When SoundCloud first introduced its artist-friendly and fan-powered royalty (FPR) structure a year ago, the model was accessible just to independent musicians who had subscribed to one of the paid tiers of the streaming service. Now, SoundCloud has signed its first major label collaboration with Warner Music Group. As a result of this partnership, musicians signed to Warner Music Group can also earn royalties on SoundCloud fueled by their fans.
The major label is going to implement its compensation model, which will involve distributing royalties, individual subscribers’ monthly payments, or advertising earnings to the recordings that individual subscribers listen to individually. It is generally agreed upon that this approach results in a more equitable payment structure for major label artists.
Since the early 2000s, both individual musicians and record labels have had a difficult time determining how musicians can make a living in an industry where it is so simple to download. mp3 files available online. However, new business models like as music streaming on Spotify can give the impression that they are just a temporary fix. This is because payouts from these platforms can be quite meager if you are neither Lizzo or Olivia Rodrigo.
A pro-rata approach is how artists are compensated by Spotify. This means that there is a vast pool of money that is distributed among all musicians in proportion to the number of streams that each artist receives. However, this indicates that the financial success of established musicians may, unwittingly, reduce the earnings of those who are just beginning their careers as musicians.
The user-centric strategy, also known as what SoundCloud refers to as fan-powered royalties (FPR), is intended to level the playing field for more undiscovered musicians and bands.
Under FPR, each fan’s subscription or advertising revenue is distributed among the artists they listen to, rather than being pooled under the traditional pro-rata model the music industry has been using for over a decade.
Soundcloud
Despite the fact that SoundCloud does not have a particularly high level of popularity among paid customers, it does hold a massive amount of music, including more than 300 million recordings from 30 million various artists. Studying how FPR operates in practice has become much simpler because to the fact that SoundCloud supports such a large number of independent musicians.
The entertainment research firm MIDiA conducted one of the first studies of FPR in action. The study analyzed FPR data from 118,000 SoundCloud musicians and found that 56 percent of artists earned more under FPR than pro-rata models. However, those who earned less under FPR were typically larger artists with over 100,000 listeners.
MIDiA also made the interesting finding that lesser artists receive bigger compensation when they have “superfans,” which are listeners whose streams donate more than 10 cents each month. The analysis discovered that FPR assists the longtail of musicians in moving up into higher compensation brackets. Between April 2021 and February 2022, SoundCloud reported a 9.2 percent rise in the number of artists who received over $1,000 from streaming payouts.
Larger participants in the business, such as Spotify or Apple Music, need to adopt the model and get record labels on board, which is not an easy feat. Only then will user-driven compensation models be able to have a big effect on the industry as a whole. However, the partnership between SoundCloud and WMG is encouraging news in more ways than one.
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