Why major streaming services won’t follow SoundCloud’s new ‘fan-powered’ royalty model

On April 1, SoundCloud becomes the first major streaming service to introduce ‘fan-powered’ artist payments.

This will only apply to the 100,000 indie artists who monetise directly through the platform. Those licenced from major labels will continue to be paid using the current ‘pool’ method.

“Many in the industry have wanted this for years. We are excited to be the ones to bring this to market to better support independent artists” SoundCloud CEO Michael Weissman said.

The current method by Spotify, Apple Music and Deezer – to put all the royalty payments into a pool, and share them out based on which artists have the most global plays – is regarded as grossly unfair because the bulk of the money goes to the mega-stars like Drake, The Weeknd and Dua Lipa.

An estimate by Forbes found that one million plays of a song generates $5,000 from Apple Music and Amazon Music, $3,000 to $6,000 from Spotify, $12,000 from Google Play, $1,700 from YouTube, and $1,400 from Pandora.

SoundCloud contends the new payment system will also empower listeners and encourage greater diversity in musical styles.

“Artists are now better equipped to grow their careers by forging deeper connections with their most dedicated fans. Fans can directly influence how their favourite artists are paid,” Weissman added.

SoundCloud has 175 million users per month, 76 million active monthly users, and hosts over 250 million tracks from 30 million creators in 190 countries.

Its move has put the spotlight back on a study by France’s Centre National de la Musique (CNM) earlier this year which only used data from Spotify and Deezer. It found that changing to fan-based royalties would make only a slight difference to the income of smaller artists.

Some in the music industry argue that it’d be too complicated to change the system, and foist cumbersome administrative costs on services.

SoundCloud disputes that, saying its tests show that computing calculations took just 20 minutes for user-centric, compared with 23 hours for the pooled model.

In the casestudy of two of its indie artists, one with 12,700 followers will see monthly royalties grow 217%, while the other with 124,000 will see payment jump from $120 to $600.

Under the new model, 90% of royalty payouts will be driven by 90% of listeners, rather than the current 40%, the company argues.

SoundCloud has an ally in French streaming service Deezer, which calls the move “a great first step.”

Its chief content and strategy officer Alexander Holland said “Deezer stands ready to launch a full (user-centric payment system) pilot  and convincing rivals to do the same.

However last month when quizzed over a two-and-a-half session by UK parliament’s Digital, Culture, Media and Sport Committee investigation into the economics of streaming, Spotify and Apple Music didn’t seem particularly open to change.

Spotify’s head of global affairs and chief legal officer Horacio Gutierrez cited the CNM report as not making much changes to royalties.

He warned, “Just keep in mind, a transition to a model like that would require, not only a decision on the part of Spotify, every licence agreement that we sign with every right holder all over the world would have to be transitioned into that model, so it is not a trivial position.

“But if people thought it was a model that would be more equitable and more beneficial we’d absolutely be open-minded about it.”

Elena Segal, global senior director of music publishing at Apple, concurred: “The key thing for us is that there needs to be consensus among all licence laws, it’s not a model that you can apply to some licence laws and not to others.

“So obviously the only way to reach consensus like that is to get together as an industry.”

Segal called streaming a “narrow margin business” and cast shade on the suggestion of switching to a different licensing model comparable to radio where labels and artists received 50:50 recording royalty payments.

That would “dramatically affect the economics of our service”.

She continued, “From our standpoint, the most important thing is to have a healthy overall creative ecosystem that’s sustainable into the long term.

“So something that will require some dramatic shift in the economics, such that it’s no longer a viable business, I think would have a negative effect for all stakeholders.

“I’m not sure that’s really what anyone should be aiming for.”

Both Spotify and Apple Music said they would look at extra research if there was a call for it, and discuss models options if getting together as a sector.