Warner Music signs up to SoundCloud’s fan-powered royalties

Following a licensing deal entered into between the two organisations this week, WMG artists can now benefit from the artist-friendly payment model on SoundCloud.

The FPR system allocates royalties based on individual user listening, and by embracing it, WMG may set off a shift in the industry.

The system, introduced by SoundCloud last year, ensures money paid by subscribers is channelled to the artists they actually listen to. This is unlike the pro rata model used by industry giants like Spotify and Apple Music, which pools all subscription money and divides it based on total streams across the platform.

“Under FPR, each fan’s subscription or advertising revenue is distributed among the artists they listen to, rather than being pooled under the traditional pro rata model the music industry has been using for over a decade,” SoundCloud said.

WMG chief digital officer Oana Ruxandra said: “The evolution of the music industry brings new ways to create, consume and monetise. 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 maximised.”

The pro rata method favours top artists at the expense of smaller artists. A previous Rolling Stone report showed that the top 1% percent of artists are paid 90% of streaming revenue. This generally benefits the major labels, so it remains to be seen how Warner stands to gain from SoundCloud’s user-centric system.

A recent study on FPR conducted by entertainment research firm MIDiA from 118 000 SoundCloud musicians found that 56% of artists earned more under the FPR system than pro rata models. Bigger artists with more than 100 000 listeners, however, earned less under FPR.

MIDiA also observed that “smaller artists get larger payouts when they have ‘superfans’ or listeners whose streams contribute more than 10 cents a month.”

The report also found that FPR helps obscure musicians enter the higher payout brackets, with SoundCloud seeing a 9.2% increase in artists who earned more than $1 000 from streaming payouts between April 2021 and February 2022.

Although user-driven payout models such as FPR are gaining traction, they still have a long way to go to have a significant effect on the industry, unless big players like Spotify or Apple Music adopt them. The other two of the Big Three record labels – Universal and Sony – would also have to join WMG for the FPR system to have the desired impact.