WTFN: Soundcloud, and How to Pay Artists Fairly

Since streaming became the #1 source of income for the record industry, and the leading way that people listen to music, the biggest question on the industry’s tongues has been how to compensate the artists fairly. Last week, Soundcloud made an announcement which could potentially be a game changer: Fan-Powered Royalties. While you can read in more detail about the change to their model here, the breakdown is that artists on Soundcloud will be paid based on the number of dedicated listeners they have, instead of the number of streams they receive.

The Current Model

We will use Spotify to explain how the current payment model works. Currently, Spotify doles out slices of its royalty pies based on the number of streams an artist receives. If an artist like Taylor Swift has 10% of all the streams on Spotify, then Taylor (and her label/publishers/etc) receive 10% of all the royalty payments from Spotify. What this ends up equalling is between $.003 and $.005 per stream, meaning most artists have to get at least 250 streams to earn a single dollar. While the Swifts and Wallens and Drakes of the world will get enough streams to take in a healthy amount of revenue this way, the majority of working artists won’t earn enough to pay their rent. And while up until 2020 this was a problem artists could deal with by relying on touring and merchandise sales to bring in most of their income, the pandemic put a major quash on those revenue streams, leaving streaming (and a paltry sum of physical album sales and livestream ticket sales) their main source of survival.

Where the Problems Lay

Before diving further in, let me preface that I do not have access to Spotify or Apple’s numbers or data, and can only speak to what’s been released publicly. Since launching in 2006, Spotify has said it’s paid out $25b to rights holders. Sounds like a lot, but that amount would likely be a lot less impressive if one were to break it down to how much has been divided up to each individual artist, and when reaching that artist, how much of that sum the performer actually receives after doling out pieces to any additional parties (label, publisher, co-writers, producers, etc).

Many artists and people in the music industry have been asking for a flat, per song fee, with the Union of Musicians and Allied Workers calling on Spotify to increase royalties to one cent a stream, and adopting a user-centric model similar to what Soundcloud announced. While I personally want nothing more than for artists to be compensated fairly for the work they create and to be able to make a living off their streaming revenue, I am going to play devil’s advocate to this demand.

The Problem With a Penny Per Stream

Spotify charges roughly $10/month for its premium subscription service, and $15/month for its family plan. Taking only these into account (as I don’t know what Spotify charges for advertisements in their free model), the question is could Spotify continue to run a profitable business with these fees if they paid out one cent a stream. To save you the time on the math, $10 translates into 1,000 cents, meaning if a premium member listened to 1000 songs over the course of a month, all of their $10 would go towards paying the artists they listened to. If you’re someone like me, who listens to a minimum of 2,500 songs a month, that means Spotify would need to pay out $25 to artists, while only taking in $10 from me.

If the majority of listeners on average listen to under 1000 songs a month, then it’s feasible that Spotify could afford to pay the one cent a month and take a minor hit on outliers like me. But if the majority of listeners did listen to over 1000 songs a month, then it would cut into Spotify’s profits and make their business model untenable. And this would become even harder one Family plans, where the $15/month fee would be split between a number of users’ listening habits.

Is there a flat fee that could be tenable, where all artists would earn real money per stream while not breaking the streaming service’s bank? Only someone with access to Spotify’s numbers could really answer that.

The Cost of Streaming

Once again not including the ad-based subscriptions which are a problem unto themselves, the question has to be asked – is $10/month a fair amount to pay to have unlimited music available to you wherever you are? This is what Spotify, Apple and Youtube charge for their monthly premium subscriptions (Amazon Music charges only $8/month). And as someone who pays this, I have to say – it’s pretty low. Like, it’s an amazing deal for music lovers like myself. But maybe it’s not that good for those making the music.

I can say wholeheartedly that I would pay more for my Spotify subscription, especially if I knew that the extra amount I was paying was going towards the artists. What is the highest amount for a subscription like this that the market can tolerate? $15/month? $20/month? What will make that increase in cost worth it if the free, ad-based model is still available? Another question is whether the ad-based model still makes sense. If it converts enough users to the premium model over time, then yes, but as the ad-based doesn’t pay Spotify as well as the premium service, should they do away with it to force more users into the premium service?

The Label Issue

The full blame for the current state of things can’t all be put on Spotify, Apple or any of the other streaming services – one has to look at each artist’s deal as well. When signing with a label or distributor, and artist is knowingly giving away a portion of their sales revenue for the support those services provides them. While many veteran artists made their deals before streaming became the dominant source of income, and so may not have had the knowledge or leverage to negotiate a stronger deal for themselves, newer artists in the current climate have to be savvy and sign deals knowing that their music will mainly be heard via streaming services.

Of course, some labels distribute directly to DSPs, while some work with third party distributors, and the deals they negotiate vary depending on how much sway that label has. In cases like these, it may help to sign with a label that has a good deal with the DSPs and provides a large piece of the pie to their artists.

This also begs the question – should artists even sign to a label? Do they need managers or PR? Unfortunately artists are forced to work with some type of distributor to have their music put onto DSPs, as they do not currently let artists upload tracks themselves, but outside of this they have a lot of freedom. To make the most profit from their music, an artist would need to self-release their music, own their masters, handle their own marketing/PR, and write 100% of their songs. That’s a lot of work. Fully possible to do, but that will be for each artist to decide what they are willing to pay for, knowing the numbers on each check they receive will only shrink the more outside help they get.

The New Model

So what makes Soundcloud’s new model better for independent artists? Say you listen to only five artists in a single month: Bon Iver, Jenny Lewis, Anderson .Paak, Chloe Flowers and Bad Operation. Your monthly fee to Soundcloud will be distributed solely to these five artists, as opposed to joining a larger, overall pool of money, and being divided up among all artists on the service from that overall amount. This could mean the difference between the five acts listed above receiving $2/each and $.002 each. In this same regard, the larger mega-star artists will likely receive slightly less money, as while they will certainly have tons of loyal fans listening to their music and getting them payments, the portions they are paid will be coming from a smaller pool.

It will become more profitable for a band to have loyal fans than one big single, which is great for bands that don’t exactly write songs that play to the current pop market. Of course, if the other major streaming services (Spotify, Apple, Amazon and YouTube) don’t follow suit and enact a similar model, it’s unlikely that Soundcloud moving in this direction alone will be enough to shift the market more in independent artists’ favor.

Is This the Way?

It will take some time to see if Soundcloud’s new fan-based model proves a game changer or a blip in the system. Artists are still going to want to have big hit singles, and the music industry is still going to do whatever it can to make money while paying out everyone but the artists fairly. And to be fair, (most of) the people who work at labels, marketing, PR, publishing and independent songwriters all deserve to have careers and make a living just like the artists do. Many of them love music and want the artists to have success too. What it comes down to is A) how much should music lovers pay for their streaming services, B) how should those services pay out the revenue and C) how should that revenue be split among all the parties responsible for the music.

As more people sign on to premium accounts with the various DSPs, it will provide a large pool of money for artists to draw from, making some headway with the problem, but certainly not solving it. It may come down to artists needing to innovate more, creating Patreons/subscription services of their own that offer fans exclusive benefits, or simply adding a “donate” button to their pages on the various DSPs where fans can send money to them directly.

What do you think is the best way forward? Leave a comment and let us know your thoughts!

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