Amid continued discussions about user-centric streaming payouts – and the growing prevalence of artificial intelligence – a new deep-dive study is exploring the complex potential effects of a pivot away from the pro-rata model.
Essen-headquartered Pro Musik, a self-described indie-musician association, published the 63-page report, entitled “Payment Option Transparency,” in German as well as English. For background, leading music streaming services like Spotify and Apple Music pay recorded royalties under the mentioned pro-rata model.
Critics say that this model – through which revenue (less fees) is distributed as a portion of total streams – is detrimental to acts without millions upon millions of listeners to their credit. And as a potential solution, some are touting the user-centric model, which compensates creators based upon their share of each fan’s on-platform listening time.
For example, a streaming service user who spends 70 percent of his or her listening time enjoying the work of one act would then see 70 percent (less fees, once again) of the monthly advertising or subscription revenue at hand reach the involved artist under the user-centric variation.
SoundCloud has for years been utilizing the user-centric model (billed as “Fan Powered Royalties”), which Warner Music Group adopted in a licensing deal last year. Spotify has addressed the possibility of transitioning to the model, and given the above-described advent of AI (and an adjacent tidal wave of generated tracks), Universal Music Group has since 2023’s start been discussing streaming-compensation reform with players including SoundCloud.
Moving past this overview and returning to the study, Pro Musik found that “the overall impact” of implementing the user-centric model “would be significant” – and not solely because revenue would be shifted from a portion of well-known acts.
As part of the study, Berlin-headquartered SoundCloud “provided real market data regarding user behavior on its platform,” according to the resource, referring specifically to “50,300 artist profiles” – not necessarily proper artists – enrolled in the Fan-Powered program.
The association indicated that said market data had derived from around 1.5 million individuals’ consumption habits between May and October of 2022. Despite factoring for major markets including the UK and Germany, organizers (who performed basic calculations to estimate pro-rata revenue) didn’t account for stateside stats or user data from Japan.
“In 16 out of 18 countries analyzed, more than a quarter of the total revenue pie could be redistributed – with the average for top countries at 25.4%,” wrote two-year-old Pro Musik, which also emphasized that it “will not recommend or advocate for or against” the user-centric model. “The average across all countries is even higher at 32.6%.”
Of course, this described royalties recalibration would effectively draw revenue away from certain acts and forward it to others – a point that the organization illustrated in a visual resource.
In terms of the study’s largest average percentage of redistributed streaming revenue by nation, France’s rate hovered around the 30 percent mark – compared to roughly 20 percent for the UK on the low end, which evened out the figures and contributed to the previously noted 25.4 percent average.
Expanding upon the points, Pro Musik found that 41.5 percent of artist profiles in the study’s “top countries” had benefited (with increased royalties) from the switch to user-centric. Per the report’s authors, three straightforward factors – “relative user reach,” “user commitment,” and “average user spend” – when plugged into calculations can determine with 97 percent accuracy whether an artist would gain from the model.
Demonstrating the significance of all three listed factors (and some of the user-centric model’s seldom-discussed possible byproducts), the organization disclosed that a number of “mid-sized artists in terms of streams” had seen their payments decline while others – with nearly the same play totals – had enjoyed a revenue boost.
“However, the realization that UCPS [user-centric payment system] – like any other alternative payment model – would produce winners and losers is not surprising,” Pro Musik wrote towards the resource’s end. “Instead, it leads to a question that is potentially at the core of assessing UCPS: If its impact is indeed significant, can that impact be considered ‘favorable’ as well?”