Performers may be able to collect more revenue from streaming music under a deal in the works between Universal Music Group and SoundCloud.
The world’s largest record company is talking with the streaming service to change the standard music royalty structure, Bloomberg reported, citing people familiar with the talks.
The goal is to reach a deal by the end of the year, the report said, noting the exact details are not yet worked out.
While music sales have risen in recent years, artists and record labels say they are not getting paid enough. And now that music industry growth is slowing, even as fraud and piracy continue to siphon revenue from everyone in the business, the issue is even more complicated.
Streaming giant Spotify, for instance, said earlier this year that it has paid out nearly $40 billion to music rights holders since its launch in 2006.
The company pays out 70% of each dollar it takes it in to rights holders, including record labels, publishers, distributors, performing rights organizations and collection societies – but that amounts to just $0.005 per stream. That means 1 million streams results in $5,000 in payouts, but the artists and composers themselves collect just a small share of that figure from the rights holders.
For lesser-known artists, the payouts are even lower than for the likes of Post Malone and Lizzo, who are among the artists who shot to stardom after their SoundCloud posts went viral.
Universal Music chief Lucian Grainge and execs at other labels have floated the idea of adjusting the current model to benefit their artists, Bloomberg reported. Among other efforts, “one possibility is cutting down on the amount of money and attention siphoned off by formats like white noise or AI-generated tracks,” the report said.
Other possible changes could involve paying artists more if their work is sought out by listeners than when it’s part of a passive playlist, Mark Mulligan, managing director and music analyst at Midia Research, told Bloomberg.
Universal Music is also considering creating a bonus pool of money for artists who generate streams from new users, the report said.
SoundCloud has since 2021 used “fan-powered royalties,” in which the company divides up each customer’s subscription and advertising revenue among the artists whose music they click on and listen to, rather than adding each users fees to a larger pool. That enables the service to send more money to artists with loyal fan bases.
Last year, SoundCloud reached a licensing deal with Warner Music Group based on the fan-powered model. The New York-based company announced a separate deal with the independent licensing service Merlin last month.