Indie Ambassador

Biz: SoundExchange 101

Author: Aidan Rush

Copyright law, royalty rates, and the tangled mess of fine print that comes attached have always been difficult for most musicians to understand. And any understanding of the independent music industry you once had has been clouded with the new rules of the digital age.

Thankfully, SoundExchange was created in 2003 and has stepped up to fill the royalty collection void for the expansive Internet and satellite entertainment landscape. In fact, there might be royalty money waiting for you even if you haven't signed up yet. But what exactly does SoundExchange do, and how does it all work? We've put together this brief article on the workings of SoundExchange to provide a better understanding of what it's all about. It really is a painless registration process and once you've completed the few easy steps you'll be on your way to receiving royalties that have gone uncollected.

What is SoundExchange?

SoundExchange is a Non-Profit 501(c)(6) organization created to collect, monitor, and dispense performance royalties that occur through select digital media channels. It is the first of its kind and collects royalties for sound recording copyright owners (SRCOs), featured and non-featured artists.

What kind of royalties does SoundExchange monitor, collect and dispense?

SoundExchange focuses principally on three types of media: Non-interactive webcasters, satellite and digital cable television, and satellite radio services.

• Non-interactive webcasters: A Webcaster is anyone who streams content online to any number of sources simultaneously. The important distinction here is the word “interactive.” SoundExchange only collects royalties from service providers that do not allow users to pick and choose what they listen to. Pandora is a great example of a non-interactive webcaster, because you do not choose exactly what you listen to, only the genre or similar sounding artists. Examples of interactive webcasters include iTunes and Youtube, so don’t expect SoundExchange to pay out any performance royalties stemming from those providers.
• Satellite and Digital Cable TV: When your song is played through digital cable and satellite television music related services like Music Choice (Digital Cable) and Muzak (Dish), SoundExchange collects and distributes the royalties.
• Satellite Radio Services: In the world of terrestrial radio, it's only the songwriter and publisher that receive performance royalties, not necessarily the performing artist. Now that satellite radio companies like Sirius and XM have come into existence, SoundExchange monitors their play logs and allocates the money to artists accordingly. Note that Internet Radio (Pandora) and Satellite Radio (SIRIUS and XM) are not the same thing, though through SoundExchange artists receive royalties from both.

What is the statutory rate for these type of performances right now?

As of 2011, the rate is $.0017 per track per listener for commercial webcasters (mostly FCC licensed AM/FM stations that are simulcasting on the internet). Based on the legislation recently set by the Copyright Royalty Board, that number is set to raise gradually to $.0025 by 2015.  For commercial webcasters like Pandora, the rate is $.0019 per track per listener for 2011, and will ascend to $.0023 by 2015. For Satellite Radio, companies like SIRIUS are forced to pay a percentage of their gross revenue to SoundExchange to compensate for performance royalties, who in turn analyze the play logs and distribute royalties to artists accordingly.

Should I join SoundExchange if I’m already a member of ASCAP, BMI, or SESAC?

These traditional Performance Rights Organizations (PROs) cover different terrain than SoundExchange, so if you want to get paid for all performances regardless of the medium they appear on, it would be smart to sign up for one of the big three and SoundExchange. Also, ASCAP, BMI and SESAC collect performance revenue for the owners of the copyrighted musical work (the song), i.e. music publishers, songwriters and composers. SoundExchange collects performance revenue for these parties and for owners of the sound recording copyright (the recording) and for featured and nonfeatured artists, something to be aware of when registering.

What is a Featured Artist? Is there a difference in pay between featured artists and non-featured artists?

A “featured artist,”  “featured recording artist,” “contract artist,” “royalty artist,” or “featured performer” means the performing group or, if not a group or ensemble, the individual performer, identified most prominently in print on, or otherwise in connection with, the sound recording actually being performed.   If you are a solo artist and have released songs or albums you would be considered a “featured artist.”   If instead you are a part of a band, then that band would be considered the “featured artist.”

If a sound recording (either musical or spoken word) identifies several featured performers, then the allocation of royalties may be on a pro rata basis among all identified performers. According to the legislative history to the Digital Performance Right in Sound Recordings Act, where “both the vocalist or soloist and the group or ensemble are identified as a single entity and with equal prominence (such as ‘Diana Ross and the Supremes’), both the individual and the group qualify as the ‘featured recording artist.’” SoundExchange may also distribute royalties according to any splits agreed to among featured recording artists in private agreements, provided that all of the identified featured recording artists agree in writing to SoundExchange’s distribution of royalties according to such splits.

The royalty collected by SoundExchange is distributed as follows:

-45 percent  to the featured artist on the sound recording

-50 percent  to the sound recording copyright owner

-5 percent to the non-featured artists who perform

(for more information on the collection of a non-featured artist share, please go to www.raroyalties.org).

How often do I get paid?

SoundExchange sends out checks on a quarterly basis, so you get paid 4 times a year. However, you will not receive a check unless your royalties have breached the $10 minimum threshold. If they haven’t reached this mark at the end of a quarter, you will have to wait until the next quarter for a check, assuming it has by then surpassed the $10 mark.

Can we set different royalty rates for separate members of the band?

Yes. Doing so does require written consent between all band members and SoundExchange, but as long as you’re willing to put it on paper then it is possible.

How does SoundExchange make money?

They take a small percentage out of the royalties they owe you. As of 2009, this commission percentage was only 8.7%.

How long does it take to sign up?

Though your registration probably won't be processed for 120 days, you can sign up by completing three easy forms and faxing a couple tax documents into the SoundExchange offices. A more detailed explanation on their registration process can be found on their homepage. Service Providers can sign up for SoundExchange here, and Artists can sign up here. Still have questions? Ask us in the comments!