Warner Music Group has agreed to implement SoundCloud’s Fan-Powered Royalties system, which distributes royalties based on individual user listening and is regarded to be more artist-friendly. WMG is the first big label to adopt the approach, and its acceptance may herald a larger movement in the industry.
Last year, SoundCloud made headlines by introducing a new compensation model in which money paid by subscribers is allocated to artists they really listen to. That may sound obvious, yet it is far from the industry norm. The pro rata model, adopted by industry heavyweights such as Spotify and Apple Music, pools all subscriber money and divides it based on total platform streams.
The pro rata method has contributed to a distribution structure that is exceedingly top-heavy. According to Rolling Stone, the top one percent of musicians receive 90 percent of streaming revenue. That usually advantages the major labels, so it’s unclear how SoundCloud’s user-centric structure will benefit Warner. Aside from its megastars such as Dua Lipa and Ed Sheeran, it has a stable of B-listers as well as its own creator distribution network, Level.
SoundCloud has clearly benefited from the Fan-Powered Royalties arrangement. SoundCloud’s premium creator services, which start at $30 per year and go up to $144 per year, witnessed a 30 percent increase in subscriptions within a year of its launch last April.
The agreement is yet another indication that the user-centric paradigm is gaining support, albeit it is far from being the standard. Tidal said last fall that it was also shifting to a user-centric approach. Spotify has acknowledged the new royalties structure but is waiting to see what the rest of the industry does. Warner, although being the smallest of the three huge names, has the potential to make a difference.
