Unless they’re at the level of Drake or Ariana Grande, musicians aren’t making very much from streaming as it stands now. But earlier this month, SoundCloud surprised the music industry when it announced a major change: For select artists, instead of paying from a pro-rata model, the service will translate fans’ streams directly into dollars.
A brief explainer: Right now, music-streaming services like Apple Music and Spotify collect all their monthly streaming revenue and then proportionally divvy up those royalties to artists by percentage of their streams (a.k.a. the pro-rata model). That works in favor of high-streaming acts like Taylor Swift or Harry Styles — but smaller, less streamed acts are often left with pennies, even if they have devout followers, because most of those followers’ subscription fees still end up in the pockets of the giant stars. Under SoundCloud’s new plan, the “fan-centered” system will create a set per-stream rate that lets fans’ streaming royalties go directly, and only, to the artists they listen.
SoundCloud’s move is by no means an immediate game-changer. At launch in April, only indie artists on two of SoundCloud’s own distribution services will get access to these user-centric royalty options. And SoundCloud is not where the majority of music streaming in the world takes place. Still, the symbolism of the decision — which raises another round of conversation about whether artists can make a living wage from streams — has the music industry’s interest piqued. Executives tell Rolling Stone they are most interested in the transparency of the new model and in its potential to put bigger value outside of more recent hit songs.
“We endorse everything that brings artists and fans closer than in the past. Our current system that we have started 10 years ago, and now a decade and a music revolution later, this is part of getting fairer for the artist,” says Maximilian Kolb, who oversees publishing and recordings at Run The Jewels’ and Jason Aldean’s label BMG in Germany, Switzerland and Austria. “A user-centric model brings together the idea of fans linking up directly from their artists. You need a more fair system. For us as a label, it totally switches things because all of a sudden the five people listening to my niche artist are equally as relevant as trying to compete for the next playlist for dreams.”
Classical, jazz, and indie artists could see the biggest gains from user-centric streaming. But it could even help already-popular artists. “I think we’d benefit even more if we’re paid on a use-centric basis,” says Cliff Burnstein, co-founder of QPrime management, whose roster includes major rock acts including Metallica, the Black Keys and Cage the Elephant, who draw hundreds of millions of streams.
Streaming, Burnstein says, has placed less value on genres like rock, which tends to have longer song lengths. (A user’s stream of a one-minute song is financially tallied the same way as that of a fifteen-minute song.) “If one person listens to 200 songs for hours every day and another listens to only five, the value those two paying customers bring is still the same,” Burnstein says. “[But] if the person listening to the five songs is more apt to listen to Metallica, or Ghost or Iron Maiden, those songs would be proportionally better paid under this user-centric model.”
Burnstein adds that a more refined “theoretical framework” for royalty payouts would help disincentivize fraud and streaming manipulation — and stop record labels from making short-term signings based on viral songs, while shifting focus back onto developing artists’ careers.
Merck Mercuriadis, founder and CEO of Hipgnosis Songs Fund, which has shaken up the publishing business paying top dollar to acquire high-profile catalogs for the past two years, similarly lauds the user-centric model for its transparency.
“What you’re relying on — whether you’re me or an artist — is that you’ve got songs that are of such extraordinary success and such cultural importance that people are going to spin them,” Mercuriadis says. “And when they spin them, you want to get paid for the fact that they’re spinning your record, not get partial payment or your payment diluted by the fact that someone thinks that they’re spinning someone else’s record when they’re really not.”
Under the streaming system available now, Mercuriadis says: “If you’re one of the biggest artists, you are going to be rewarded. If you’re an indie artist right now, you’re probably losing out to artists that are being given a high promotional profile by the record companies, but there are, in fact, not actually getting the level of spins that the hype might make you think that they’re getting.”
“Streaming is still in its infancy — the questions we all have are just fair questions. Is an algorithm or user-centric system best? What’s the most fair?” — Merck Mercuriadis on adopting a user-centric streaming model
Execs point out that streaming services have only been the dominant mode of music consumption for a few years, and that their business models could look much different in the future. “Streaming is still in its infancy — the questions we all have are just fair questions. Is an algorithm or user-centric system best? What’s the most fair?” Mercuriadis says. He predicts another “seven or eight more years” before the business becomes sophisticated enough to “figure out all of those answers.”
Ryan Chisholm is the president of Work of Art Management, which represents more established acts like Mike Posner as well as up-and-comers like Tai Verdes, whose TikTok hit “Stuck in The Middle” landed him a record deal with Arista. “This has been going on for a decade, since Spotify launched in the U.S. If you have a lean-forward, active fan base consuming an album front to back, user-centric will definitely work best for you,” Chisholm says. “The pro-rata share works for artists with one or two big hits, because fans are probably consuming those songs through playlists driven through [streaming services] and they’re more lean-back streams.”
Among Chisholm’s roster are unsigned acts like Wes Period, who currently distributes his music through Distrokid. Chisholm says he will be watching closely to see what his own artists should be doing. But it’ll take more than SoundCloud’s isolated action to make a conclusive statement on how user-centric data impacts artists.
“Let’s see how many people jump from Distrokid to SoundCloud’s Repost, and see what those benefits are for after they make the shift,” he says. “But we’re talking about one DSP here. I don’t know how much it’ll actually tell us. it’d be another thing if Spotify tried this. SoundCloud’s being smart bringing in that lower and middle class of artists. They’re leveraging this opportunity to drive people to their own platform, and this could drive people there.”
SoundCloud’s larger competing streaming services haven’t dismissed a user-centric model. Elena Segal, Apple’s global senior director of music publishing, told the British Parliament in February that she thought a user-centric model was interesting, but added that there needed to be a desire for it from all of music’s licensors to implement it, according to Music Ally.
Spotify has taken a similar middle-ground stance. “Spotify believes that artists and songwriters should have a voice in how the streaming economy operates,” a spokesperson told Music Ally back in January. “While initial research around a user-centric payment model is limited and doesn’t show the dramatic shift many thought it might, if artists and songwriters prefer this model, we support conducting additional research and will keep an open mind. Of course, any change in payment model is a decision that would need broad industry alignment to make happen.” In other words: We’ll follow majority rule on this, but don’t count on us to lead.