Every Music Artist Now Needs an Audience and Payout Optimized Streaming Strategy
There is a new dawn approaching for music artists & their labels/rights owners when it comes to their streaming revenue which will require a deliberate strategy for how they ask their fans to consume their recorded music. This decision will be significantly influenced by the various streaming platforms’ artist royalty payout models and artists’ understanding of their market position and audience dynamics. Let’s take a look at the current options, and some that are just emerging.
Pro-Rata
The artist-royalty payout model originally conceived by Spotify and adopted by Apple Music as well is the “Pro-Rata” or Market-Share Payment System (MSPS) model through which all of the artist-share royalty revenue goes into one general pool. From that pool, artists are paid out by their percentage of the total overall stream count. Therefore if artist “A” had 2% of the total streams, they are paid 2% of the total artist revenue share as a portion of the platform’s overall revenue. This is great if you’re Drake or Taylor Swift or someone else who can score a Billions Club hit, but what if you’re a small artist with a niche fanbase?
Both Spotify and Apple are optimized for passive listeners who will listen to whatever is on the playlist being pushed to them. This greatly benefits the major label artists who have the leverageable advantage of inclusion on label-owned and platform-curated general playlists, at the likely expense of the niche indie artist who likely won’t have that opportunity.
User-Centric
The user-centric royalty payment model advocated by some artists and smaller streaming platforms such as SoundCloud is significantly different. With a user-centric model (aka UCPS), the artist is paid a percentage of the revenue from each user for the percentage of their song streamed by that user. For example, if a user pays $10/month to the streaming platform and streams Pearl Jam for 45% of their total streams, Pearl Jam will receive 45% of the platform’s artist payout for that month (which will likely be significantly <50% of the user’s subscription). The user-centric model does significantly reduce the impact of bots because it apportions paying-user revenue, and it is beneficial in many artist cases (but not all).
A Comparison: Pro-Rata vs User-Centric
It’s not a reach to say that a pro-rata payout model is certainly more beneficial to the most popular artists who are both promoted by the platform and their supporting infrastructure (labels, marketing etc). But does it hold that a user-centric model is more beneficial for a niche artist as well? Can a platform that offers a user-centric model truly offer the artist the ability to expand their fanbase? Or is the user-centric model inherently one that may limit the platform’s ability to sustain itself and scale?
A study published by the Duke University Fuqua School of Business titled Revenue-Sharing Allocation Strategies for Two-Sided Media Platforms: Pro-Rata versus User-Centric used an exorbitant amount of mathematical computation to create a homogenous user scenario in order to determine which model benefits artists more. They came to the conclusion that for the vast majority of music artists and even most niche artists, a platform with a pro-rata payout model which incentivizes the “superstar artists” is not only more sustainable to the platform but better even for the niche artist saying “the volume of consumption of “superstar” artists’ fans creates sufficient revenue-share even under pro-rata rule for the “niche” artists to be better off on the platform, and thus being able to expand its reach to the superstar artists’ fans”.
Artist-Centric Has Entered The Chat
Recently, Deezer and Universal Music Group struck a deal to implement a new “Artist-Centric” payout model “designed to better reward the artists, and the music that fans value the most”. With this model, artists who reach a threshold of 1000 plays monthly by at least 500 unique users will be deemed “professional artists” and receive a “double-boost” in their payout. Additionally, Deezer will reward artists with songs which fans actively engage with, reducing the economic influence of algorithmic programming.
While this model will certainly benefit many deserving artists, it also has its critics like Believe Digital founder and CEO Denis Ladegaillerie who was quoted recently by Digital Music News; “Right now, the debate about ‘value-sharing’ does not exist. Instead, we are experiencing commercial negotiations to lower the market share of all independent artists. We do not think it is right to trade less diversity for better economics, nor for top artists to take away revenue from emerging acts.” Certainly, this model benefits more established artists, but whether this is good or bad for the music industry in general is debatable and more of an opinion than a truth.
Where’s Web3 ?
Web3 alternatives to traditional streaming and music download platforms have popped up within the last few years. Sound.xyz, Audius and Emanate are three of the leaders in the space and each of these use their own token-based reward model. Based on a comparison to the major streaming platforms, all of these and similar appeal to an extremely niche market in terms of artists genres and fans. While there are a few successful case studies for artists having success gaining fans and making money in these ecosystems, the barrier-to-entry to the vast majority of genres of music and artist make it still unattractive as a proposition to replace a traditional web2 streaming platform at this stage.
Time for a Cool Change
What is now becoming clear to those who study the music industry and certainly the three major label groups is that neither technology nor partner deals can ensure Spotify’s market dominance long-term. There are other platforms such as Deezer and Tidal who now understand that a viable way they can cut into Spotify’s market share is by offering better payout options for artists. Tidal attempted their own Direct Artist Payout (DAP) a couple years ago (which barely lasted a year). Under that program, Tidal paid an extra percentage of their premium subscriber fee to enrolled artists who were the most-streamed artist from subscribers. It was a nice attempt to lure artists to activate on Tidal, but not needle-moving by any means. Currently Tidal is launching “Tidal Rising” which is an on-platform space for promoting a curated selection of artists whom they are committed to developing on-platform. This could potentially be an early iteration of the exclusive artist/DSP deal which we believe will soon be an option.
So What Does It All Mean?
What this means for artists and indie labels is that it’s time to start really paying attention to what is happening in the streaming space, and being a proactive decision maker. With more streaming payout models comes greater potential revenue with the proper partner-alignment strategy, and conversely the risk of revenue loss if that same strategy is neither well-informed or effective. But what most experts and analysts agree on is that one payout model is not necessarily right (ie most economically productive) for every artist of a certain genre, success level or fan-base size. It’s usually a combination of unique factors that will ultimately determine the right strategy for each artist. Some artists may decide that blanket-reach/being on every platform is the right strategy, while another artist may decide that a more exclusive streaming deal is best for their growth. Much will depend on how artists engage and grow their fanbase and what the streaming platforms can offer in terms of marketing and support.
But regardless, we believe every artist and rights holder will need a streaming strategy, or risk a less-than-optimal outcome by outsourcing a default approach to each streaming platform.
The Path Forward for Artists
What artists will need to establish before they can develop an effective strategy for maximizing their digital streaming is a direct connection to their actual fans and ownership of that relationship. In our view, this audience connection is the key asset — it fundamentally changes the balance of power equation. None of the significant streaming platforms other than SoundCloud provide artists any with actual fan identity data, although all streamers provide aggregated data on a geolocation basis, and some on a demographic basis. But once the direct fan connection is established and owned, artists will be able to push fans towards the platforms they choose to partner with and that provide them with maximum value in return — a symbiotic and mutually beneficial relationship.
At ArtistVerified, we’re building a solution that provides music fans with an identity service that rewards them for their fandom, and provides artists with the means to really understand who their fans are and engage more authentically with them while protecting their brand and IP across Web2 and into Web3. We already do, and expect to continue to work with a variety of streaming platforms, regardless of their payout models, as we believe there is a place for choice. If you’re interested, please visit us at: https://artistverified.com
