SoundCloud Making Strides With Its Fan-Powered Royalties Model

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In the ever-evolving landscape of the music industry, musicians face the ongoing challenge of finding a delicate balance between investing in Soundcloud promotion and reaping the rewards of revenue generation.

They can achieve this by leveraging Soundcloud‘s monetization features, such as offering premium content, partnering with brands, or integrating merchandise sales.

Innovation To Royalty Payments: What Are Fan-Powered Royalties?

The industry standard of which many companies have been operating for many years including Spotify, Apple Music, Tidal, and Amazon Music is the ‘pro rata’ streaming payout system. This is where all subscriber revenues are pooled together into one “big pot” at the end of every payment period, typically at the end of every month. From there, the streaming company would take its cut and the rest would be paid out to every rights holder (typically labels and publishers) according to their share of total streams.

SoundCloud’s branded Fan-Powered Royalties, on the other hand, was created with the intention of “benefiting rising independent artists with loyal fans”. To be specific, FPR differs by being a user-centric model. It views the advertising revenue and royalty amount generated by each listener’s subscription and allocates it exclusively to the tracks they listen to for a month.

In simpler terms, when a user pays out $10 each month for their subscription, it is only distributed among the artists that the user listened to for that period. Additionally, it is also divided according to the percentage of their streams received. This way, there is a direct monetary connection between the artist and the listener or fan.

The Acceptance Rate Of SoundCloud’s Fan-Powered Royalties Model

SoundCloud has always been a platform that innovates in ways that prioritize artists first. It first introduced the model back in March 2021. Since then it has been experimented on thousands of artists and by April 2022, SoundCloud reported that 135,000 artists were getting paid through this system. It wasn’t until July 2022 did Warner Music Group become the first major label to adopt this model with SoundCloud.
More recently, on May 4, 2023, SoundCloud announced that they have also successfully teamed up with Merlin on a global licensing deal to bring Fan-Powered Royalties(FPR) to all artists and members under Merlin.

Merlin, a digital music licensing agency for independent labels holds a significant share of the global recorded music market. Their deal with SoundCloud means that companies such as Altafonte, Amuse, Armada Music, Cinq Music, CD Baby and Downtown Music, Distrokid, Epitaph Records, Monstercat, and many more will all participate in the FPR program.

Fan-Powered Royalties To Combat The Culture Created By Pro-Rata.

The problem with the pro-rata model was that it turned streaming into a game where only the artists with the most number of plays will be able to win big. Even if a user has never listened to an artist, that artist would still get a part of the generated revenue from that user. Because of this, it has created a culture of artists only focusing on numbers over art. For instance, from artists intentionally creating short songs that can maximize repeated plays to streaming fraud. In fact, representatives from streaming analysis platform Beatdapp, confidently said that “at least 10% of all streaming activity comes from streaming fraud”.

With FPR, especially independent and local artists are able to benefit better from their fans and earn streaming royalties that are direct, more equitable, and fair to them. Additionally, these artists would also be able to gain a better insight into their fans’ listening behavior, fostering a better relationship between them.

MIDiA has released a report that analyzed 118,000 artists who have been earning from FPR on SoundCloud. The interesting result of it shows that 56% of them have seen their income improve and are financially better whilst almost 44% of them have seen their income decrease. It’s hard to say why the 44% have seen a decrease in their income but it makes sense that the decrease will be towards the most popular artists as they are no longer sharing a pool with every artist.