SoundCloud’s new UCPS, ‘fan-powered’ royalty system will see SoundCloud take a 45% cut (update)

Image Credit: Rachit Tank

Update: Since reporting on this news, citing the claim made by SoundCloud Head of Rights Administration and Strategy in Vice, SoundCloud’s Senior Communications Manager got in touch to clarify their cut.

They wrote: “SoundCloud does not keep 45%. It pays out mechanical royalties and performance publishing royalties, which vary by country, as well as costs to payment providers, among many other costs. SoundCloud does keep some profit, but it is in line with if not lower than the industry average.”

Many have been touting SoundCloud’s new way to pay as revolutionising payments for smaller artists, but now they’ve disclosed their cut it may not be as good as it seems.

Last week SoundCloud announced their new User-Centric Payment System (UCPS), a revolutionary way of distributing streaming royalties to artists. The new system gives smaller artists a far bigger chance of getting paid more as it distributes payments based on each listeners music consumption, rather than taking from an overall pot. This means that the revenue from a listener who listens to only one artist and pays $10 for a subscription to SoundCloud, will all go that one artist after SoundCloud’s cut.

But their cut is exactly where the questions have now arisen around how much better this system really is for artists. Of course, the payment system seems much fairer for smaller music communities and artists with dedicated fans whose percentage won’t be drained by bigger artists with a larger overall percentage.

But SoundCloud didn’t mention in their announcement that they will be taking a 45% cut of the royalties going to artists. For reference, in general streaming services will take a 30% cut of subscription costs or advertising revenue before sending the rest to distributors, labels, and artists.

In a Vice piece on the new payment system, SoundCloud’s Head of Rights Administration and Strategy, Michael Pelczynski, revealed that they will be taking a higher than average 45% cut of streaming royalties.

As we also covered last week, the new UCPS system doesn’t apply to all artists – there is too much opposition from power holds in major labels and publishers who profit from the pro-rata system. It only applies to artists who monetise with them directly; whether that’s through their Pro Unlimited subscription in the Premier Program, Repost subscribers, and members of Repost Select.

This means that for the most part artists are already having to pay to monetise directly through SoundCloud anyway. That considered, when it comes time for a cut which is 15% more than the industry average, an artist might not necessarily be making any more money than they would with a free distributor like RouteNote for example, where the cut is 15% after SoundCloud’s but there’s no upfront cost.

Now, that’s not to say that the UCPS isn’t a great system and still offers a lot of potential for artists on SoundCloud’s direct models. In fact, this author believes that the future of streaming revenues lie in ‘fan-powered’ payouts which fairly distribute the funds of one listeners to the artists they like. The potential for indie artists and labels with dedicated fans is huge.

However, it does seem strange that SoundCloud weren’t upfront about their cut in this payment model. There was a lot of noise in promotion of the UCPS in the last week, touting a revolution for smaller artists – conveniently omitting the 45% cut from all public releases.

Nonetheless, it’s a move in the right direction that will hopefully at least spark further conversation in the wider music streaming industry. Though with the ultimate power still lying in the largest percentage of benefiters of streaming services – the major labels – their influence will no doubt mean this conversation may be a long one before mainstream services like Spotify and Apple Music adopt it; if they ever do.

Writing about music, listening to music, and occasionally playing music.

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