SoundCloud announced on Tuesday it will become the first streaming service to start directing subscribers’ fees only to the artists they listen to, a move welcomed by musicians campaigning for fairer pay.

At the moment, streaming services like Spotify, Deezer and Apple put royalty payments into one big pot and dish them out based on which artists have the most global plays. 

Many artists and unions say this system is grossly unfair, giving a huge slice of the pie to mega-stars like Drake and Ariana Grande, and leaving almost nothing for musicians further down the pecking order. 

It means that many fans of more niche artists and genres fund music they never actually listen to. 

Instead, from April 1, SoundCloud will start directing royalties due from each subscriber only to the artists they stream.

“Many in the industry have wanted this for years. We are excited to be the ones to bring this to market to better support independent artists,” said Michael Weissman, SoundCloud’s chief executive officer, in a statement. 

The company said the new payment system − known as “fan-powered royalties” or “user-centric model” − would empower listeners and encourage greater diversity in musical styles. 

“Artists are now better equipped to grow their careers by forging deeper connections with their most dedicated fans,” the statement said. “Fans can directly influence how their favourite artists are paid.”

Major record labels are thought to have resisted such a move, in part because the current system allows them to generate massive profits through a relatively small number of huge stars. 

A study by France’s Centre National de la Musique (CNM) earlier this year found that 10 per cent of all revenues from Spotify and Deezer go to just 10 artists at the top. 

That has allowed the major labels to amass record revenues over the past year, just as most musicians were thrown into crisis by the cancellation of live tours due to the pandemic. 

Earlier this year, label bosses told a British parliamentary commission investigating the streaming economy that it may be too complicated for platforms to shift to fan-based royalty payments. 

Many in the industry have wanted this for years. We are excited to be the ones to bring this to market to better support independent artists

But SoundCloud, which has been trialling the new model for months, said this was exactly wrong − that its computing calculations took just 20 minutes under the new model, compared with 23 hours under the old one. 

“The most important takeaway from SoundCloud’s data is that none of the previous modelling has been accurate, that when you actually run a user-centric system, the rewards to artists that have an audience are significantly improved,” said Crispin Hunt, chair of the British Ivors Academy, which has been running a campaign to “fix streaming”. 

“It proves the distortion in value that the existing model delivers,” he said.

The CNM study, which only used data from Spotify and Deezer, found that changing to fan-based royalties would make only a slight difference to the income of smaller artists − taking around €4.5 million from the top 10 but distributing it very thinly around lower tiers. 

However, SoundCloud found it made a significant difference. Using the example of an artist with 124,000 followers, it said they would see an increase in royalties from $120 to $600 per month. 

It said the overall effect was that 90 per cent of royalty pay-outs would now be driven by 90 per cent of listeners, rather than just 40 per cent of listeners under the existing model. 

CNM president Jean-Philippe Thiellay said it was “an interesting initiative”.

“Things are moving a lot in the world of streaming. It’s a good thing. We’ll have to see what it does for artists.”

SoundCloud said its positive data may be linked to the particular nature of its users, who tend to be “younger and much more active”. 

It was launched in Berlin in 2007 as a sort of YouTube for music, allowing anyone to upload their music, from scrappy garage band covers to dubstep DJ sets. 

This made it hugely popular, with some 175 million users by 2019, but it struggled to generate revenues and landed in legal trouble over the number of unauthorised remixes and covers on the site. 

In 2016, it shifted strategy, signing deals with the major labels to provide a premium service with a catalogue similar to those of its rivals, but it has remained a long way off the customer numbers of Spotify, Amazon and Deezer.