Beginning on April 1, SoundCloud's payment system for independent artists will change, making it the first major streaming service to operate based on "fan-powered royalties."
This new user-centric system means that revenue collected will depend on how many fans are streaming an artist rather than how many streams they have.
In the past, royalties have been collected as per a pro-rata model, which accumulates subscriber payment and divides revenue according to the rights holders' share of the total streams. For example, if Justin Bieber amasses 10% of the total streams on Spotify in a given month, share holders for his music will receive 10% of your monthly subscription fee, regardless of the time you've spent listening to his music.
With SoundCloud's new system, artists collect revenue hinging on how many fans listen to them, rather than the number of times their music has been streamed. Now, a mass quantity of streams by a single subscriber has little to no impact, as artists are paid by amount of fans listening.
Michael Weissman, CEO of SoundCloud, made a statement to the public: “Many in the industry have wanted this for years. We are excited to be the ones to bring this to market to better support independent artists. SoundCloud is uniquely positioned to offer this transformative new model due to the powerful connection between artists and fans that takes place on our platform. As the only direct-to-consumer music streaming platform and next generation artist services company, the launch of fan-powered royalties represents a significant move in SoundCloud’s strategic direction to elevate, grow and create new opportunities directly with independent artists.”
Only artists who directly upload their music through one of SoundCloud's monetization programs (Repost, Repost Select, and Premier) will be impacted by this change; artists signed to major labels will still be paid under the pro-rata system, as licensing agreements with major labels would require extensive renegotiation in order to make all music royalties on the platform user-centric. The "fan-powered" structure would most likely lower streaming revenue for mega-famous artists, but could also help prevent streaming hacks and scams.