How SoundCloud’s New Royalty Payments Actually Work



Illustration by Drew Schwartz

This week, SoundCloud announced this dramatically changes the way artists on the platform are paid in an effort to help smaller artists make more money from their music. If you’re not someone who follows the jargon, the complicated world of streaming music, the new system, which SoundCloud has dubbed “the fan-fed royalties”, can seem confusing. Let us break it down for you.

When you pay for a subscription to a streaming service like Spotify, Apple Music, or SoundCloud, your money goes into a big pot, along with the money the streamer earns from all other subscribers and advertising. A portion of the money in this pot goes to the business itself. Then it distributes the rest among the artists, based on each artist’s share of the total streams each month. The greater the share of the overall flow that an artist receives, the more money they make out of the pot.

All major streaming services use this system, known as the “pro-rated” royalty model, but there are problems with that, which musicians were complaining for years. For one thing, your subscription money ends up going to artists whose music you don’t even listen to. Even if you use Spotify to primarily listen to, say, indie rock bands, your money doesn’t necessarily go to those artists. Instead, it goes into the pot and then is split based on which musicians rack up the most stream. Most of your money goes to superstars like Drake, Taylor Swift, and BTS because these are the artists who generate the most streams, even if you haven’t listened to them at all. At the end of the day, great artists end up earning a ton of streaming royalties, and lesser-known artists receive meager payouts.

SoundCloud’s new royalty system is designed to change that. As of April 1, your subscription money will be alone go to the artists you actually listen to. The more you listen to a particular artist, the more your money goes to them. If you only listen to one artist, all of your money goes to them – minus the part that SoundCloud takes for itself.

“At its most basic and fundamental level, user-centric streaming is the right thing to do.”

If an artist on SoundCloud has a loyal fan base, even if it’s small, they’ll make more money with this new system than with the old one. This is because they will no longer be competing with the biggest artists on SoundCloud; they will receive money directly from their listeners.

While SoundCloud calls this system a “fan-generated royalty”, it is more commonly referred to as the user-centric royalty model, and artists have been pushing for streaming services to adopt it for years. The reason why, according to Larry miller, NYU Steinhardt’s Music Management Program Director, is simple: it’s fairer.

“At its most basic and fundamental level, user-centric streaming is the right thing to do,” Miller told VICE. “If you love an artist enough to listen to them – especially repeatedly – then isn’t it fairer for the money you pay for the service to go directly to the artists you love? lumped into a pool so that basically the rich get richer? “

It’s impossible to say exactly how much more lesser-known SoundCloud artists could make with this new system. The company provided two examples – one in which an artist’s monthly income increased from $ 120 to $ 600 per month through fan-generated royalties, and another in which the monthly income of a separate artist rose 217 percent – but they didn’t explain how they got there. to these figures, and they have not provided any data to support these claims. (As the Future of Music Coalition pointed out, they didn’t even provide the full names of the artists.)


Still, Miller said lower and mid-level performers should benefit from the new system.

“They will have a significant bump,” Miller said. “[Artists] will generate more money this way. How much more? And for how long? We do not know yet. ”

There are other aspects of SoundCloud’s new royalty system that in its announcement were not explained. Most important: the share of an artist’s income that SoundCloud will keep for itself. Although SoundCloud has not publicly mentioned them, they will take 45% of what an artist earns from their listeners through fan-generated royalties, said Michael Pelczynski, head of rights administration and publicity. SoundCloud strategy to VICE. A 45% reduction in streaming royalties is above average, Miller said. Under their pro-rata model, Spotify and Apple Music make up around 30%.

Another difficulty here is the fact that not all SoundCloud artists will get fan-generated royalties. Instead, only people signed up to three specific monetization programs will be: SoundCloud Premier, Repost, and Repost Select. (The latter two require artists to use SoundCloud as their distributor.) According to Tim Ingham, who runs the Music Business Worldwide industry blog, there are approximately 100,000 musicians in these three programs combined. This represents about 20% of all musicians on SoundCloud, Ingham wrote. In short, this new royalty system won’t apply to everyone on SoundCloud – it will apply to about a fifth of them. Other SoundCloud artists are either signed up to their Basic program, which is free, and does not allow users to make money with their music, or their SoundCloud Pro Unlimited program, which costs $ 12 per month, and their saves money. of their music. Pro Unlimited users will continue to receive pro-rated royalties, Ingham reports.

Because only a fraction of the artists on SoundCloud are eligible for user-centric royalties – and because SoundCloud is a much smaller platform than Spotify or Apple Music – what SoundCloud has done here is not necessarily a “game-changing development,” Miller said. . But it’s a step towards normalizing the idea of ​​user-centric royalties and – potentially – convincing other bigger streamers, like Spotify and Apple Music, to join us.

“I see this as a milestone in what is, for me, an inevitable adoption of user-centric royalty distribution,” Miller said. “It’s an idea whose time has come. It may not be here yet. But it is coming.”

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