SoundCloud’s Rockonomics
About the Author
Will Page is the author of the critically acclaimed book Tarzan Economics, which has been translated into five languages and published in paperback under the title Pivot. As the former Chief Economist of Spotify and PRS for Music, Will pioneered Rockonomics. At PRS, he saved BBC 6Music. At Spotify, he articulated the global value of music copyright. As a fellow of the London School of Economics, Will recently penned a discussion paper on Glocalisation, which received global acclaim. Showing that the world isn’t flat, the FT summarised his findings as: Music markets are ‘glocalising’ — and the English-speaking world better get used to it. A passionate communicator, Will is a regular contributor to the BBC, Financial Times, and The Economist and co-presents the Bubble Trouble podcast. He also serves as a fellow at the Edinburgh Futures Institute, and the Royal Society of the Arts.
About SoundCloud Rockonomics
SoundCloud Rockonomics is the second in a series of beautifully designed websites that lift the lid on how new models of music streaming serve creators and consumers alike. Its precursor, Twitch Rockonomics, got to grips with the economics of live streaming during the middle of the pandemic, giving artists a way to continue connecting with their fans.
Getting exclusive access to data (and data scientists) from SoundCloud has allowed me to surface the relevant engagement metrics that matter to our industry. As before, this work is timely. Streaming has been buckled into a straitjacket for two decades – with ‘money in’ fixed at 9.99 and ‘money out’ determined by pro rata where every song is worth the same.
There’s an old adage which goes: “Ireland is the best place to ask for directions,” as locals will preface their answer with, “I wouldn’t start from here.” If the music industry is about to depart from its current pro rata path, then the purpose of this work is to give objective directions that help make the final destination fairer for all.
1.1
SUMMARY
SoundCloud’s Rockonomic takeaways
1. SoundCloud’s Fan Powered Royalties change the game
SoundCloud’s Fan Powered Royalties change the rules, and that changes the game of streaming. All retrospective studies on user-centric payments now need to be re-evaluated.
2. Affinity matters
SoundCloud has always had comments, but new creator tools will allow artists to identify and communicate directly with their true fans, making the relationship truly two-way for the first time in two decades of streaming.
3. Powerful fraud deterrent
Stream fraud is a fact of life but, serendipitously, SoundCloud’s hybrid model of user-centric and pro rata acts as both a powerful deterrent and a detection weapon.
ANALYSIS
1.2
Change the rules, and you change the game
Good news: MusicAlly, a consultancy, lists over twenty studies on user-centric payouts on its helpful website. Bad news: they’re all now null and void. Retrospective studies like these that apply user-centric distribution on a pro rata behavioural basis fail to capture how changing the rules changes the game.
We’ve already seen this dynamic play out in streaming. Why are songs getting shorter and choruses being moved to the front? Because the rules are you don’t get paid unless thirty seconds of your song have been played, and not a penny more for anything longer. Like a tail that wags the dog, so too do the rules of streaming dictate the game of payouts.
This is what makes SoundCloud’s Fan Powered Royalties (FPR) so exciting: after all the user-centric talk, we can now finally walk. And with a year of money being paid out by SoundCloud using its FPR user-centric rule book (including a major label in the most recent quarter), it’s time to lift the lid and see how the game changes.
The FPR model allows artists to better understand their fans, and when combined with new tools to engage with the right fans in the right ways, opens a new path toward prosperity that the entire music industry should understand.
‘Like a tail that wags the dog, so too do the rules of streaming dictate the game of payouts.’
ANALYSIS
1.3
SoundCloud leans in, Spotify leans back (...and many lean both ways)
SoundCloud was founded in Berlin in 2006, the same year that Spotify got going in Stockholm, and remains popular even as its Swedish counterpart has raced ahead as the market leader. Sensor Tower, an app intelligence company, reports SoundCloud’s monthly mobile active users at a steady 100m, less than YouTube and Spotify but ahead of Apple and Amazon.
Even before FPR, what has made SoundCloud distinct among this competitive landscape is how creators and consumers use it. Because creators are as relevant to the platform as consumers, SoundCloud attracts high-intent (‘lean forward’) listening. It's often where the story begins for breakthrough artists, and none more famously than Billie Eilish. The more conventional streaming services like Spotify, Amazon and Apple Music, however, are driven by the more passive playlist and recommendation-based ‘lean back’ listening.
This lean-in, lean-back analogy goes deeper when you consider that a surprising number of people use both. A streaming consumer might (and often does) discover Billie Eilish on SoundCloud and continue to listen to her on Spotify (data backs this up). Soundcloud’s own research suggests that three out of four users regularly use at least one other streaming service. Market research company GWI adds more weight to this, stating that 82% of US SoundCloud users also use at least one other service.
Other Streaming Services Used by SoundCloud Users
The crossover gets intriguing when we switch from consumers to creators, who may be using both at the same time. Sensor Tower uncovers an illuminating ‘overlap’ metric by measuring which apps SoundCloud’s global user base are most likely to use in tandem. One in four SoundCloud users are also using Spotify for Artists – an app designed solely for verified artists to access their streaming data.
With three out of four consumers and one in four creators using both SoundCloud and Spotify, SoundCloud should be seen less as a competing brand of ‘gin’ and more as a complementary ‘tonic’ to the other streaming services. To see how growing each other's gardens may be the optimal strategy, let’s further break down what makes Soundcloud legally and practically distinct.
‘One in four SoundCloud users are also using Spotify for Artists – an app designed solely for verified artists to access their streaming data.’
ANALYSIS
1.4
True fans as a measure of success
Bookstores have always stocked their shelves with a small list of ‘blockbuster’ titles stacked high at the front – from which they derive the bulk of their profits – and a long tail of niche titles found at the back. The same applies to the relationship between artists and fans on SoundCloud: a small amount of ‘true fans will provide an outsize share of the revenue and a long tail of passive fans make up the remainder.
Given this, there are two intuitive strategies for artists to grow revenue: either move fans from the long tail and into the fat head or grow the earnings they derive from those diehards.
In recognition of the outsize impact of this group, SoundCloud has developed a metric for artists to easily identify their true fans, namely those whose monthly contribution to the artist surpasses a given threshold.
Expanding the number of such true fans or growing the revenue from this group can happen independently and simultaneously. As an artist, only so many people will be willing to join your ‘true fan’ club, but you don’t know who they are before their actions reveal them as such, and so you cannot target and personally invite them to join.
SoundCloud’s creator tools solve this problem by allowing you to identify and communicate with those true fans. Other strategies exist, such as optimising for reach over revenue, and lengthening the tail to touch more listeners. But the new rules of Fan Powered Royalties make this true fan game the most desirable to play – with the added potential bonus of increasing $ amounts.
To dissect the impact that FPR has on how this dynamic plays out, let’s explore a handful of artist case studies at three different stages in their careers: major label, middle-class and DIY. The purpose of drawing upon these three very different backgrounds is to show what works, what doesn’t, and how SoundCloud’s tools can make it work better.
These examples show that FPR isn’t a panacea for the challenge artists face in capturing audience attention when there’s a hundred thousand new songs released every day. The room is getting increasingly crowded, making it increasingly difficult to reach fans at the back. But FPR and fan-engagement tools offer a way to stand out.
CASE STUDY
2.1
Lil Uzi Vert: SoundCloud first-mover, moves first with FPR
Lil Uzi Vert
In 2015, then-unknown Philadelphia rapper Lil Uzi Vert uploaded their ‘Luv Is Rage’ EP onto SoundCloud. Met with instant fanfare, Lil Uzi Vert quickly built a cult audience on the platform. The hype around ‘Luv Is Rage’ would help the rapper secure a record deal with Atlantic Records, and later a number one debut on the Billboard 200 with their highly anticipated 2017 sequel ‘Luv is Rage 2’. Lil Uzi Vert would go on to repeat this feat in 2020 with ‘Eternal Atake,’ garnering 250,000,000 global streams in the first week from release.
At the time of writing, Lil Uzi Vert stands among the global top 200 most streamed artists on Spotify, with more than 20 million listeners and 180 million monthly streams. Chartmetric, which specialises in social and streaming analytics for artists, shows Uzi’s cult-following being relatively evenly distributed across platforms, including Instagram (16 million), Spotify (13 million), Twitter and YouTube (both ~9 million). Lil Uzi Vert’s omnipresence across singular platforms may be attributable to their regular release cadence as well as their relentless collaboration (nearly half of their 500 releases to date being collaborations with other artists, with Uzi holding either a primary or featured artist designation). While research shows that hip-hop’s meteoric growth as the most consumed and culturally dominant genre may be slowing[1], Uzi’s die-hard fan base maintains their global primacy on and off the SoundCloud platform.
Lil Uzi Vert, Social Followers
Like a boomerang, Lil Uzi Vert returned to SoundCloud in the summer of 2022 to exclusively release “Space Cadet” ahead of their then-forthcoming Red & White EP, opting in to FPR teasing both releases on Instagram before the drop. For one of SoundCloud’s most-followed artists, the month-on-month impact of FPR was clear: more of Uzi’s listeners became true fans, and those true fans made up an even greater proportion of the overall revenue. Beyond the direct impact of the new release on aggregate reach and bottom-line revenue, Lil Uzi Vert’s reignited fan base also drove significant activity back to their catalogue, representing that a ‘rising tide lifts all boats’.
Lil Uzi Vert Grows Reach and Revenue From True Fans
A true SoundCloud native, Lil Uzi Vert has always used the platform to engage with their fans via comments and messages. Now, with the help of Fan Powered Royalties and Insights, they can not only identify their dense contingency of superfans – a concentrated 6.5% of their millions of listeners that makes up 72% of their earnings, a tenth of whom exclusively listened to Lil Uzi Vert – but more easily target, leverage, and monetize their fan segments.
‘With the help of Fan Powered Royalties, they can not only identify their superfans, a tenth of whom exclusively listened to Lil Uzi Vert – but more easily target, leverage, and monetize their fan segments.’
Lil Uzi Vert’s Fan Growth in the Second Month
‘More levers, more control’: that’s the ethos behind SoundCloud’s artist tools.
Of the millions of fans listening in the second month from release, two-thirds were there in the first month, whereas one-third were new. Among those new fans, a tenth are deemed by SoundCloud’s monetary thresholds as ‘passive’, a quarter are ‘engaged’, and the remainder are true fans.
By the third month from release, this deeper knowledge of fan categorisation will enable Lil Uzi Vert and their team to apply different tools and strategies for engaging each subsection of fans and monitor the effects on volume, value, and affinity.
CASE STUDY
2.2
Kelow LaTesha: from SoundCloud to everywhere
Kelow LaTesha
One emerging artist who found early success on SoundCloud is Maryland rapper Kelow LaTesha, who's seeded tracks onto the service for over seven years, including nine recent releases under the Fan Powered Royalties programme. If Lil Uzi Vert is a major-label example of positive FPR economics, Kelow demonstrates the value of FPR at the independent level.
While Kelow has amassed a substantial 14,000 SoundCloud followers, she has quadrupled that following her on Instagram.
The challenge she faces is one of momentum, as the complementarity between Instagram and SoundCloud tends to oscillate between strong (during release phase) and weak (when the artist is on a hiatus). When this relationship between social and streaming is out of sync, a rising tide on one lifts only some boats. Under SoundCloud’s FPR, Kelow’s ‘true fans’ are up in absolute terms, but their relative share is down slightly – meaning she’s gained more passive fans than super ones. The change in revenue share from those true fans, however, is significant, growing from 32% to 46%. Put bluntly, Kelow is getting more revenue from fewer streams.
Kelow LaTesha Gets More from Less True Fans
As with Uzi, FPR enables Kelow to identify, and subsequently ‘lean in’ to her core segment of true fans. And while the data suggest the impact of FPR may be greater for a more-established artist like Lil Uzi Vert, Kelow’s ability to identify and mobilise her core fans early in her career may prove even more significant in today’s highly competitive and saturated artist development landscape.
‘Kelow was an early adopter of SoundCloud for Artists, which allowed her to distribute, monetise, and monitor her releases across all major streaming services via a unified dashboard.’
For SoundCloud natives like Kelow, new tools are being rolled out to help galvanise their fans and accelerate their careers. Prior to joining SoundCloud’s newly-formed ‘Roster’ program, Kelow was an early adopter of SoundCloud for Artists (formerly known as Repost), which allowed her to distribute, monetise, and monitor her releases across all major streaming services via a unified dashboard.
SoundCloud for Artists in action (illustrative example)
SoundCloud for Artists solves a much bigger taboo that’s haunted the streaming industry for years: too many dashboards. The time, labour, and money being allocated by labels and streaming services into building dashboards is to be applauded, but for artists, monitoring more dashboards than they have fingers on one hand can become more of a hindrance than a help.
Soundcloud for Artists Dashboard (illustrative example)
CASE STUDY
2.3
DJ ShortRound:
A fan-powered tide lifts all boats
The presence of DIY artists on streaming services has exploded in both volume and value in recent times. Distrokid, a company with less than a hundred staff, was responsible for a third of all music released on Earth in 2021. Spotify is sending one dollar in every ten to artists using DIY platforms – meaning at least one-tenth of the recorded music industry doesn’t involve record labels. DIY, as a route to market, is here to stay.
DJ ShortRound
Take DJ ShortRound, a Melbourne-based DIY producer of a hybrid of techno, EDM and trance with more than sixty thousand followers on SoundCloud who’s released over 20 tracks since the launch of FPR. Taking advantage of SoundCloud’s flexible self-distribution, he can upload tracks at his own discretion and continually feed his audience. Agnostic to releasing new frontline tracks or simply re-posting ones from his existing catalogue, ShortRound emphasises an ‘always on’ consistency as the foundation of his fandom.
DJ ShortRound Grows Reach and Revenue from True Fans
DJ Shortround’s performance on FPR tells us what a wholly-DIY artist can accomplish on their own by embracing creator tools and consistent audience-building. Between April 2021 and September 2022, DJ ShortRound hit the sweet spot of growing both revenues and audience – as well as the proportion of true fans within each. More true fans, accounting for a greater share of his revenue, also demonstrates a ‘rising tide’ across all streaming services.
What we’ve learned about FPR vis-à-vis artists at these three different career levels is that, whilst the user centric model is the ‘support act’, the ‘headliner’ will be the creator tools that follow. Moving streaming away from just volume and value and towards fan revenue distribution changes the game.
‘Moving streaming away from just volume and value and towards fan revenue distribution changes the game.’
FIGHTING FRAUD
2.4
Stream fraud: What matters most is being measured least
Fraud in the music business is all about which game is played. In the physical format era of vinyl and CDs, the game involved bootlegging and chart-hyping (as documented in the 1981 exposé The Chart Busters). Today we have stream fraud, as artists and/or their teams exploit the rules of the game to compete for stream share.
Flip the model away from stream share, though, as SoundCloud has done, and interesting things happen. For the third and final part of this inquiry, let’s uncover that great known unknown of stream fraud. Here’s why: almost by accident, SoundCloud’s pivot to FPR offers some light at the end of this fraudulent tunnel.
Music fraud, and the imperfect data behind it, is reminiscent of how people tend to respond to an upward trend in crime statistics. There are usually three camps: the majority will say that crime is on the up. The second, the minority, recognises that the rise could be due to improvements in reporting crime or, better still, increasing the rate of catching criminals. The third, an outlier, chooses to ‘read the small print’ to ask if the definition of what constitutes a crime has changed during the observed period.
The same dilemma exists with stream fraud. Due to incomplete data, we don’t know exactly how big a problem it is, and when we hear of estimates, whether we should be alarmed (‘look at all the criminals’) or reassured (‘look how many we're catching’).
Stream fraud can be categorised into three groups: click farms (artificial streams), carbon copies (ghosting tracks) and account hacks (unauthorised account access). Pro rata and user-centric models display respective strengths and weaknesses around combating each of these types of fraud. The former is more exposed to click farms and carbon copies, whereas the latter is more vulnerable to the riskier activity of account hacks at scale.
FPR may be more exposed to account hacking, but such fraudsters have a higher barrier to entry than perpetrators of click farms or carbon copying. The cost of hacking those accounts at scale may well exceed the benefits of the fraud itself, disincentivizing fraudulent behaviour before it has begun. Crime needs to pay for it to be worth committing.
‘But the new rules of Fan Powered Royalties make this true fan game the most desirable to play.’
Almost by accident, the rollout of FPR means SoundCloud operates a hybrid system: user-centric for those labels and artists who’ve opted in, and pro rata for those who’ve opted out. Calculating FPR and the equivalent pro-rata shares in parallel means SoundCloud can detect possible fraudulent activity when the royalties’ calculations are completed. It’s this hybrid model which gives SoundCloud a comparative advantage in the fight against fraud.
But what really matters is the time to detect fraud. Why? Because if the horse has already bolted before you lock the stable – or you detect fraud after paying out the criminals – then any further action is in vain. By utilising the hybrid model, SoundCloud has reduced the time to detect fraud, meaning the stable can be bolted before the horse can escape.
Eliminating what economists would refer to as the ‘deadweight loss’ of stream fraud may also result in achieving pareto efficiency, which refers to the zero-sum equilibrium in markets where it’s impossible to make one party better off without making others worse off. Assuming a fixed pie of payouts, if some artists benefit from user-centric payouts, it stands to reason that others will lose. But if FPR reduces this deadweight loss of stream-fraud from the market, it becomes possible to make all parties better off, including those who would be adversely affected by switching from pro rata to FPR.
We can express this mathematically by stating streaming fraud (SF) must be greater than (>) the sum (Σ) of the total income lost by all artists/labels from moving to user-centric (iP - iU) plus any transaction costs (t) expended in identifying and distributing the streaming fraud losses to those disadvantaged artists/labels.
CLOSING REMARKS
3.1
It’s less about who’s winning and losing, more about who’s learning
SoundCloud’s Fan Powered Royalties is an experiment for an industry that has spent over a decade wondering what might happen.
You can’t use the pro rata past to predict this future. There is no textbook on the shelf telling us how user-centric will work, so we’re left with the equivalent of’ ‘on the job training’ to figure it all out.
Seeing how SoundCloud complements (not competes with) consumers’ choices of other streaming services might be intuitive for some, but (as just one example) learning about the extent of creator overlap (with 1-in-4 also using Spotify for Artists) is illuminating in how both platforms can ‘grow each other’s gardens’.
Learning how fans form into a long tail is as old as the music industry itself. FPR will not only help to identify who the true fans are in the head, but also allow for a new way to grow affinity using new creator tools like on-platform messaging. This can only help artists and bands breakout of the 9.99 straitjacket of streaming that’s existed for twenty years.
Learning how SoundCloud’s hybrid model helps detect and deter fraud is also reassuring. But consider fast-paced developments in AI-music. Beatdapp, a fraud detection specialist, points to the recent developments on GitHub with co-pilot and the AI copyright wars as a sign of things to come where derivative and copycat works could be created at limitless scale. This serves as a wake-up call as to why the allocation of a fixed pot of cash will always be exposed to fraud, and why platforms need to collaborate (not compete) to outsmart the fraudsters.
Regardless of whether you're an advocate or a sceptic of the user-centric model, (my own work with David Safir, captured in the seminal paper Money In, Money Out falls on the side of the latter), seeing FPR in action forces us all to reset. The learning curve is so steep, but we’re finally getting started. ❒
‘Whether you're an advocate or a sceptic of the user-centric model, seeing FPR in action forces us all to reset. The learning curve is so steep, but we’re finally getting started.’
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Acknowledgements
The author would like to thank Tracy Patrick Chan, Eliah Seton, Ama Walton, Lauren Wirtzer-Seawood, Michael Pelczynski, Matt Jong and especially Lucinda dos Santos Viljoen at SoundCloud; Jaime Marconette and Jimmy Harney at Luminate; Andrew Batey and Morgan Hayduk (Beatdapp); Mark Mulligan at MiDIA, Salman Chaudhry at Sensor Tower, and Chaz Jenkins at Chart Metric who provided data, insight and guidance. He would also like to thank Tom Frederikse (Clintons) who helped draft the report, and a special thank you to Michael Pelczynski (Forms + Shapes). Finally, he would like to Sam Blake (copy-editing) and Alice Clarke Studio (design).
A big thank you also goes out to all the artists, managers and labels who agreed to be featured in this report – Lil Uzi Vert and everyone at Atlantic Records and Warner Music Group, Kelow LaTesha and DJ ShortRound – for your approval and transparency. Your contribution to this report will help other artists attempting to navigate the world of user-centric payouts, whether that is on SoundCloud or elsewhere.