SoundCloud is changing the way it pays artists. Normally with streaming services, artists are not paid per stream, but rather “pro rata.” This means all of the money earned from streams are pooled into one large slush fund and then paid out to labels, publishers, etc at the end of each period based on their market share of plays on the platform. That means that even if you as a user never listen to Taylor Swift, J Balvin or Drake, your streaming money is still going to them because of their market dominance. SoundCloud is adopting something different for some of their artists.
On April 1st (no this isn’t an April Fool’s Joke), SoundCloud will adopt a “fan-powered” model where listener’s subscription or advertising revenue is distributed among the artists they listen to. This would in theory mean that artists without massive followings would be able to earn more because they don’t have a machine behind them that helps generate millions of streams per day on the biggest playlists. This rewards direct fan engagement with your small, but loyal fanbase more directly through streaming, instead of just pooling a small amount of earnings into the fund of money for major artists.
SoundCloud cites two examples of how this will impact earnings for two artists on their platform – Chevy and Vincent. They estimate that Chevy’s monthly royalties will grow 217%, while Vincent’s will multiply by five, up from $120 to $600.
SoundCloud has done this without the general consensus of Universal, Sony and Warner, who it isn’t totally clear would have their revenue change, but SoundCloud has advertised this as for their nearly 100,000 independent artists. They are still running the pro-rata payments for the majority of artists on its platform, but those who use SoundCloud Premier, Repost by SoundCloud, and Repost Select tiers will be able to get paid through the new “fan-powered” program.
We will see by the end of the year if we can get some side-by-side comparisons of payouts on SoundCloud from “fan-powered” artists and then the other artists still in the “pro-rata” system. Even if we don’t, lower tier major label artists may start to question the benefits they are getting if independent artists earn a lot more money. They could leave or wonder why their labels aren’t asking the streaming services to change from “pro-rata” to “fan-powered.”