Who actually benefits from user-centric payouts? According to a new study, the answer is complicated

Kettwig, Essen, Germany. Photo Credit: Heinz Albers

Amid ongoing discussions about user-centric streaming payouts — and the growing adoption of artificial intelligence — a new in-depth study examines the complex potential implications of moving away from the pro rata model.

Pro Musik, headquartered in Essen, a self-proclaimed indie musicians’ association, published the 63-page report titled “Payment Option Transparency” in both German and English. In the background, leading music streaming services like Spotify and Apple Music pay royalties under the aforementioned pro rata model.

Critics say this model — in which revenue (minus fees) is distributed as a portion of total streams — is detrimental to acts that don’t have millions and millions of listeners to their credit. And as a potential solution, some are touting the user-centric model, where creators are compensated based on their share of each fan’s listening time on the platform.

For example, if a user of a streaming service spends 70 percent of their listening time enjoying an artist’s work, then 70 percent (even less fees) of the monthly advertising or subscription revenue would go to the artist involved.

SoundCloud has for years used the user-centric model (known as “fan powered royalties”), which Warner Music Group adopted in a licensing deal last year. Spotify has been considering the possibility of transitioning to this model, and given the emergence of AI described above (and a concomitant tidal wave of generated tracks), Universal Music Group has been discussing streaming service reform with players like SoundCloud since early 2023. Compensation.

Moving on from that overview and back to the study, Pro Musik concluded that “the overall impact” of implementing the user-centric model would be “significant” — and not just because revenue would be shifted away from a portion of well-known acts.

As part of the study, the Berlin-based company SoundCloud provided “real market data on user behavior on its platform” according to the source, specifically referring to “50,300 artist profiles” – not necessarily real artists – who were registered in the fan-powered program.

The association stated that this market data came from the consumption habits of around 1.5 million individuals between May and October 2022. Despite including important markets such as the UK and Germany, the organizers (who performed basic calculations to estimate the revenue share) did not come up with any results. No statistics from the USA or user data from Japan are taken into account.

“In 16 out of 18 countries analyzed, more than a quarter of the entire sales pie could be redistributed – the average of the top countries is 25.4%,” wrote the two-year-old Pro Musik, who also emphasized that he “makes no recommendation becomes”. or advocate “for or against” the user-centric model. “The average across all countries is even higher at 32.6%.”

Of course, this described rebalancing of royalties would effectively divert revenue from certain acts and direct it to others — a point the organization illustrated in a visual resource.

Pro Music Music Streaming Study

According to a new study on music streaming payouts, moving to a user-centric compensation model would have a “significant” impact on the earnings of various artists. Photo credit: Pro Music

In terms of the largest average percentage of streaming revenue redistributed by country in the study, France’s rate hovered around the 30 percent mark — compared to around 20 percent in the UK at the low end, balancing the figures and the previous ones said 25.4 percent contributed average.

Pro Musik elaborated on the points, noting that 41.5 percent of artist profiles in the study’s “top countries” (with higher royalties) had benefited from the move to be user-centric. According to the report’s authors, three simple factors — “relative user reach,” “user engagement,” and “average user spend” — when included in calculations, can determine with 97 percent accuracy whether an artist would benefit from the model.

Demonstrating the importance of all three factors listed (and some of the seldom discussed possible by-products of the user-centric model), the organization announced that a number of “mid-tier artists in terms of streams” had seen their payments decline, while others had seen their payments decline almost the same numbers of games – had enjoyed an increase in sales.

“However, the realization that UCPS (user-centric payment system) – like any other alternative payment model – would produce winners and losers is not surprising,” Pro Musik wrote the resource End. “Instead, it leads to a question that may be at the heart of evaluating UCPS: if the impacts are indeed significant, can those impacts also be considered ‘beneficial’?”

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Each dot “represents a medium-sized artist in terms of streams,” with red dots representing revenue losses in the user-centric model and green dots representing revenue gains. Although “exactly the same amount of…” is present
Streams’, the Germany-based acts achieved different earnings scores based on their respective ‘relative audience reach’ (the further to the right their positioning, the better their standing in the category), ‘average audience engagement’ (represented by the vertical positioning of dots, according to a new analysis) and the “average user spend” (point size). Photo credit: Pro Music