ist subscribers in the Premier Program , Repost by SoundCloud subscribers , and members of Repost Select . Even those who own their song rights but distribute their music to SoundCloud via a third party , like CD Baby or TuneCore , cannot participate in the new model because of licensing issues . Such licensing issues are why Deezer , the first company to promise a shift to a user-centric model , has not yet implemented it .
“ To have a market share dynamic , it essentially dilutes , and does not reward fandom . It rewards sheer volume of play ,” SoundCloud VP of Strategy Michael Pelczynski tells Canadian Musician . That ’ s why , he adds , “ you have the constant conversation about authenticity , bots , and the like , because it pretty much allows for that to thrive . We ’ re essentially moving the reward to be in favour of individual listener affinity or devotion or commitment to an artist ’ s music . So , that ’ s the huge transition that ’ s happening between the two models , and we ’ re essentially rewarding these artists that are building actual fans — more importantly , super fans — on a platform where they probably have already done that , but it ’ s just all being suppressed by the current economic model across all these platforms .”
Currently , the number of independent artists getting paid by SoundCloud according to the fan-powered royalties model totals roughly 135,000 . Of those , half have seen their payments increase under the new model . As a whole , “ the entirety benefits so much that we ’ re actually paying out-of-pocket at Sound- Cloud to pay these royalties , because it ’ s so beneficial to the entirety of those individuals in the program and model ,” Pelczynski says .
Pelczynski joined SoundCloud in early 2018 following five years at Warner Music Group as the major label ’ s director of recorded music rights administration . It ’ s around that time that SoundCloud first began internal discussions and research about the viability of a user-centric royalty model . He says that for at least a year before launching the new program , they had the processes built and running and were studying the numbers each month to see how artist payments would differ between the two models .
“ It isn ’ t a zero-sum game for SoundCloud . And what that means is that also when you think of the full pie of those revenues , if everyone licensed onto it , then yes , then it is a zero-sum game because you ’ re essentially redistributing amongst that whole pie . So , until we get to that state in the future , it ’ s not a zero-sum game . That means that there is a significant amount of benefit for the entirety of artists in the community , and the communities within these artist communities , to be on this model .”
One the main points Pelczynski emphasizes is that the fan-powered royalty model isn ’ t just good because it divides revenues differently , but that it also helps identify and incentivize super fans . According to Pelczynski , for 10 % of the artists under the new model , they have seen 80 % of their payouts come from 20 % or less of their listeners . Connecting
SOUNDCLOUD ’ S MICHAEL PELCZYNSKI
with these most devoted fans is essential to the career of any indie artist . “ This is the ‘ catapult ’ effect that ’ s missing under the pro-rata model — rewarding genuine active fandom via streaming ,” Pelczynski adds .
“ Another metric to share , too , is that there has been a 97 % increase in fans contributing more than five dollars [ of their monthly fee ] to an artist , because inherently there ’ s so many people that do listen almost exclusively to just a few pieces of music , or a few artists or genres even , where now that reattribution is funneling out to those artists that they ’ re devoted to . Whereas , previously , it ’ s all locked up into one big pot and then it has to do this kind of macro market share economics ,” Pelczynski says .
As Pelczynski sees it , making fan-powered royalties a reality is just the first milestone on the path to building a better fan economy through streaming . By allowing artists to identify specific devoted fans , it opens up new money-making avenues .
“ Because if I ’ m heavily engaged by simply listening to music , which is the basic nature of music streaming , and an artist can find me within their audience , that ’ s incredibly valuable to be able to reach out to me to then sell tickets , merch , or other ancillary things that mean something of value to the artist and the fans ,” he says . “ So , what we ’ re really doing is not just reshaping the bedrock of the industry to pay artists fairly and transparently and support that fandom , but also give them the ability to own that audience , the fandom within that audience , and to also grow the value of that by giving them access to them , because they can see you under the new model .”
But the big question , ultimately , is can this new model scale up to the rest of the industry ? While 135,000 independent artists are not insignificant , they represent a very small fraction of all commercially-released music and are , most importantly , the easiest people to license with . Changing the royalty model for the rest of the industry would mean renegotiating all licensing deals between every streaming service and every label , publisher , and distributor . And let ’ s not forget that the current big pool model , which rewards market share , is working out very well for the major labels and publishers , as well as the large indies , who own huge back catalogs of popular music . So , while making user-centric royalties the new norm may be a noble aspiration , I would not personally bet a single dollar on it happening . Pelczynski , though , seems more optimistic .
“ I believe there is reality in this permeating through the industry because … we are in a new age of fan economy . We don ’ t even have to call it independence . It ’ s not even just mainstream superstar independence , whatever music we ’ re talking about , people are becoming so much more niche and deep-rooted in music and what they like ,” Pelczynski states . “ The whole industry is moving into this space of a fan economy where we all have to focus on what is that value of a fan ? And you ’ re not going to be looking at the value of an effective per play , or the ARPU ( average revenue per user ) or the average revenue per play ; the business itself is going to look at what is the value of an actual fan ? And that is why I actually do believe that this model is the bedrock . It is a necessity in streaming to have this model to build an actual fan economy on top of it , which deals with fan segmentation , being able to have a better connection to optimize that relationship between the artists and their fans , to really give them the ability to have direct engagement and to really create experiences . You wouldn ’ t have that ability without having user-centric models .”
Pelczynski also reveals that SoundCloud is currently speaking with rights holders and are in licensing proceeding to expand the fan-powered royalty program ’ s scope .
“ We all want the ease of streaming , so what we ’ re essentially doing is creating the ease of knowing that all you have to do is stream music on SoundCloud for these artists and you know [ your money ] is going directly to them . And then , also , we ’ re going to be connecting those artists with their fans . Because of that model , they ’ ll be able to see them and reach them because we ’ re identifying each other and connecting them . So , I think that is too powerful to deny .”
Listen to the full conversation with SoundCloud ’ s Michael Pelczynski on the June 29 , 2022 , episode of the Canadian Musician Podcast .
Michael Raine is the Editor-in-Chief of Canadian Musician .
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