In an attempt to throw their hat in the already rather full on-demand streaming ring, SoundCloud has launched the service SoundCloud Go and, although the service has interesting potential, there remain several unanswered questions regarding things like how artists will get paid, or how royalties are being calculated.

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Guest Post by Nicole Daley, Policy Intern at the Future Of Music Coalition

Last week, SoundCloud launched their new paid subscription service—yes, another on-demand streaming site. SoundCloud Go, as they’ve named it, promises many things such as a larger catalogue and maintaining the user-friendly interface they’re popular for, but when it comes to the details of artist compensation, it leaves much to the imagination. In other words they’ve decided not to disclose much information or have not yet figured everything out yet. 

This is the latest step in SoundCloud’s move from an unlicensed service to a licensed service, and a corresponding shift in Soundcloud’s business model. Over time, deals have been struck with sound recording owners, as well as with the National Music Publishers Association (NMPA). After reviewing SoundCloud’s blog announcement and reviewing their website, there are still some big questions. Most importantly: How is SoundCloud actually paying artists? Well, that depends on whether you’re one of the artists already set up to be paid. Prior to the launch of this service, only “premier partners” earned revenue from sound recordings on SoundCloud; becoming a premier partner is invite only. Current Premier Partners include: Universal Music Group, Sony Music Entertainment, Warner Music Group,Merlin, digital aggregators and distributors like InGrooves, The Orchard, Maker Studios, Studio71,Empire and others. 

But that was the system in place before SoundCloud opened up the revenue stream of paid subscriptions from listeners, which leads to the next question: will the new streaming platform open the door for all recording artists, songwriters and rightsholders on SoundCloud to get paid?

As far as we can tell, the answer is no, or at least, not at the moment. Currently, the royalties are dispersed to premier partner rightsholders as follows: 

• If you’re signed to a label and/or publisher, or if you distribute your content through a distributor or aggregator, the revenue that you earn on SoundCloud will be distributed by your label/publisher/distributor and will appear in your regular royalty statements.
• A label, publisher, etc. would itself have to be an On SoundCloud premier partner in order for it to be able to earn and distribute revenue to its artists.
• If you’re not signed to a label or publisher and distribute your tracks yourself, then you’ll receive your revenue share payments directly from SoundCloud

That last bullet point suggests that a direct payment system for self-distributed music creators is in development. But the moment it seems SoundCloud has not unveiled mechanisms to compensate non-premier partners whose music also appear within their paid subscription offering. As the site says: “All creators have the ability to make their tracks available for offline listening, but only Premier Partners (which is by invitation only) share in revenue generated by SoundCloud.” 

That population of artists who will not be paid for their music on SoundCloud unfortunately includes those who actually pay SoundCloud. Dave Wiskus of the band Airplane Mode describes it this way: “Airplane Mode has a SoundCloud Pro account to get access to unlimited uploads and a few other features that make the service useful. This account costs us $15 per month. So not only are you getting our music for free and paying us nothing, we’re actually paying you to take it. What an excellent deal. For you.” In other words, SoundCloud is collecting money from artists (who are not invited premier members), and yet with their additional revenue from a paid service they still have not worked out how creators will receive compensation for people listening to their work. That is a difficult pill to swallow. 

It’s worth keeping in mind that although SoundCloud features many mash-ups and DJ mixes, payment only funnels to rightsholders. Although mixes will continue to be featured on SoundCloud’s paid and free subscription services (monitored for unauthorized content by Audible Magic), only the rightsholder will receive a royalty for the song from SoundCloud, not a DJ uploader or remixer.

Speaking of royalties, what royalty rates will be paid out to rights holders?

Who knows! There is no information on how royalties are calculated. Like, anywhere! Secrecy regarding the royalties rate could lead to suspicions that royalties are not the same for everyone even if playcounts are equivalent. For example, higher profile or major label artists may get paid more per stream, whereas emerging or self-released artists could get less for the same level of activity. (The lack of transparency likely owes to non-disclosure agreements.) Going further, there is no clear explanation of how mechanical royalties are licensed.  Some of this may be covered under the 2015 NMPA deal, but this is probably something the service should take steps to address publicly, given that pretty much every on-demand streaming service is currently facing litigation for failure to properly pay royalties on a certain percentage of mechanical royalties.

And then there’s performance rights, typically collected by Performing Rights Organiatons (PROs) like ASCAP, BMI, or SESAC. Last year, SoundCloud was targeted by U.K. royalty society PRS for Music in a lawsuit demanding SoundCloud recognize its duty to pay publishers and writers for the right to use their music. PRS stated, “any license between PRS for Music and SoundCloud will be a hollow victory for our writers and publishers if royalties are not paid out on a “per play basis.” Very recently, PRS and SoundCloud came to an (unspecified) agreement. As part of the deal, SoundCloud will now pay royalties to its members, and both organizations will work together to make the platform better for creators and users, as well as improve “metadata and the identification of repertoire for royalty distribution.” In addition,PRS’s artists will also come to the music streaming service. PRS manages the music rights for more than 111,000 artists in the U.K., including Adele, Ray Davis and Gary Kemp. We have no information on whether similar deals have been struck with PRO’s such as ASCAP or BMI, but one would think this is an important matter to resolve.

Unlike Spotify, the new SoundCloud Go does allow sound recording rightsholders control and flexibility about whether their work appears on Soundcloud’s free service. Co-Founder Eric Wahlforss told Music Ally “You can now decide the level of monetization, or promotion for your content. Rightsholders can strike a balance between the promotional aspects of SoundCloud, and monetising the music. It allows a level of flexibility and a level of control for artist and label that hasn’t really been there before.” 

So what are the benefits of SoundCloud’s streaming platform for creators? According to SoundCloud, it’s largely about discovery.  The benefit to emerging artists according to Wahlforss, lies in the possibility that you’ll get lucky by being played after a major artist. “You’ll start an experience listening to Adele, then next to her in the search results we’ll have these remixes of Adele that are hugely popular too. Then, the major artists will be the starting point into discovering lesser-known artists.” The hope appears to be that you will gain attention by being played for listeners who are listening to Adele’s music, they’ll like you and you’ll become popular in your own right. The example Wahlforss uses is the recent popularity of rapper, Roy Fresco, an emerging artist who gained popularity after being played after a few Kanye West tracks.

As a result, SoundCloud’s new streaming service seems to promise a larger catalogue than other streaming sites based on the fact that the site includes a multitude of creators who won’t be receiving compensation because they aren’t premier partners. Of course, listeners will have the benefit of hearing their music alongside bigger artists who will be getting paid. This may be of some interest to theDJ/Producer community, as user-generated mash-ups and DJ mixes might be less likely to be taken down because the rightsholders will get paid for these derivatives. But a remix artist has no option to monetize SoundCloud even if their work is on the paid tier. We also see no transparency regarding royalty rates; whether this is because negotiations with certain rightsholders are ongoing or SoundCloud isn’t ready to spill the beans isn’t clear. 

For the independent or unsigned artists who arguably really drove the growth of Soundcloud, it could be frustrating that they have to be premier partners to get paid. Meanwhile, major labels get equity stakes in the service (and some independents might as well, through Merlin). And while NMPA collects mechanicals on behalf of publishers, some songwriters may have concerns about unattributable income being divided up by market share. All in all, SoundCloud seems to still have a good deal more explaining to do.

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