SoundCloud, which currently hosts over 250 million tracks from 30 million creators in 190 different countries, has announced what they call a "Game-Changing New Pay Model For Independent Artists." In an industry-first move, SoundCloud, the music entertainment company, announced the introduction of fan-powered royalties, a more equitable and transparent way for emerging and independent artists to earn money on SoundCloud.

Fan-powered royalties are a new model of payouts that is driven directly by an artist’s fan base.

With this move, each listener’s subscription or advertising revenue is distributed among the artists that they listen to, rather than their plays being pooled - benefiting rising independent artists with loyal fans.

How are royalties paid by streaming platforms currently?

Services such as Spotify currently operate a “pro-rata” (or “one big pot”) royalty model, whereby the majority of all money paid by subscribers is pooled, then paid out based on the market share each artist/label claims of all streams. This means money paid by individual subscribers regularly gets paid to artists they’ve never listened to.

Critics of the 'pro rata' model

As reported on Music Business Worldwide, 'pro rata' model critics point out that it regularly leads to a proportion of an individual’s subscription fee being paid to artists whose music they haven’t even played. What’s more, ‘pro rata’ risks turning streaming into a game where only the artists with the most repeated plays across a given month win big.

This, in turn, risks triggering market manipulation, either by artists/songwriters creating deliberately short songs (to maximize repeated plays) or even in the form of streaming fraud via paid-for stream farms.

On the other side of the coin, some studies have suggested that a switch to user-centric licensing would incur cumbersome administrative costs for services, and even that such a move might not make a material difference to those it’s mostly designed to help – so-called “middle class” artists who might not boast a blockbuster global fanbase, but who draw a significantly-sized loyal audience that streams their music regularly.

How fan-powered royalties work

Essentially, fan-powered royalties are like an artist's fans subscribing directly to their music.

“Many in the industry have wanted this for years. We are excited to be the ones to bring this to market to better support independent artists. SoundCloud is uniquely positioned to offer this transformative new model due to the powerful connection between artists and fans that takes place on our platform,” said Michael Weissman, Chief Executive Officer, SoundCloud.

🖼️ How fan-powered royalties work. Source: SoundCloud

“As the only direct-to-consumer music streaming platform and next-generation artist services company, the launch of fan-powered royalties represents a significant move in SoundCloud’s strategic direction to elevate, grow and create new opportunities directly with independent artists."

According to SoundCloud, fan-powered royalties levels 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 favorite artists are paid. Fan-powered royalties reflect feedback from the independent artist community on SoundCloud who want equitable payouts, transparency, and control over their own careers.

The nearly 100,000 independent artists monetizing directly on SoundCloud through SoundCloud Premier, Repost by SoundCloud, or Repost Select will benefit from fan-powered royalties beginning on April 1, 2021. The roll-out of fan-powered royalties is backed by an extensive artist education campaign and direct, ongoing outreach with the independent artist community and industry partners.

For more on the digital music business, listen to Yoel Kenan on The Tefo Mohapi Show. He touched on why different streams pay different rates and catalysts for the growth of digital music in Africa.

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