SoundCloud has found a powerful partner for its unusual royalty system that ensures lesser-known artists and indie acts are getting the money they deserve. The service has signed a global licensing agreement with Warner Music Group, making the company the first record label to adopt its Fan-Powered Royalties model. Some of the record label's most popular acts are Ed Sheeran, Coldplay, Cher, Gorillaz, Hayley Kiyoko, Kelly Clarkson and Lizzo. However, it's most likely the artists who aren't quite as well-known who would benefit the most from the scheme.
This deal ensures every artist across the label's roster gets paid based on users' listening habits. Most streaming services' pro-rata model puts their ad earnings and their customers' subscription payments in one big pot used to pay artists based on their share of total plays across the service. SoundCloud's system, however, sends listeners' subscription money directly to the artists they're listening to.
The service launched the new model in 2021 and implemented it for performers using SoundCloud Premier, Repost and Repost Select. Back then, it said artists could collect as much as five times their previous royalties under the scheme. Company President Eliah Seton said in a statement: "Warner Music Group is known for developing some of today's biggest superstars and helping them build long-term careers by investing in technologies and models which grow and support their fan communities. This makes them an ideal partner for SoundCloud... [The company] is known for our community of music-loving fans and this partnership aligns with our commitment to a fan-powered, artist-centric business."
When SoundCloud introduced the fan-powered royalties model, critics noted that it might potentially be expensive to operate and, while it looks good on paper, it may not work well in practice. Warner signing the deal adds weight to the royalties scheme, though, and other major labels might be more inclined to follow suit.