Indie Label Owner Calls Out Streaming Royalties, Floats Solution

Hopeless Records-signed Stand Atlantic. Photo Credit: Bruce Baker

Streaming has failed “the ‘middle class’ of musicians” – at least according to Hopeless Records founder Louis Posen, who’s calling for major changes to the current pro-rata compensation model.

Posen took aim at streaming’s shortcomings – and floated an interesting solution – in a blog post entitled “The Digital Paradox.” Technically, said post was attributed to the Organization for Recorded Culture and Arts (ORCA), an indie advocacy group that counts Hopeless as a founding supporter.

As reiterated in the piece, much has changed since on-demand listening fueled the pivot from music ownership to access and, in the process, “successfully killed piracy.” In brief, between the avalanche of new tracks hitting DSPs daily, the aforementioned pro-rata model, and the fact that there are only 24 hours in a day, many non-superstar artists are getting the short end of the streaming stick.

That’s especially true for new talent. Looking beyond Posen’s article for a moment, given catalog’s large consumption share, the growing prevalence of slop (most but not all of which is generated by AI), and the aggressive promotional practices behind major-label releases, it’s harder than ever for rising professionals to establish a foothold.

And even if one does establish a foothold, a slumping per-stream rate means material compensation is far from guaranteed. Of course, this reality isn’t exactly a secret and, among other things, contrasts Spotify’s often-repeated arguments that it’s enriching the musician middle class.

But what’s the solution? In years past, proposals suggested shifting from the pro-rata model, which, by pooling royalties and then distributing them based on overall consumption share, benefits huge-name acts.

Evidently unbothered by how it pays out the majority of its revenue, Spotify itself touched on a willingness to implement the fan-powered/user-centric model. In short, the latter would distribute each subscriber’s monthly charge (less fees) by percentage to the artists that he or she actually streamed.

However, as laid out by Spotify and different sources, a user-centric recalibration wouldn’t necessarily drive across-the-board royalties boosts and could have unintended consequences (referring mainly to smaller payments) for some.

Enter Posen’s proposed fix, which would attempt to power a “transition from a volume-based utility to a value-based marketplace” via a “Direct Access” streaming tier.

According to the A2IM and Merlin board member Posen, Direct Access would complement the existing unlimited-consumption offering as a distinct diehard-geared add-on. Individual artists and labels would set pricing, the exec described, with potential benefits including monthly interactive livestreams and early access to new music.

Furthermore, the system would effectively unlock a distinct revenue stream unburdened by the pro-rata rate’s long-running descent, Posen explained.

Last week, Tidal seemingly took a big step towards “Direct Access” by adding support for permanent downloads at a 90/10 split. And assuming Apple Music intends to continue holding steady on pricing despite Spotify’s bumps, would adding Direct Access (or something similar) allow for ARPU improvements without alienating subscribers or rightsholders?

Regardless of that question’s answer, Direct Access appears rather timely in light of the wider superfan-monetization focus, and it’ll be worth tracking the proposal from here.