Is SoundCloud ’ s Experiment with
“ FAN-POWERED ROYALTIES ” Working Well for Artists ?
A year after SoundCloud became the first to implement a usercentric payout model , we find out how it ’ s working out
By Michael Raine
On April 1 , 2021 , Sound- Cloud became the first streaming service to do something that a lot of musicians and dedicated music fans have long called for — implement a user-centric model for calculating and paying royalties . That may sound more complicated that it is . What that means , in essence , is a fan ’ s money is divvied up among the actual artists they listen to . It ’ s a fascinating experiment to keep an eye on , partly because it ’ s long been touted as a more artist-friendly streaming payout model . It ’ s also not how royalties have ever worked in the era of streaming .
Ever since Spotify ’ s first licensing deals with labels and publishers more than 15 years ago , the royalty model for the entire music streaming industry has work roughly the same way , regardless of which service you ’ re talking about . Spotify , Apple Music , Amazon Music , Tidal , etc . all calculate and payout royalties the same basic way — what is commonly called either the “ big pool ” or “ pro rata ” model . It ’ s a formula that has worked well for the music industry , especially for major labels and publishers , with total global revenues for record music steadily rising each year , parallel to subscription streaming ’ s growing popularity . Overall , according to the IFPI , global recorded music revenues have gone from a low of $ 14.2 billion in 2014 to $ 25.9 billion in 2021 , a level not seen since the pre-Napster era .
But , you may have heard , it hasn ’ t always worked out well for artists , especially emerging and mid-level artists . Frankly , I feel that the debate over streaming royalties frequently gets dumbed down to an unhelpful degree , omitting a lot of important figures and context . Nonetheless , it is true that music , more than ever , is a superstar economy . Unless you ’ re in the top few percent of all artists , it has become more difficult to make a living off of recorded music , which has made musicians more reliant on touring and other sources of revenue , the consequences of which became apparent during the pandemic .
So , this brings us to SoundCloud ’ s experiment and how it compares to the industry ’ s typical royalty model . Is “ fan-powered royalties ,” as SoundCloud is calling its user-centric model , proving to be financially better for artists than the big pool model ? Obviously , we need to first clarify how each works .
In simple terms , the big pool ( or pro rata ) model works like this : all of the streaming service ’ s revenue from subscriptions and advertisers goes into one big pool each month . After the streaming company keeps its share , the rest is paid to rights holders ( meaning mostly labels and publishers ) based on market share . So , because Universal Music owned 32 % of all music streamed on Spotify in 2020 , for example , it gets that portion of all the royalties paid out . The label then pays that out to artists based on their record contracts . In this formula , there is no correlation between what a subscription-paying fan listens to in a given month and where their money goes .
The user-centric or “ fan-powered ” royalty model works like this : a music fan pays their $ 9.99 each month for a subscription . That money gets divided monthly among the artists the fan listened to according to what percentage of their streams each received . There ’ s a direct monetary line between the fan and who they listened to .
According to SoundCloud , “ this new model benefits independent artists and empowers fans to play a larger role in the success of their favorite artists . It also encourages the growth of local scenes and the rise of new genres .”
The crucial caveat about SoundCloud ’ s experiment is it can only apply to fully-independent artists — those own their master and publishing songs rights . That allows them to license songs directly to SoundCloud and get paid directly . This limits it to Pro Unlimited art-
42 CANADIAN MUSICIAN