Which music streamer pays best? How user-centric royalties could become a competitive advantage

The reality of how unsustainable streaming royalties are has been an industry issue with no clear fix for some time – something which SoundCloud’s move to fan-powered royalties could change by turning a user-centric model into a competitive advantage.

Guest post by Chris Castle of Music Technology Policy

“How long? Not long, because the arc of the moral universe is long, but it bends toward justice.” – Reverend Dr. Martin Luther King, Jr., Our God Is Marching On! March 25, 1965, Montgomery, Alabama

Everyone knows that streaming royalties are unsustainable. The question is what to do about it. The current system evolved from the early days of online music services and the advertising-driven madness of the Web 2.0 era. Over time, the interactive streaming revenue share model has been extended from advertising and applied to subscriptions. The terms have been tightened down again and again until it has become what it is today–the hyper-efficient market share distribution of revenue that completely ignores the vast wealth extracted from the public financial markets by companies like Spotify. It comes as a surprise to fans that when they think they are supporting the artists they love, the fan’s subscription revenues are being paid to artists that the fan never listens to. It also comes as a surprise to artists that their streaming royalty check is derived from their fellow artist’s work product. And this doesn’t address the session players and background vocalists.

It is this unsustainable model that has attracted great attention. Many alternatives have been proposed to connect fan listening to fan payments, often under the category of “user-centric” royalty methods. This was a topic at the recent hearings before the UK Parliament’s Digital, Culture, Media and Sport Committee where there was considerable testimony about user-centric in an effort to develop an equitable and fair model–the implication from the Members of Parliament being that if the industry didn’t fix the “market centric” structure, the government might fix it for them.

What was most interesting to me was that Amazon, Apple and Spotify were all essentially testifying that they knew the system was grotesquely unfair and seemed to accept that as a given. While Spotify’s representative put up the usual risible drivel about how poor Spotify cannot make a profit, he pretty much had to acknowledge that Spotify had to pay more (and do make direct payments to both featured and nonfeatured artists in a few countries like Spain). Which means that the pretense that streaming royalties would be adequate if it weren’t for the greedy labels had far less purchase with the Members than it did before. Which is what you would expect from any right thinking person who educated themselves about the situation on the ground.

We’re a long way from here to there, but a journey of many miles starts with a single Parliamentary inquiry. I believe that the trick is going to be getting the market to drive adoption of a user centric model as a competitive advantage, and that brings us to the SoundCloud announcement about their new “fan powered” royalty offering.

The tone of SoundCloud’s announcement is definitely one of “look at me.” Although for once a streaming service is not saying look at me I have floors and floors of the most expensive office space on the planet while I pay artists a fraction of a penny, or look at me I’m a billionaire, or look at me I saved the music industry. Instead, and most remarkably, a streaming service is saying look at me, I’ve identified the problem of fans paying for music they don’t listen to and the embarrassingly low royalties for artists (and songwriters for that matter) and I’m doing something about it. As I read SoundCloud’s public messaging campaign, the company is putting it out there for a competitive reason–they want to attract artists because they are making an effort at treating people fairly.

In other words, SoundCloud is positioning user-centric as a competitive advantage to attract artists to opt in to the SoundCloud version of user centric. I think this is a very important development because it identifies the real choice for independent artists–to stream or not to stream. If you are driving your fans to a music service but the service pays you so little there may as well be no royalty at all, the question for you is not how many streaming services you can do free work for in fear of missing out. The question for you is whether any of it is worth it, particularly if you now have a better alternative. This may be a sign that the market is starting to drive the issue.

SoundCloud’s new program is also an indicator of another voice on the horizon–successful artists who get woke to the idea that this model causes them to take money away from the less fortunate artists. The day may easily arrive when an artist like Billie Eilish or Taylor Swift walk away from a service because she doesn’t want to be exploited in the “market centric” royalty model. When artists announce these decisions on the Grammy Awards. Now that would be quite a market force.

And if Daniel Ek doesn’t like windowing, just wait til he gets a load of what the arc of the moral universe has in store for him. It won’t be long.