SoundCloud Shifts to an Industry-First Model That Benefits Independent Artists

Can musicians make a living based on revenue from streaming services alone?

The general consensus seems to be ‘no.’ It doesn’t really matter if you’re an up-and-coming artist or a household name, artists just aren’t making much money on streaming services like Spotify and Apple Music.

According to Insider, Spotify pays artists anywhere from $.0033 to $.0054 per stream, meaning you’d need about 250 streams to get a single dollar. Even those amounts are estimates, since Spotify operates largely in the dark and isn’t fully transparent about how it compensates artists. To be sure, the music industry’s financial model is messy, and tends to benefit labels the most. The pandemic has also taken away live music, a major source of income for many musicians, meaning they’re more reliant on streaming services than ever.

But a few weeks ago, SoundCloud announced it’s changing the status quo with the introduction of something called “fan-powered royalties.” If you’re a paid SoundCloud subscriber, the money you pay will be shared with the artists you actually listen to.

According to SoundCloud: “With fan-powered royalties, each listener’s subscription or advertising revenue is distributed among the artists they actually listen to, rather than being pooled. This new model empowers fans to play a larger role in the success of their favorite artists. It also encourages the growth of local scenes and the rise of new genres.”

Let’s use a hypothetical example. Let’s say you pay $5 a month for your SoundCloud subscription, and you listen to five different artists equally. Those five would each get $1 from you. If you listened to two of them more than the other three, then those two would get more of your money. It’s a proportional way of paying artists, and quite honestly, makes a lot of sense.

The key thing to note here is that it’s based on the amount of time you spent listening to a particular artist, versus just the number of streams. Under the “old” model, paid subscribers’ money is put into one large pool and distributed based on the number of streams, meaning megastars like The Weeknd, Justin Bieber, or Cardi B make off with the highest income.

This is actually a big shift in the industry if you think about it, with SoundCloud calling it a “game changing” way for independent acts to get paid more because of dedicated fans. The key emphasis is on fans here, because artists’ revenue on SoundCloud will ultimately rely on “forging deeper connections with their most dedicated fans.” So if I were to discover a brand new, up-and-coming artist on SoundCloud, and I listened to them 50% of the time, they would directly pocket half of the money I pay for my subscription. It also puts the onus on artists to be more creative with how they engage with fans, and is a strong incentive for them to focus their time and energy promoting their pages or releases on SoundCloud (versus other streaming services).

It’s also a considerable shift because, as this Hypebot article says, it’s a pivot from a market-centric model to a user-centric, “ethical pool” model. As the article notes (which is worth a read itself), SoundCloud’s approach is more ethical to the artist because it essentially threatens to disrupt the “hyper efficient market share distributions of the ‘big pool,’’ with big pool being a nod to the current model. As previously mentioned, it’s also the only streaming service that has adopted such a model so far, so in the short-term, it’s likely to be a competitive differentiator. In the long-term (and assuming it’s successful in what it sets out to do), SoundCloud’s model could force Spotify or Apple Music to incorporate something similar.

This new fan-powered royalty system will be implemented on Thursday, April 1. For now, it’s too soon to tell if this model will substantially benefit artists, and it will take time to see the progress. It’s also worth noting that SoundCloud’s website gives a high-level overview of fan-powered royalties, but doesn’t really get into the nitty gritty details (including how fan’s subscription fees will be used to pay for advertisers on the platform, if at all). Needless to say, what SoundCloud is doing is a welcome shift in the industry because it promises to benefit both the artists and fans, and we could see more independent artists using its platform over alternatives.