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The default way that streaming services compensate rights holders is through a pro-rata model. This model calculates payouts by dividing the plays of a rights holders tracks with the total number of plays of entire platform (one big pool).
How it works: (Aggregate revenue from all listeners) ÷ (total number of streams) = $ per stream
One alternative to the hegemonic pro-rata model is the user centric model.
In this model, instead of money being split by the aggregate market share, it is being directed by an individual share. This means the number of plays doesn't matter, only the proportion of individual listenership does. This way, revenue share is attributed directly to musicians based on the proportional listenership based on each individual.
How it works: (Revenue from individual listener) x (% of time spent listening to a particular artist) = Payment towards artist
Example: If the customer listens to Artist One 10% of the time and Artist Two 90% of the time, that customer's revenue/ subscription fee will be split proportionally among those two artists (not other artists).
Soundcloud has recently transitioned to a user-centric payout model.
Pros: The benefits of the user centric model are that it rewards dedicated listenership, less bots and gaming the system. It allows for payment on a qualitative basis, rather than quantitative.
Creator Support Idea In April 2019, Midia Research’s Mark Mulligan took a new spin on the user-centric model, mooting a system called ‘creator support’ under which each Spotify subscriber would ‘support’ up to two favourite artists, who’d always get 1% of the label royalties derived from that subscriber – 100% of which would be paid to the artist.The Ethical Pool Idea Industry lawyer Chris Castle had his own spin on the user-centric idea in October 2018, when he suggested an “ethical pool solution”. It was essentially user-centric, but with fans given the choice (when signing up) to opt in to the model, which could thus live side-by-side with the existing pro-rata system.The Ethical Pool Revisited Castle recently revisited the idea of ‘the ethical pool’ on his Music Tech Solutions site. It’s best to read the earlier post first as it has more details, with this newer post zeroing in on how the system might be implemented – including a way to make it work even if major music companies choose not to participate.
Cooperative streaming platform, Resonate, has an interesting an innovative model for paying out to artists. Their stream-to-own model works with a variable, increasing payment amount per stream of a song, until that song is purchased after 9 plays.
One interesting payout model that is uniquely crypto-enabled is the sending of real-time micro payments directly to artists. This could allow payouts to be instant, and tied to metrics like time listened, or tracks plays. These payments could be streamed directly into an artist wallet.
Coil The model of Coil is an interesting precedent that could work for a music streaming platform. With Coil, members pay a monthly fee which allows payments to be streamed to any website that is Web Monetized, as well as getting special perks and unlocking special content across participating websites. This could be translated to music by creating a recurring membership pass that gives access to a library of music, and instantly streams payments to artists based on time listening to tracks.
Web Monetization In addition, Web Monetization (decoupled from the Coil example), could enable interesting new payout models. Building a membership-based streaming service on top of Web Monetization could allow for real-time micro payments to be directly sent over a browser to an artist/ platform.
Tokenizing allows for many interesting revenue and payout mechanisms, including rewards of governance tokens (like Audius), utilization of bonding curves or other alternate monetary systems.
One example of how pricing on a bonding curve could work:
- 1.A streaming membership has a fairly modest price for starters (ex: $1/month)
- 2.Musicians are streaming music from their sites
- 3.Some pieces are put behind membership gate
- 4.Through use of a bonding curve: for every new membership, the price goes up a little bit based on a bonding curve. This way, the "more popular" the membership the more valuable it becomes.
Or, there could be a streaming service that in order to access, a listener would have to hold x # of native tokens to access. One precedent for this idea is Friends With Benefits ($FWB), which gates a private Discord channel for those who hold at least 60 $FWB tokens. Artists could be rewarded in this same local currency/ token.