SoundExchange

SoundExchange is a non-profit performance rights organization that collects royalties on the behalf of sound recording copyright owners (SRCOs — record labels, generally) and featured artists for non-interactive digital transmissions, including satellite and Internet radio.

The organization has attracted criticism for applying to the Copyright Office to set disproportionately high royalty rates on Internet radio as compared to satellite and terrestrial services, leading some Internet broadcasters to cease operations.

History

According to SoundExchange, prior to 1995, SRCOs in the United States did not have a performance right; that is, recording companies and performing artists were not entitled to receive payment for the public performance of their sound recordings.

The Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 together granted a performance right for sound recordings. As a result, copyright law now requires that users of music pay the copyright owner of the sound recording for the public performance of that music via certain kinds of digital transmissions.

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Purpose

SoundExchange exists to administrate statutory licenses for sound recording copyrights, primarily through the collection and distribution of royalties for sound recording performances occurring under the jurisdiction of U.S. law. SoundExchange handles the following duties with respect to statutory licenses:

• Collects performance royalties from the statutory licensees;
• Collects and processes all data associated with the performance of the sound recordings;
• Allocates royalties for the performance of the sound recording based on all of the data collected and processed;
• Distributes the featured artist's share directly to the artist;
• Distributes the Sound Recording Copyright Owners' share directly to the copyright owner;
• Distributes the the non-featured artist's share to AFTRA and AFM's Intellectual Property Rights Distribution Fund; and
• Provides detailed reports summarizing the titles, featured artists and royalty amounts for each of the sound recordings performed by the statutory licensees.

A small administrative fee is deducted from royalties before they are distributed, with remainder being divided between the performing artists on a given recording, and the copyright owner of that recording.

SoundExchange is also a membership organization, representing over 31,000 featured artists and 3,500 record labels, as of October 2008. Members are able to be awarded royalties from other countries that have reciprocal agreements with SoundExchange for eligible international performances. SoundExchange membership offers other benefits, as well.

SoundExchange collects and distributes royalties for all artists and copyright owners covered under the statutory licenses; these parties do not need to be members of SoundExchange for royalties to be collected on their behalf and distributed to them.

Royalty rate setting

As required by 17 U.S.C. § 112 and 17 U.S.C. § 114, SoundExchange, along with other interested parties, participates in each periodic rate-making proceedings to establish rates that compensate copyright owners and performers for the use of copyrighted sound recordings. Such rate setting proceedings may be resolved through arbitration proceedings or through voluntary multi-party settlements.

For example, SoundExchange came to an agreement with certain large webcasters regarding the minimum fees that were modified by a determination of the Copyright Royalty Board (CRB) on May 1, 2007. While the CRB's decision imposed a $500 per station or channel minimum fee for all webcasters, certain webcasters represented through DiMA negotiated a $50,000 "cap" on those fees. SoundExchange also offered alternative rates and terms to certain eligible small webcasters, allowing them to calculate their royalties as a percentage of their revenue or expenses, instead of at a per performance rate. As of October 2007, half of the services that had been paying at similar rates and terms in the past had signed on to these alternative rates and terms.

Authority

SoundExchange is designated by the Librarian of Congress as the sole organization authorized to collect royalties paid by services making ephemeral phonorecords or digital audio transmissions of sound recordings, or both, under the statutory licenses set forth in 17 U.S.C. § 112 and 17 U.S.C. § 114. As of January 1, 2003, SoundExchange is designated by the United States Copyright Office to also distribute the collected royalties to copyright owners and performers entitled under and pursuant to 17 U.S.C. § 114(g)(2).

Business structure and oversight

SoundExchange was created in 2000 as an unincorporated division of the RIAA. In September 2003, SoundExchange was spun off as an independent and non-profit organization. incorporated in the State of Delaware. SoundExchange is exempt from taxation under Section 501(c)(6) of the Internal Revenue Code.

SoundExchange claims to operate, in part, pursuant to Copyright Office regulations set forth in 37 C.F.R. Parts 260, 261, 262, 263 and 270.

SoundExchange is controlled by a Board of Directors comprised of equal numbers of representatives of recording artists and sound recording copyright owners. This Board oversees all operations of SoundExchange, and approves such things as the distribution methodology and administrative expenses. The board is composed of 18 members.

Major record labels

• Alasdair McMullan, EMI Music Group
• Andrea Finkelstein, Sony BMG Music Entertainment
• Michael Ostroff, Universal Music Group
• Paul Robinson, Warner Music Group

Independent labels

• Tom Silverman, Tommy Boy Records
• Dick Huey, Matador Records
• Richard Bengloff, American Association of Independent Music

Artist representatives

• Jay L. Cooper, Esq., Recording Artists' Coalition
• Kim Roberts Hedgpeth, AFTRA
• Patricia Polach, AFM
• Daryl P. Friedman - The Recording Academy
• Perry Resnick, Music Manager's Forum
• Walter F. McDonough, Esq., Future of Music Coalition
• Michael Hausman, Artist Management
• Patrick Rains, PRA Management

Others

• Larry Kenswil, Recording Industry Association of America
• Mitch Bainwol, Recording Industry Association of America
• Kendall Minter, Entertainment industry attorney

Controversy & criticism

Lobbying controversy

As a founding member of the MusicFIRST coalition, SoundExchange does not support the Internet Radio Equality Act, believing that the proposed legislation would unjustly hurt the interests of performing artists, musicians, and copyright owners as it would significantly decrease the amount of royalties distributed to them. At one time, SoundExchange was accused of violating the laws that created the nonprofit collective by contributing to musicFIRST, which is lobbying to create a performance royalty for terrestrial radio. Currently, terrestrial radio only pays a musical work royalty (usually to composers and songwriters). SoundExchange maintained that its contributions to musicFIRST are a legal function of the membership agreements signed by its members, and that and no money is being deducted from the non-member royalties. The SoundExchange Designation and Authorization Agreement (which only members sign) authorizes any costs to be deducted from member royalties as authorized by the SoundExchange Board of Directors on their behalf.

Disproportionate Internet royalty rates

On August 16, 2008, popular Internet broadcaster Pandora announced that it may have to cease operations, citing SoundExchange's much higher royalty fee on Internet compared to satellite broadcast. By 2010, Internet radio stations like Pandora will be expected to pay an estimated 2.91 cents per hour per listener, while satellite radio would pay a much lower 1.6 cents, and terrestrial radio would pay nothing. With Pandora's current profit model, the fees which SoundExchange levy would amount to 70 percent of its revenue, making the service unprofitable. In comparison, satellite radio pays about nine percent of its revenue, as defined by their contract with SoundExchange.

See also

• Performance rights organization
• Copyright Royalty Board

External links

• Official website