Warner Music adopts SoundCloud’s user-centric revenue model

Sharanya Sinha
Sharanya Sinha July 24, 2022
Updated 2022/08/05 at 1:34 PM

Warner Music Group ended its licensing agreement with Soundcloud to adopt a fan-based streamer royalty system, which distributes royalties based on user previews and is considered more artist-friendly. WMG was the first major brand to adopt this system and the introduction of this model is a major change for the industry. SoundCloud made waves last year by introducing a new payment model where the money paid by subscribers goes to the artists they actually listen to. This may sound silly, but it is far from the industry standard. The proportional model, used by industry heavyweights like Spotify and Apple Music, collects all the subscription money and distributes it based on total flows between platforms.

The proportional system contributed to a very heavy distribution system. Rolling Stone previously reported that 1% of artists receive 90% of streaming income. This generally favors major labels, so it’s interesting to see how Warner music benefits from SoundCloud’s user-centric structure. In addition to superstars like Dua Lipa and Ed Sheeran, it has a roster of B-listers and its own creative distribution platform, Level. (However, a SoundCloud spokesperson did not reveal whether artists using Level would be included in the deal.)”The evolution of the music industry is bringing new ways of creation, consumption and monetization,” WMG Chief Digital Officer Ona Ruksandra said in a statement. “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 maximized.”

The Fan-Powered Royalties system has certainly been working for SoundCloud. Within a year of introducing it last spring, SoundCloud saw a 30 percent jump in subscribers to its premium creator services, which start at $30 a year and go as high as $144 per year. The deal is further proof that the user-centric model is gaining ground, although it has yet to become the norm. Tidal announced last fall that it was moving to a user-centric model. Spotify has agreed to a new approach to royalties, but it remains to be seen what the rest of the industry will do. Warners, although the smallest of the Big Three (Universal is the largest, Sony is second), can help move the needle.

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