Warner Music embraces SoundCloud’s user-centric revenue model

Warner Music Group has entered into a licensing agreement with SoundCloud to adopt the streamer’s fan-powered royalty system, which allocates royalties based on individual user viewing and is considered more artist-friendly. WMG is the first major label to adopt the system, and its adoption of the model could signal a bigger change for the industry.

SoundCloud made waves last year by introducing the new payment model in which the money paid by subscribers is allocated to the artists they actually listen to. It may seem like a no-brainer, but it’s far from the industry standard. The pro-rata model, which is used by industry heavyweights like Spotify and Apple Music, pools all subscription money and distributes it based on the total number of streams on the platform.

The pro rata method contributed to an extremely cumbersome distribution system. rolling stone previously reported that the top 1% of artists end up getting 90% of streaming revenue. This usually benefits the big labels, so it’s curious how Warner stands to gain from SoundCloud’s user-centric system. Besides its megastars like Dua Lipa and Ed Sheeran, it has a list of B-listers and its own creator distribution platform, Level. (Although a rep on behalf of SoundCloud wouldn’t reveal whether artists who use Level are included in the deal.)

“The evolution of the music industry brings new ways to create, consume and monetize,” Oana Ruxandra, Chief Digital Officer at WMG, said in a statement. “As the ecosystem grows, WMG is focused on advancing and experimenting with new business models to ensure that opportunities for our artists and their communities are maximized.”

The Fan-Powered Royalties system has certainly worked for SoundCloud. Less than a year after its introduction last spring, SoundCloud has seen a 30% increase in subscribers to its premium creator services, which start at $30 per year and go up to $144 per year.

The agreement is another sign that the user-centric model is gaining traction, even if it’s not close to becoming the norm. Tidal announced last fall that it was also moving to a user-centric model. Spotify has acknowledged the new approach to royalties but is waiting to see what the rest of the industry does. Warner, although the smallest of the three biggies (Universal is the biggest, with Sony second), could help move the needle.

About Chris Stevenson

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