One of the oldest debates in the music streaming world is the debate around the traditional business model of royalties and revenue to artists. With the rise of streaming in 2020, artists have been relying on what can be defined as a small payout compared to the portion their record labels take.
The biggest proposed change to the current business model is the user-centric model which, proponents for this business model suggest, helps direct revenue to artists better. There’s a lot of experimentation and sides to this model to explore.
Proposed Business Models for Music Streaming
In recent news, there is some talk that SoundCloud could be looking into offering a user-centric model. In an article by Billboard, they reported, “A source close to the company says SoundCloud is still exploring several alternative streaming payout models and will announce its plans before the end of the first quarter of 2021”. If this is true, it could help change SoundCloud’s current system to focus more on paying royalties directly to artists.
SoundCloud has slowly been losing relevance amongst today’s other platforms like Bandcamp which pays artists far more, and Youtube or Spotify which can bring more listeners and more attention to the creations. SoundCloud’s unique platform of independent artists sharing free-to-stream music makes a great foundation for testing. If they adopt a user-centric model which pays artists for how many streams or allows for tips and other methods of direct payment, it could potentially bring artists and listeners back to the platform.
This style of user-centric related business model isn’t exactly new. Youtube, the biggest streaming platform, offers all its users the ability to pay with channel subscriptions, Super Chats and Super Stickers. However, their platform isn’t directed at music artists and requires artists to engage with their audience from the platform to reap the benefits.
Deezer, a French music streaming service, has experimented with user-centric models and is starting to push for the model on their platform. They have been working closely with Centre National de la Musique (CNM), a music regulatory body backed by the French government. The CNM has used Deezer’s data and started to consider changes that could push regulation for user-centric models.
What are the Implications of a User-Centric Model ?
User-centric models have many implications, and there’s a variety of debates circling the idea. The recent battles in the UK with the House of Parliament have shed light on the subject between major record labels, streaming platforms, and artists backing the #BrokenRecord campaign.
Of course, record labels have offered their thoughts. Universal has offered their thoughts directed from Deezer’s and SoundCloud’s introduction of their user-centric models, “In all likelihood, it would be difficult to change systems in the midst of an in-force contract but as we indicated at the hearing we are open to various reforms at the streaming services.” Sony echoes this, “We feel that whether a user centric model is used is ultimately a matter for the DSPs [...] and the artist community.”
Both Universal and Sony agree that current contracts with artists might be hard to change, however, they are open to see what streaming platforms would employ. They seem to be open to the idea of streaming platforms adopting the user-centric model. But how the record labels will react to a user-centric model is unknown at the moment.
Sony continues to state that a user-centric model, “will just shift money from some artists to other artists. Artists who lose in this scenario are not likely to see this as a more equitable way of dividing payments”.
From Deezer’s findings in their experimentation, this is true, however a little skewed in favor of Sony through their wording. Deezer found that the top 10 artists would lose significant revenue from a user-centric model, around a loss of 17.2% from Deezer and 12.5% from Spotify. However, this lost revenue in the top-earning artists is better distributed to artists ranking lower than the top 10. Top 11-100 artists could see a rise in 1.3% in revenue, top 101-1,000 artists could see a rise of 2.2%, and artists under the top 10,000 ranking could see a rise of 5.2%.
Another interesting development is the rise in revenue from niche genres. While popular genres such as hip-hop and pop would lose a great percentage of revenue, niche genres like rock and classical music could see a rise in revenue of 22-24%.
The implications then, based on Deezer and Spotify through their experiments, would more evenly split revenue across the board. This would not be favored by major record labels that rely on top-earning artists but could benefit lower-earning and independent artists. With the proposed user-centric models, it could mean more artists can earn greater revenue. However, we’re just in the early days of these proposals, so it’s worth seeing how a user-centric model can affect the music business world.
Music Streaming Implication for music businesses
Now that we are evolving in a fundamentally digital environment, rethinking current models for a better remuneration model in the music industry, it’s pretty clear that managing music rights, catalogs and royalties is going to get even more complex.
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