Photo credit: Sara Kurfeß
People have been debating whether streaming platforms should change their method for paying streaming royalties to artists. This is driven by the desire to see fairer streaming payouts for indie artists, and that’s great. But how would switching to a user-centric payment system (UCPS) actually make things better for indie musicians?
What Is a Market Share Payment System?
Currently, most streaming platforms, like Spotify and Apple Music, pay streaming royalties using a market share payment system (MSPS). In basic terms, an MSPS pools together all of the revenue from streaming royalties and pays them out proportionally to the share of total streams a song has gotten.
For example, let’s say in a given period, Spotify tracks 1,000 total streams across all of their artists. And of those 1,000 streams, your songs got 10 streams. So, generally speaking, you would earn 1% of the total pooled revenue for that period. On top of all this, streams from a listener who has a free, ad-supported account pay less than those with a subscription account.
What Is a User-Centric Payment System?
A user-centric payment system (UCPS) is touted as fairer for artists, especially indie artists. It divides a listener’s subscription fee equally among the songs they listen to in a given period. So if a listener streams one song each from 10 different artists, 10% of that listener’s subscription fee (minus the platform’s cut) goes to each artist equally.
On the surface, this does seems fairer. A fan listened to your track, so you should get paid directly for that stream, right? I thought that at first, but things get a little more complicated when you compare the payouts of a MSPS verse the projected payouts of a UCPS.
What Streaming Pays Under the Market Share Payment System
Although you, the artist, don’t technically get paid an exact amount per stream, we’re able to see what the average per-stream rate is based on the data.
According to a dataset of over 1.5 billion annual streams and more than 350 albums, Spotify’s per-stream rate averages $.00348 (about one-third of a penny per stream). But for most artists, this per-stream rate can vary between $.003 and $.005.
So, based on these stats, how much does Spotify pay for 1 million streams? About $3,300 to $3,500. But this can vary based on the region of the streams and whether the listeners are using ad-supported accounts or subscription accounts.
Apple Music, on the other hand, pays artists an average of one penny per stream. That’s three times the amount Spotify pays.
What Streaming Could Pay Under a User-Centric Payment System
So what could you expect your streaming payouts to be under a UCPS?
Well, according to a study using Spotify and Deezer data, a UCPS would significantly reduce the streaming revenue for the top 10 most streamed artists while slightly increasing the streaming revenue of lesser-streamed artists.
According to the study, a UCPS “could promote a redistribution of income for the benefit of artists, titles and genres with the weakest audiences, but, if the percentages of change seem not insignificant, the amounts in value remain in reality limited, as they stand.”
Let’s look at the numbers…
The top 10 most streamed artists could see a 12-17% drop in royalties, equating to “several hundred thousand euros on average.” On the other hand, the top 11-1,000 top streamed artists could see an increase of 0.6-2.2% increase in royalties, equating to several thousand euros.
But most indie artists are not in the top 1,000 artists streamed, so what changes for the rest of us?
The study found that there would most likely be a low impact on the least listened to artists. Beyond the top 10,001 streamed artists, the rest of us could have an increase of 4.6-5.2% in streaming payouts. However, because artists beyond the top 10,001 get streaming numbers much lower than the top streamed artists, the increase in revenue would be, on average, less than €10 per artist.
“Switching to UCPS would therefore have a relative impact on the royalties generated for the least listened to artists,” the report says.
Another not-so-fun projection is that a UCPS could actually have a negative effect on certain genres, like soul, electronica, reggae/reggaeton, trip-hop, hip-hop, rap, R&B, new age, and afrobeat.
Now remember, this study does not include data from Apple Music (which pays $0.01 per stream on average) or any other streaming platform. This is data only from Spotify and Deezer.
Final Word: Should Streaming Platforms Switch to a User-Centric Payment System?
Let’s look at SoundCloud. In April 2021, they started offering a user-centric payment system. And as of June 20, 2022, there are more than 135,000 artists participating in this system, according to SoundCloud’s VP of Strategy, Michael Pelczynski.
He says the benefits of a UCPS helps get rid of bots and, for SoundCloud, pays the participating artists more money than a market share model. SoundCloud also highlights how much more money artists are making on this new model compared to the market share model.
Pelczynski paints the picture that a “devoted” listener who is “obsessed with a handful of artists” should have more valuable streams. He mentioned that SoundCloud saw a 97% increase in listeners contributing more than $5 to an artist via their streams. This means, according to their data, many SoundCloud listeners stream just a handful of artists each month.
On the surface, that sounds promising that maybe UCPS is the way forward for all streaming platforms. But in reality, do most music listeners follow this trend of listening to a handful of artists a lot? Or is that data skewed by SoundCloud listeners who may have signed up in order to support the SoundCloud artists they love?
I’m a super fan of a handful of artists, and I listen to them often. But I also love discovering new artists. I also really enjoy listening to lo-fi hip-hop while I work and turning on a vibe-specific playlist. I love music, so I consume a lot of it from a lot of different artists. And I believe this is common among listeners who pay a subscription fee to get access to pretty much all the music in the world.
Interestingly, Pelczynski says it’s a zero-sum game if every SoundCloud artist joins because the streaming pie would be divided among many more artists. But currently, it’s not a problem because just 135,000+ artists have joined.
Another factor to consider in this discussion is that money is not the only valuable thing to an indie artist. Yes, we need to make money in order to have a music career. But first of all, streaming isn’t the only way to make money as a musician. Secondly, super fans, people who will follow you for your entire career, are invaluable.
And on that note, one cool thing SoundCloud offers, both for Pro artists and those in their UCPS, is the ability for artists to see who is listening to their music. This allows the artist to build a community of fans and connect with them directly. Bandcamp does something similar. Artists can message their followers and those who have purchased their music (note: Bandcamp doesn’t pay per stream).
So maybe the potential slight increase in the per-stream rate under a UCPS coupled with the ability to see and directly connect with listeners would be good for indie artists. For example, if Spotify switches to a UCPS, which they said they may do if there were enough demand for it, they should also allow artists to message their followers directly on Spotify.
So which do you think is better for indie artists: a market share payment system or a user-centric payment system?