Are User-Centric royalties a gamechanger or just a really big ‘meh’…? [op-ed]

Much hype has been placed around the ‘User-Centric’ payment model for streaming.

Deezer and Soundcloud have boasted of it’s ‘revolutionary’ qualities and many commentators have been calling for Spotify and Apple Music to move to a User-Centric payment model.

Claims that this model is inherently fairer or would somehow be a revolution for the music industry may be overstated. So what is this model, how does it differ from the current payment system and what are the real-world impacts of this change in calculation?  

Currently, the bigger streaming platforms pay royalties using a system that is commonly referred to as ‘Market Share’. Conceptually, all the revenue is pooled together and the royalties are paid out proportionally based on what share of total streams a track has generated. Effectively, different pools exist based on the kind of revenue coming in. Free, ad-supported accounts typically pay less than premium accounts and countries with expensive subscriptions pay better rates than those with cheaper subs. 

Alternatively, the User-Centric payment system divides the split at the user end rather than from a pool. If a user listens to 10 artists equally over a month, one-tenth of that subscription fee (minus the service’s cut and  other commissions) will be paid out to each artist. This appears to be much fairer in the eyes of some, as the act’s fanbase directly influences what they are paid.

But who stands to win from the model and how valid are these claims of fairness?

One of the most striking features of the User-Centric model is the constant decline of a stream’s value with every track a user plays. If a user listens to one track in a month, in theory, that could pay as much as $7, but of course, each and every track that a user plays after the first adds a new factor to divide that money by.

In turn, fans who listen to the least music have the most valuable streams and people with near dormant premium accounts could end up being a gold mine for whichever artists make up their limited repertoire. On the other hand, the streams of music lovers will be of lower value.

We’ve known for years that fans of independent music are more likely to have premium accounts. This means they pay better rates than people who care less about music and choose an ad-supported tier. If fans of independent music have broader tastes and listen to more music in total, then the User-Centric model will generate lower value streams from these subscribers. The artists who appeal to the less invested premium listeners will generate higher value royalties. 

My instincts tell me that these listeners probably won’t be huge consumers of new and independent music. This reverses one of the few advantages independent artists and labels have in the current market.

To really improve the revenue for recording artists, we need to increase the amount of money coming into the record industry. This is done as the streaming services open into new markets that were previously dominated by piracy and as we grow the user base across all markets. The supply and demand do not change by tweaking the calculations around streaming payments.

Yet, the User-Centric model seems so popular that press releases from Soundcloud will be widely celebrated as ‘transformative’ and ‘revolutionary’ while we quietly look the other way when it comes to the opaque splits on these so-called ‘Fan Powered’ royalties.  Pair this with little evidence that User-Centric payments generate more equitable rates or make any significant change in artist’s pay-cheques and the whole thing seems to be at best an insubstantial mess and at worst a cynical grift.

How the streaming services choose to calculate their payments ultimately up to them. Provided there is sufficient transparency- Deezer has effectively used User-Centric payments as a point of difference for their product, which is clever.

It’s painful to see large parts of the industry calling for a mostly insignificant change rather than concentrating on growing our revenue base. We do have to scrutinise how we’re getting paid, but jumping on a bandwagon without proper understanding may just be a huge waste of energy for no significant benefit.

Arlo Enemark has spent 10 years as a music industry professional, working on content strategy, A&R and digital distribution for labels and artists with Xelon Entertainment as well as being label manager for dominant Aussie club label Medium Rare Recordings. Arlo now heads up noisehive.com –Xelon’s distribution platform for independent artists.