|Founded||September 22, 2003|
SoundExchange is a non-profit performance rights organization that collects and distributes royalties on the behalf of sound recording copyright owners (SRCOs — record labels, generally) and featured artists for non-interactive digital transmissions, including satellite, Internet radio, and cable television music channels. In addition to music, SoundExchange also collects royalties for comedy and spoken word recordings.
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 Right 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. In 2000 a court decision ruled that this did not exempt any type of webcasters from the royalties, ensuring all forms of webcasters would pay royalties to the recording artists for the songs they played.
In 2003, SoundExchange became a wholly independent non-profit organization. SoundExchange also struck a deal with Sirius XM to set the standard royalties rates for satellite radio. In April 2003 SoundExchange settled the standard rate for webcast songs, establishing a discounted rate for small webcasters. John Simson served as Executive Director of SoundExchange. In addition, Newsweek wrote in 2002 that while artists viewed broadcast radio as a promotional tool, there was no evidence that webcasting helped promotionally, and therefore the revenue made by the webcasters would not help recording artists unless they were receiving royalties from the sites involved.
In 2012 SoundExchange announced that it had paid out over $1 billion in digital royalties to recording artists since its inception, with over $200 million distributed in just the first quarter. By October 2013, SoundExchange had distributed over $1.5 billion in royalties. Michael Huppe is contracted to be the president and CEO of SoundExchange through at least 2018, having served since 2011.
SoundExchange exists to administer 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 non-featured artist's share to SAG-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.
An 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.
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 initially created in 2000 as a division of the RIAA. In September 2003, SoundExchange became an independent non-profit organization to represent the interests of both recording artists and record labels, 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 comprising 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.
Controversy & criticism
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. SoundExchange maintained that its contributions to musicFIRST are a legal function of the membership agreements signed by its members, and that 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.
Different royalty rates for Internet and satellite radio
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 business 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, and terrestrial radio does not pay any of those fees, although it does pay royalties to other organizations.
However, the Copyright Royalty Board assigned different rates and terms for satellite radio and Internet radio. They both have extremely different business models, and the methodology for creating rates and terms are based on completely different approaches. The rate for Internet radio under the CRB ruling is not derived by assessing the revenue or expenses; it is derived on a "per performance" basis. The rate for satellite radio, on the other hand, is derived by a percentage of revenue. The discussions as to why these differences occurred can be found in the decisions themselves.
- "Nonprofit Organization Lookup". Retrieved 13 August 2012.
- "The Numbers". Retrieved 13 August 2012.
- "Members/Artists". Retrieved 13 August 2012.
- 17 U.S.C. § 114(g)(2)(A)
- Christopher Stern (December 9, 2000). "Online Music Fees Ordered; Radio Stations Must Pay to Broadcast Songs Over Internet". Washington Post. Retrieved February 11, 2014.
- Justin Oppelaar (March 20, 2003). "SoundExchange inks deal on satcast rates". Daily Variety. Retrieved February 11, 2014.
- Justin Oppelaar (April 4, 2003). "Making Cents of net: RIAA, Webcasters OK pact on royalty rates". Daily Variety. Retrieved February 11, 2014.
- STEVE INSKEEP (December 29, 2004). "Profile: SoundExchange tracks royalty payments for music artists". NPR Morning Edition. Retrieved February 11, 2014.
- "Labels to Net Radio: Die Now: You'd Think the Record Companies Would Love Internet Tunes-Instead They're Trying to Kill Them". Newsweek. Steven Levy. July 15, 2002. Retrieved February 11, 2014.
- "SoundExchange Announces $1 Billion Paid to Artists and Labels". Information Technology Newsweekly. July 3, 2012. Retrieved February 11, 2014.
- "SoundExchange Announces $204.4 Million in Digital Royalties Paid since Beginning of 2012 to Artists and Labels". Electronics Newsweekly. September 5, 2012. Retrieved February 11, 2014.
- "SoundExchange Celebrates 10 Years in Digital Music Industry". Entertainment Close-up. October 8, 2013. Retrieved February 11, 2014.
- "SoundExchange Expands Contract with President and CEO". Entertainment Close-up via HighBeam. January 21, 2014. Retrieved February 11, 2014.
- http://www.soundexchange.com/faq.html#b6 - SoundExchange's FAQ
- http://www.soundexchange.com/faq.html#b4 - SoundExchange's FAQ
- "Webcasters and SoundExchange Shake Hands". BusinessWeek.com. 2007-08-23. Retrieved 2007-08-24.
- "SoundExchange Offers Discounted Music Rates To Small Webcasters". DigitalMediaWire.com. 2007-08-22. Retrieved 2007-08-24.
- "SoundExchange Reaches Royalty Deal With 24 Small Webcasters". DigitalMediaWire.com. 2007-09-19. Retrieved 2007-10-11.
- "Notice of Designation As Collective Under Statutory License filed with the Licensing Division of the Copyright Office" (PDF). Retrieved 2008-10-16.
- http://www.soundexchange.com/faq.html#a3 – SoundExchange's FAQ
- http://www.soundexchange.com/faq.html#a9 – SoundExchange's FAQ
- Rusty Hodge (2007-08-02). "The ongoing debate over SoundExchange's independence from the RIAA". Retrieved 2007-08-17.
- "Music Industry Leaders Join SoundExchange Board of Directors". Retrieved 13 July 2012.
- Ben Newhouse (2007-07-11). "Thoughts on the Internet Radio Equality Act (RoyaltyWeek, 7-11-07)". Retrieved 2007-08-08.
- Nate Anderson (2007-08-06). "Senators to SoundExchange: Don't use negotiations to demand DRM". Retrieved 2007-08-07.
- Eliot Van Buskirk (2007-08-06). "SoundExchange, Caught Lobbying, Says Lobbying Bar Does Not Apply". Wired Magazine. Retrieved 2007-08-17.
- "Visit the SoundExchange website, and download/view the Artist D & A form from the Download Forms page, see bottom of page one, "Deduction of Costs"".
- "Wired gets it wrong: The facts on SoundExchange". Orbitcast.com. 2007-08-10. Retrieved 2007-08-17.
- "Pandora can't make money, may pull the plug". ArsTechnica.com. 2008-08-16. Retrieved 2008-08-16.
- Stockment, Andrew (December 2009). "Internet Radio: The Case for a Technology Neutral Royalty Standard". Virginia Law Review. Retrieved 2013-10-06.
- "Webcasting Final Rule". 2007-05-01. Retrieved 2009-02-17.
- "Satellite Final Rule". 2008-01-24. Retrieved 2009-02-17.