SoundCloud says fan-sourced royalties work — and not just for big artists

A year into SoundCloud's fan royalties, a move away from the traditional “pro rata” method of calculating streaming royalties, artists have a better understanding of their fan bases and a better chance of monetizing their listeners, according to a new report by author, podcaster and finance professor Will Page.

Fan royalties — known more widely as user-centric royalties — are a method of calculating streaming payments to independent artists based on the listening of individual fans on SoundCloud. The traditional, pro-rata model divides a large pool of revenue based on the total number of plays of a piece. In this scenario, an up-and-coming artist shares the same rights pool as the biggest superstar.

User-centric rights break a large pool into smaller silos by dividing a listener's subscription or advertising revenue based on only the tracks streamed. If a listener streams only independent artists, most or all of the user's subscription or advertising revenue will go to those artists. Since SoundCloud first announced fan-sourced royalties in 2021, Warner Music Group and Merlin have agreed to use the calculation approach for their artists.

SoundCloud singles out an artist's biggest fans and gives artists the tools interact with these supporters through person-to-person messaging; With the help of tools that help artists interact directly with their fans on the SoundCloud platform, a small number of what SoundCloud calls “true fans” will provide an “excessive” share of an artist's royalties. (The page didn't define “true fan” or explain the line that separates them from the less passionate.) The combination of engagement tools and fan-powered rights “make this true fan game the most desirable,” Page wrote. .

The promise of royalties from fans is a more viable business model for up-and-coming and working-class musicians. For SoundCloud, a well-known springboard for new musicians to enter the big leagues, a model that favors independent artists over major label superstars would help cement that platform's credentials in the creative community.

Thus, Page offered three case studies that examined artists at different stages of their careers. In 2022, the Rapper Lil Uzi Vert optioned the fan rights and gave SoundCloud an exclusive to the track “Space Cadet” from his Red white ER. As a result, according to Page, “more of Uzi's listeners became true fans, and those true fans made up an even larger percentage of total revenue.” With fan rights and insights from the platform, true fans represented 6.5% of the rapper's audience in July 2022, up from 5.2% the previous month, as well as 71.8% of his revenue, up from 54 .6%. The audience he gained was engaged: 6% of them were true fans, 69% were classified as engaged, and only 9% were passive listeners.

To show that fan-sourced royalties can help a mid-level independent artist, Page offers the example Kelow LaTesha, a rapper with around 14,000 SoundCloud followers. LaTesha used royalties from fans to reach more listeners. Real fans' share of her revenue jumped to 45.7% in July 2022 from 32.2% in June 2022. The number of real fans increased, but as she gained a larger share of passive listeners, LaTesha's real fans accounted for 1.4% of its listeners, up from 1.7%.

The do-it-yourself case study, focusing on the EDM producer/DJ ShortRound, improved both his true fans and his revenue from those fans. From June to July 2022, True Fans' share of DJ ShortRound's SoundCloud audience increased from 3% to 4.4%, and their share of his revenue jumped from 77.7% to 82%.

SoundCloud's adoption of fan rights predated a larger effort to make streaming more financially viable for labels and artists. Universal Music Group partnered with streaming service Deezer in 2023 to improve payments to professional musicians while reducing payments to background noise and other types of audio content that arguably provide less value to listeners. In Europe, politicians are calling for “fairer streaming revenue sharing models” for artists.

SoundCloud's approach may not be the best approach for all streaming platforms, but the few case studies prove that the approach works for SoundCloud. The combination of fan rights and creator tools “opens up a new path to prosperity that the entire music industry should understand,” Page wrote.