Why Pro-Rata Streaming Royalties Are the Wrong Model

I’ve never believed that an artist should need hundreds of thousands of listeners, or hundreds of thousands of streams every month, to make a living from their music.

That doesn’t mean I think artists shouldn’t build big audiences. Of course they should. The more people who care about an artist, the more opportunities there are to build a sustainable career around the music.

What I question is the assumption that scale should be the primary measure of value. I saw a different possibility at SoundCloud.

When I joined SoundCloud as Global Head of Music in January 2023, Fan-Powered Royalties had already been running for nearly two years. I believed strongly in the principle behind it and spent a lot of my time thinking about how we could push the idea further and make the relationship between artists, fans and the platform more meaningful. SoundCloud had already brought Warner into the model before I arrived, and during my time there the agreement with Merlin extended Fan-Powered Royalties to a much broader group of independent labels and their artists.

What interested me wasn’t just the royalty calculation. It was what the model said about the value of fandom.

If someone listens to an artist repeatedly, follows them and comes back every time they release something new, that person is valuable to the artist. You don’t need millions of those people for that relationship to matter.

That thinking also sat behind First Fans, which we developed during my time at SoundCloud. One of the problems facing independent artists is simply getting anyone to hear a new piece of music. There are millions of tracks available and an artist can put something out that they have spent months making and still have virtually nobody hear it. First Fans was designed to give a new track an initial audience of genuine listeners. The first 100 listeners were there to see whether the music connected, and if it did, the audience could then be widened to 1,000.

I cared about that because I don’t think independence should mean having to work out how to become famous before you can build a business. An artist should be able to start with a small audience, understand who is responding to their music, build from there and decide for themselves how far they want to take it.

That was also why the ability to identify fans became so important to me. If an artist knows who is listening repeatedly, who has been there from the beginning and where those people are, they have something they can work with. They can build a relationship with those people rather than looking at a number in a dashboard and hoping it turns into a career.

It also changes how I think about streaming royalties. The pro-rata model takes the money generated by subscriptions and advertising, puts it into one pool and distributes it according to each artist’s share of total streams. It has been the dominant model because it is straightforward to operate at enormous scale.

But it treats the global stream count as the most useful measure of an artist’s value, and I don’t believe it is. An artist with 5,000 people who listen to almost everything they release has a very different relationship with their audience from an artist with millions of people who play one track once. Those 5,000 people might buy a ticket, buy a record, subscribe to something, buy merchandise or tell their friends about the artist. They are the people who can become the foundation of a career.

The pro-rata model doesn’t see that relationship. It sees streams.

SoundCloud’s Fan-Powered Royalties model allocates a listener’s subscription or advertising revenue among the artists they listen to, rather than putting everything into one global pool. In 2022, more than 135,000 independent artists were participating in the model, with independent artists earning an average of 60% more than they would have under the previous pro-rata system. There was also a 97% increase in fans individually contributing more than $5 to a single artist through their listening.

There are legitimate arguments about how different royalty models distribute money, and user-centric isn’t going to create more money in the system. It changes where the existing money goes.

What I liked about Fan-Powered Royalties was that it put the fan back into the calculation. If someone spends most of their subscription listening to one artist, the economics should be able to reflect that.

There are other signs that the industry is starting to think about this differently. UMG and Deezer’s work on an artist-centric model is one example. It puts more weight on professional artists and engaged listening, while also tackling some of the problems that have grown around streaming, particularly fraud and low-value content. UMG has since taken that thinking into its relationships with other platforms too.

Artist-centric and Fan-Powered Royalties aren’t the same thing, and I wouldn’t pretend they are. But both question the idea that a stream count on its own tells us much about the value of an artist or their audience.

Artists have also become very good at finding other ways to make money. Touring, merchandise, vinyl, memberships, paid newsletters, direct-to-fan products and brand partnerships can all be good businesses. I want artists to have those options. Having more control over your business and more than one source of income is a good thing.

What I’m really asking is whether we’ve gone too far in accepting that streaming itself doesn’t need to provide meaningful income unless an artist reaches a huge scale.

If you are an independent artist with 10,000 people who care about your music, I don’t think that should be dismissed as a small audience. That’s 10,000 people who have chosen to listen to you. If some of them listen to everything you release, there is a relationship there. That’s where I think the streaming model is still too blunt.

I’ve spent enough of my career working across music and technology to have seen a lot of different versions of this problem, and I still think we’re putting too much weight on the size of the audience and not enough on the quality of the relationship.

At SoundCloud, we were able to look at who was listening, who was coming back, who had found an artist early and where those fans were. That information is useful because it tells an artist something about the business they are building, rather than just telling them how many times something has been played.

That was the thinking behind First Fans too. Help an artist find the people who are likely to care about their music, give them the opportunity to build that audience and make it possible for them to understand who those people are.

For an independent artist, that can be the difference between having a number next to a song and having an audience.

I don’t think an artist should need hundreds of thousands of listeners before streaming starts to mean something financially. I don’t think they should need to become a global name before the people who already care about their music have economic value.

If you have a small number of fans who are engaged, that should count for more than it does today.

That’s the thing I keep coming back to. A small audience that cares can be a valuable audience. I think the streaming economy should be better at recognising that.