Warner Music Group has cut a licensing deal with SoundCloud to adopt the streamer’s Fan-Powered Royalties system, which allocates royalties based on individual user listening and is thought to be more artist-friendly. WMG is the first major label to adopt the system, and its embrace of the model could signal a larger shift for the industry.
SoundCloud made waves last year when it introduced the new payout model in which money paid by subscribers is allocated to artists they actually listen to. That may seem like a no-brainer, but it is far from the industry standard. The pro rata model, which is used by industry heavyweights like Spotify and Apple Music, pools all subscription money and divvies it up based on total streams across the platform.
The pro rata method has contributed to an extremely top-heavy distribution system. Rolling Stone previously reported that the top 1 percent of artists end up getting 90 percent of streaming revenue. That typically benefits the major labels, so it is curious how Warner stands to gain from SoundCloud’s user-centric system. Aside from its megastars like Dua Lipa and Ed Sheeran, it does have a roster of B-listers and its own creator distribution platform, Level. (Though a representative on behalf of SoundCloud did not disclose whether artists who use Level are included in the deal.)
“The evolution of the music industry brings new ways to create, consume and monetize,” said WMG chief digital officer Oana Ruxandra in a statement. “As the ecosystem expands, WMG is focused on advancing and experimenting with new economic models to ensure the opportunities for our artists and their communities are maximized.”
The Fan-Powered Royalties system has certainly been working for SoundCloud. Within a year of introducing it last spring, SoundCloud saw a 30 percent jump in subscribers to its premium creator services, which start at $30 a year and go as high as $144 per year.
The deal is another sign that the user-centric model is gaining traction, though it isn’t close to becoming the norm. Tidal announced last fall that it was moving to a user-centric model as well. Spotify has acknowledged the new approach to royalties but is waiting to see what the rest of the industry does. Warner, though the smallest of the three biggies (Universal is the biggest, with Sony coming in second), could help move the needle.