SoundCloud to launch user-centric royalty payout model

In a move that could radically change how music streaming platforms pay out royalties to musicians and songwriters, SoundCloud today announced its take on the payout model.

Branded as “fan-powered royalties”, SoundCoud will roll out this model on April 1, 2021 for independent artists who monetise directly with the platform via its services such as Pro Unlimited and Repost.

User-centric royalty payout model is an alternative to the current pro rata royalty payout system.

In the pro rata royalty payout system, the revenue generated by monthly subscription fees goes into a big pot. The revenue is then distributed to artists based on their share of the total number of streams on a music streaming platform.

Soundcloud Fan Powered Royalties

The user-centric model does away with the idea of pooling in the monthly subscription fee revenue into one big pot. Instead, each user’s monthly subscription fee is a unique pot. In this model, if a user pays 100 bucks a month for a music streaming service, and only listens to ten artists during subscriptions period, the 100 bucks would be divided between those ten artists only. So if you are a hard-core Bhayanak Maut fan 90 per cent of the time, 90 per cent subscription fee for that period will only go to the metal band under this model.

Critics point out that the pro rata model often results in an individual’s subscription fee being paid to artists whose music they have never streamed. It rewards only a few global pop superstars and artists whose music has been streamed a lot which can pave way for streaming frauds.

A 2017 study found that in Spotify’s existing pro rata system the top 0.4 percent of artists (in terms of overall popularity) got 9.9 percent of the money. However, when the user centric system was hypothetically applied, those 0.4 percent of artists received just 5.6 percent of the total revenue.

“Fan-powered royalties level the playing field for independent artists by tying payouts to fandom. Artists are now better equipped to grow their careers by forging deeper connections with their most dedicated fans; and, in turn, fans can directly influence how their favourite artists are paid,” says SoundCloud on its press page.