[h/t to Jay Gilbert and Mike Etchart at Your Morning Coffee for tagging this explanation of SoundCloud’s “fan powered” royalties. My feeling about the SoundCloud version of user-centric is that it’s the beginning and not the end of the story. These things have a tendency to evolve over time, and SoundCloud may actually start negotiating instead of the usual “we’ll take it and you’ll leave it” attitude of Big Tech, particularly when it comes to independent artists. Remember when iTunes paid bigger labels at least 70¢ for downloads but indie labels and artists 65¢ for no good reason? That didn’t last. The most important part of this story is that it is happening at all and that suddenly a big music service has seen that being early on this trend is a competitive advantage. That may cause other services to react.
The next step will be when major artists get woke to the fact that if the dominant pro-rata model that user-centric rejects is unfair, they may be the beneficiaries of that unfairness. And then there’s the songwriters, who have a similar model applied to their share of the revenue. (And of course focusing on revenue alone completely ignores the valuation benefit that is easy to calculate for public companies like Spotify that has made CEO Daniel Ek a multibillionaire while paying scraps of scraps to artists.]
This week, SoundCloud announced it’s making a major change to the way artists on the platform get paid in an effort to help smaller acts make more money from their music. If you’re not someone who follows the jargony, complicated world of music streaming closely, the new system, which SoundCloud dubbed “fan-powered royalties,” might seem confusing. Allow us to break it down for you.
When you pay for a subscription to a streaming service like Spotify, Apple Music, or SoundCloud, your money goes into a big pot, along with the money the streamer earns from every other subscriber and from advertising. A chunk of money from that pot goes to the company itself. Then, it divvies up the rest among artists, based on each artist’s share of total streams every month. The bigger slice of overall streams an artist gets, the more money they get from the pot.
All the major streaming services use that system, known as a “pro rata” royalty model—but there are problems with it, which musicians have been complaining about for years.