What SoundCloud’s New Payout Structure Could Mean for Artists

SoundCloud’s recently announced a big change in how it’ll be paying artists on its platform in an effort to help smaller artists actually make money from their music and benefit directly from listeners and fans. The system, dubbed “fan-powered royalties,” will exist in contrast to the typical payment structures on competing streaming services.

Apple Music and Spotify use a system called “pro rata,” where all the money made from subscriptions and advertising goes into one big pot. Money is first subtracted out to pay the company, and then the rest is divided up among artists based on their share of total streams that month. This means that the more streams an artist gets, the more money they make. 

The problems with this model may seem fairly clear from a fan perspective — why should you be paying an artist you’re not even listening to? While these services allow you access to thousands of songs every single month and the ability to discover tons of new artists, if you’re primarily listening to your favorite regional indie bands, it might not make sense to you logically for your subscription to be mostly going into the pockets of huge artists like Drake (even if it’s good music, why lie?).

Taylor Swift was one of the first artists to be vocal about how detrimental the traditional streaming payout model is to smaller artists, engineers, and producers. For many years of her career, her music was withheld from streaming services. Now, her Universal Music Group record deal ensures “any sale of their Spotify shares result in a distribution of money to their artist, non-recoupable” and she’s continued behind-the-scenes conversations about improving things.

Phoebe Bridgers has also spoken lately about how middle class musicians are disappearing, especially in light of Covid-19 shutdowns, because “it’s either you have a trust fund, and you can pay to go on tour […] there’s a danger that [the pandemic will] really increase the privileged divide of music, which is heinous.”

Musicians rely on touring and merchandise sales, but when music consumers primarily stream content and touring shuts down, the unfairness of streaming payouts is amplified. Consumers are in a routine of paying their subscription, and many people don’t have the disposable income they once did or the relationship with music they used to where they want to buy physical or digital copies when the streamed versions are so readily available. 

SoundCloud’s new system is ideal for changing so much of these issues and could be huge for smaller artists. It’s a logical system — the more you listen to an artist, the more money they make. It’s user-centric, and it’s what artists have been pushing for platforms to adopt for years. 

Bandcamp has also adopted a promotion during the Covid-19 pandemic over the past year with “Bandcamp Fridays.” Every Friday, all revenue share for online sales is waived and goes straight to the artist. For music fans who are super engaged with particular artists, they’re able to purchase music and know they’re directly benefiting them with no middleman. Similar concept to SoundCloud here: you like an artist, you pay them.

Consumers want to directly support artists when they’re able, so a “fan-powered” model would reflect this desire and help musicians actually make money through streaming, especially since it’s hard to picture what touring could look like in the next year (though many are optimistic).

What isn’t clear is how much of artist earnings SoundCloud will make from the new payout structure. The other issue is that not every artist will benefit, only those enrolled in three specific programs will: SoundCloud Premier, Repost, and Repost Select — and the latter two require artists to use SoundCloud as their distributor. Essentially, as it stands right now, only about 20 percent of all musicians on the platform will reap the benefits. 

Since SoundCloud is a smaller platform, and only a small percentage are going to see increased paychecks, a cynical mind might see this as nothing revolutionary, but this could be a step in the right direction.

“At its most basic and fundamental level, user-centric streaming is the right thing to do,” Larry Miller, director of NYU Steinhardt’s music business program, said to VICE. “If you love an artist enough to listen to them—especially repeatedly—then isn’t it more fair for the money that you’re paying the service to go directly to the artists who you love? And not to be aggregated in a pool so that, basically, the rich get richer?”