Over the last decade, we’ve seen the size of the music revenue pie grow significantly as the popularity of streaming services has skyrocketed. Today, streaming accounts for 84% of U.S. recorded music revenue. Over 90 million people in the U.S. subscribe to one or more music streaming services for the price of a few cups of coffee a month. And global revenue from music streaming, both paid and ad-supported, is predicted to grow to $90 billion by 2030.
Yet, since the inception of music streaming, a core question remains unanswered: How should these streaming services pay music creators? How do we slice up the revenue pie? It’s a question of fairness with no easy answer.
Pro Rata Model Vs. User-Centric Model
Currently, the primary model for the distribution of digital royalties is the “pro rata model.” Under this approach, all music usage and royalty payments are aggregated across the platform. In other words, listeners’ subscription fees pour into a single pot of money, which is then divided (pro rata) across the billions of streams every month on the service. The percentage that creators are paid is proportional to their number of streams across the overall platform.
As an alternative, some services are starting to experiment with a new “user-centric” or “fan-centric” model whereby a particular person’s subscription dollars are divided up only among the artists to whom they specifically listen. None of your subscription payment goes to artists that you don’t stream. And there are other variations on this individual-focused approach (such as the “ethical pool” or the “creator support” models).
Category: Ethical Pool
Press Release: @UMG and @TIDAL Partner to Work on Artist-Centric Royalties
New York, January 31, 2023 – TIDAL, the global music and entertainment platform, and Universal Music Group (UMG), the world leader in music-based entertainment, today announced that the two companies will work together to explore an innovative new economic model for music streaming that might better reward the value provided by artists and more closely reflect the engagement of TIDAL subscribers with those artists and music they love.
Streaming has revolutionized music, catalyzed industry growth, transformed the entertainment experience and provided incredible opportunities for engagement, to the benefit of artists and fans alike. As it has gained mass adoption over the past decade, there is more desire from all parties to look at how to best economically align fans’ interests with those of their favorite artists.
TIDAL and UMG will research how, by harnessing fan engagement, digital music services and platforms can generate greater commercial value for every type of artist. The research will extend to how different economic models could accelerate subscriber growth, deepen retention, and better monetize fandom to the benefit of artists and the broader music community.
“From day one, TIDAL has stood out as artist-first, leading with a premium subscription tier to pay artists more and experimenting with new ideas like fan-centered royalties to see if there are fairer and more equitable ways to get artists paid,” said TIDAL Lead Jesse Dorogusker. “We are setting aside our current fan-centered royalties investigation to focus on this opportunity for more impact. We’re thrilled to partner and learn along the way about the possibilities for more innovative streaming economics. This partnership will enable us to rethink how we can sustainably improve royalties’ distribution for the breadth of artists on our platform.”
“As the digital landscape continues to evolve, it’s become increasingly clear that music streaming’s economic model needs innovation to ensure a vibrant and sustainable future,” said Michael Nash, UMG’s Executive Vice President, Chief Digital Officer. “Tidal’s embrace of this transformational opportunity is especially exciting because the music ecosystem can work better – for every type of artist and fan – but only through dedicated, thoughtful collaboration. Built on deeply held, shared principles about the value of artistry and the importance of the artist-fan relationship, this strategic initiative will explore how to enhance and advance the model in keeping with our collective objectives.”
For more information contact:
TIDAL: Sade Ayodele, Head of Communications – email@example.com
Universal Music Group, Global Communications: James Murtagh-Hopkins firstname.lastname@example.org
@stuartdredge: ‘Ethical Pool’ idea could let fans choose user-centric royalties
[This 2018 MusicAlly post by the great Stuart Dredge summarizes my “Ethical Pool” strategy as an intermediate step toward solving the unsustainable streaming artist royalty issue. The Ethical Pool can be implemented immediately–SoundCloud’s “Fan Powered Royalty” version demonstrates the immediate application potential while further engaging fans. It also blows past the complexity objection from streaming services which is the threshold rejection when user-centric (or what I call “artist centric”) is presented because the Ethical Pool is essentially bolted on to the existing royalty system so that services run both simultaneously. That’s what SoundCloud has done with FPR and that’s why it is an intermediate step. You would have to make some decisions about what business rules would allow the two systems to operate side by side, but because all participants in the Ethical Pool would be opt-in you would not have to amend any existing contracts, pass any laws, or change any existing royalty accounting systems. The “Big Pool” stays as is, the Ethical Pool is a new and separate license. The market will tell us if it flies or crashes and burns. It must also be said that there is a tremendous amount of fraud in streaming services–naturally, it’s on the Internet after all–and any royalty system like the Ethical Pool that encourages the existence of actual fans is likely to create natural barriers to fraud.
But know this–the status quo is not sustainable (as Professor Claudio Feijoo and I wrote in our WIPO study on streaming remuneration). Stuart returns to this topic in a recent MusicAlly post in light of Sir Lucian Grainge’s recent statements about sustainability.]
Industry blog Music Tech Solutions has been thinking about the debate around ‘user-centric’ streaming royalties. That’s where the royalties from every paying streamer’s monthly subscription are divided only between the artists they listen to, rather than going into a bigger pool divided by overall listening share on the entire service.
MTS’ new idea: let fans choose if they want their subscriptions to be divided up in this new way. “When the fan signs up for a service, let the fan check a box that says ‘Ethical Pool.’ That would inform the service that the fan wants their subscription fee to go solely to the artists they listen to,” it explains, suggesting that this would ensure streaming services don’t fall foul of contracts that require them to treat royalties in the traditional ‘Big Pool’ way. “Artists also would be able to opt into this method by checking a corresponding box indicating that they only want their recordings made available to fans electing the Ethical Pool. The artist gets to make that decision. Of course, the artist would then have to give up any claim to a share of the ‘Big Pool.’ Existing subscribers could be informed in track metadata that an artist they wanted to listen to had elected the Ethical Pool. A fan who is already a subscriber could have to switch to the Ethical Pool method in order to listen to the track.”
@MicahSingleton: SoundCloud to Let Fans Pay Artists Directly
[Editor Charlie sez: The “virtual gift” is kind of old news and we’ve been covering it since 2018–but–it’s another market confirmation that streaming royalties are inadequate (nobody talked about virtual gifts with Tower Records or iTunes Music Store). It would be better if Spotify spent less time gorging themselves with their snouts in the public markets trough and more time figuring out how to pay performers a sustainable royalty.]
SoundCloud is preparing to introduce a new payment system that would allow fans to pay artists directly, multiple sources close to the situation tell Billboard, setting what could be a game-changing precedent for the streaming world.
The move would make SoundCloud the first major music streaming service to embrace a direct payment model, a strategy that has been popular with Chinese streaming services like Tencent Music’s QQ Music for years, and one that subscription services like Patreon and OnlyFans have built their businesses around, as musicians and fans around the world clamor for bigger digital music distributors to do the same.
Read Chris’s 2018 post about virtual gifts: Ethical Props–How Streamers Can Empower Fans on the Path to Sustainability
@ameyers: @zoecello breaks down exactly how much money Spotify, Apple Music, Pandora, and more paid her in 2019
The user-centric system means that if one user pays $9.99 a month for Spotify Premium but only listens to independent cellist Zoë Keating, that user’s $9.99 would be paid exclusively to Keating.
“These companies are taking power away from listeners, because listeners don’t have any say where their money goes,” Keating told Business Insider. “If you only listen to me, I should get all the percentage of the money you spend on music.”
Read the post on Business Insider (may require subscription)