help artists see, for example, that if 65% of their streams are coming from 15% of listeners, who those “superfan” listeners are. “We can now unlock those relationships with the superfans and communicate with them, to sell them something or whatnot,” chief marketing and content officer Lauren Wirtzer-Seawood told Billboard in January.

Earlier this month, music market analytics and consulting firm MiDIA Research published a report that analyzed 118,000 creators on the SoundCloud platform who had signed up for FPR, noting that 56% of them “are better off under FPR than pro-rata,” with 63% of artists with between 100 and 100,000 fans earning more than under the pro-rata model and a 9.2% increase in the number of artists that earned more than $1,000 between April 2021 and February 2022. It also found that, among artists who earned more under FPR, 42% of their income came from their superfans, which comprised just 1.9% of their audiences, and that given that the model is about which artists a fan streams, rather than the volume of streams, it disincentivizes fraudulent stream counts or other ways of gaming the system. That’s just the latest study on FPR; SoundCloud itself told Billboard in January that artists using FPR are generating 60% more streaming revenue than they would have otherwise, with payouts of over $1 million per month and growing.

There has been some debate over the efficacy of user-centric royalties models across the entirety of the music spectrum. Other studies that analyzed previous user-centric royalty ideas concluded that the shift would be largely symbolic and that the vast majority of artists would see only a modest change in royalty payments of less than 5%. Another study commissioned by France’s National Music Centre in 2021 noted that royalties for the top 10 artists dropped 17.2%, while increases for other artists outside that top 10 didn’t top 5.2% per year, which in actual currency amounted to a handful of dollars. That study also found that user-centric royalty models would benefit genres like classical, jazz and metal at the expense of others like hip-hop, and benefited catalog artists more than newer acts.

Yet SoundCloud sees the added benefits of FPR — the fan data in particular — as just as, if not more valuable, than the increase in streaming revenue, as the company repositions itself from a streaming platform into an artist-services company supporting creators at all levels of their careers. “Commercializing that direct artist-to-fan engagement so that there’s more than just streams, but merchandise and virtual merch and exclusives, will mean there’s a whole lot more commercial opportunity through a fan-powered relationship than a streaming relationship,” SoundCloud president Eliah Seton told Billboard in January. “We’re not talking about dividing up a specific pie — we’re talking about putting more pies on the table.”

For now, those pies would only be on SoundCloud’s table. One executive noted that the added benefits that SoundCloud is touting only become a boon to artists if they lean in to and engage with the platform, something that every social and streaming company is trying to get artists to do — with artists already stretched across TikTok, YouTube, Spotify, Apple Music, Amazon Music, Twitter, Instagram and more.

It’s unclear if other streaming services would follow suit in switching to their own user-centric models. Several streaming services have expressed an openness to the idea in the past — Deezer, which was controlled by Warner Music Group’s former parent company Access Industries before it went public this month, has openly advocated for it, but not instilled it in its service — though they have generally noted that it would take a consensus from the various rights holders around the globe to put such a shift in motion. In February 2021, for example, Apple Music’s head of publishing Elena Segal said in a hearing in front of the British government, “It’s not a model you can apply to some licensors and not to others. Obviously the only way to reach consensus like that is to get together as an industry.”

Spotify reps have said similar things in the past: as part of its Loud and Clear transparency initiative, the company responded to a question as to whether a user-centric model would be fairer by writing, “We are willing to make the switch to a user-centric model if that’s what artists, songwriters, and rights holders want to do. However, Spotify cannot make this decision on its own; it requires broad industry alignment to implement this change.”