The first tests of the new payment model are underway. What does that mean for you?

One of the most popular topics among musicians is the regulation and distribution of the income from their songs on the various streaming portals like Spotify, Deezer, Apple and the rest. There is news in this area! We have summarised the information for you.

The current billing system: pro-rata

Up to now, billing on streaming platforms has worked in line with the so-called pro-rata model. This means music services generate revenue from subscription fees, advertising revenue or a combination of both. These revenues are then put into a pot from which payments are made later. The streaming service then calculates the total amount of usage (e.g. streams or creations) recorded for all songs together during a specific billing period. Each rightsholder will then receive a share of the revenue, depending on the usage. The exact breakdown depends on the agreements reached between the parties. Revenue also varies by business model and country and is calculated on a monthly basis.

If you’re Taylor Swift or Apache, that’s really good news. This would mean that your market share (number of your streams per month/number of all streams per month) is high, meaning your music is streamed a lot. This is exactly what the streaming platforms have rewarded until now through the pro-rata model, by paying the artist better shares per stream. The argument for this is that artists with a greater number of streams pull more listeners on to the respective platforms.

However, the pro-rata model has been criticised for a long time, as it promotes the already powerful artists and disadvantages the less powerful artists. Moreover in a system in which algorithms repeatedly recommend to users what is already successful, it becomes more difficult for others who are not in the spotlight as much. And that’s where the User Centric Payment System comes in.

All new with User Centric Payment?

Earlier this year, Universal Music Group said it would work with the streaming service Deezer to “explore potential new economic models for music streaming that take greater account of the value created by the artists”. Big words, but what exactly is the difference between the User Centric Payment System, or UCPS, and the pro-rata model? To find out, we must look back a step.

For some time now, there have been alternative proposals for the payment system. But it was only with the “Payment Option Transparency” study, which was created and published by the Associations of Independent Musicians e.V., PRO MUSIC, and is aimed at artists, their representatives or business partners, that it was possible to put together arguments for the introduction of a so-called User Centric Payment System which ultimately seems to have convinced parts of the music business.

One has to assume, as the PRO MUSIC study proves, that the introduction of a UCPS would lead to significant changes in the distribution of revenue from music streaming. This is because in the UCPS model, there is, unlike in the pro-rata model, no longer a total pot in which all subscription revenues are gathered and then distributed among the artists with the most streams. Instead, the subscription fee of each individual subscriber would be distributed individually – proportionately among the artists streamed by the subscribers. This works by charging being based on actual streams made by individual users. If artist A accounts for 10% of all streams made by user A, that artist receives 10% of the subscription fee paid by that user.

What would be the big changes with UCPS?

The revolution is not the model itself, but it has some advantages for smaller artists. What will be distributed is exactly what you find on your profile in terms of solid clicks. And that looks something like this:

• The introduction of a UCPS model would, according to the PRO MUSIK study, redistribute 4 percent of all subscription sales.
• 68% of artists would receive 40% less or more revenue. The income would double on average for 19% of artists.
• According to the study, three factors would determine whether this would lead to a positive change for you as an artist. The first factor is “Relative User Reach”. This measures the number of users streaming your music compared to your total streams. The second factor is so-called “user commitment”. It measures how often your listeners stream you compared to other artists. The third and last factor is the “average user spend”. This will look at what kind of music subscription your listeners have.

You would benefit from the new system if:

• Comparatively speaking, your streams come from as many listeners as possible.
• Comparatively speaking, your listeners listen to other artists less.
• Comparatively speaking, your listeners have higher music subscriptions.

Deezer makes a start, with the middle way: Artist Centric Payment

Streaming platform Deezer is the first platform to break new ground now. But they are taking the middle path. That means: they continue to go the way with the per-rata model, but heavily modified. It’s called “Artist Centric Payment.” Deezer and Universalgroup see it as an artist-centric streaming model that sets out to better compensate artists:inside and music while improving the fan experience.

They strongly believe that the current music streaming model needs to be rethought. This is because Deezer feels that while streaming is the most significant technological advancement in music in many years, the flood of uploads without meaningful engagement, including content that does not originate from artist:ers, merits a re-evaluation of the approach that platforms, labels and artist:ers take to foster a thriving music ecosystem. This pilot project will launch from Q4 2023, initially in France only.

. There are four key points under which the new remuneration rules will be applied.

• The payouts, made under the UCPS, will go to “professional artists” – the definition of professional artists for Deezer means that the artists receive at least 1,000 monthly streams from at least 500 different listeners.
• There is also a double increase for “songs with which fans actively
  reprogram the economic influence of algorithmic programming”. This means that tracks the listeners choose are listened to instead of being displayed in a personalised playlist.
• In addition, “non-artistic sound content” (e.g. white noise,
  wave noise, etc.) should
  be replaced by its own “functional music content”, so that this content is no longer included in the calculation of payouts in the royalties pool, as has been the case in the past.
• The fourth and final point will be an updated and stricter
  fraud detection system to detect and eliminate streaming fraud or anything else that attempts to tamper with the system. However, we do not yet know exactly what this will be.

For now, let’s wait and see how the new UCPS system is received in France. But one thing can be said: it’s exciting!