The Benefits of SoundExchange – Are Recording Artists Missing Out?

By: Jill Michael

With music industry royalty payments and copyright licensing becoming more confusing with the onset of digital music streaming services, many recording artists and owners of master recordings have been left improperly compensated – this is where SoundExchange can come into play.

benefits of soundexchange

The problem with music streaming services and satellite radio services like YouTube, iHeartRadio, SiriusXM, MusicChoice and Pandora, is that they disrupted an industry that was created before the digital world. Many recording artists and master owners are still trying to figure out what they can do, but one option, initially, is to join SoundExchange.

“SoundExchange was created specifically for the digital age of music.”

A brief history of SoundExchange

Before Congress passed the 1998 Digital Millennium Copyright Act, recording artists and master copyright owners did not have performance rights in their recordings. There were also no statutory performance licenses required for the non-interactive, digital performance of sound recordings.

Following the DMCA though, digital music outlets such as YouTube and Pandora were required to compensate all copyright holders for the non-interactive, digital public performance of sound recordings. From there, the Copyright Royalty Board of the Library of Congress approved SoundExchange as the sole organization to administer a license to digital music outlets to ensure that they compensate copyright holders for the non-interactive digital performance of all commercially available sound recordings.

What is SoundExchange?

SoundExchange is the independent, nonprofit organization that represents recording artists and sound recording copyright owners. The organization specializes in payment of performance royalties when sound recordings are performed digitally or through satellite radio. 

Its goal is to collect royalties from satellite radio services and digital subscription services and distribute those payments to featured recording artists and sound recording copyright owners. SoundExchange maintains accounts with more than 130,000 rights owners, platinum music artists, major and independent record labels, comedians, actors, spoken word artists, session musicians, backup vocalists and anyone involved in the process of recording sound recordings.

Who SoundExchange represents

The organization works with featured artists, non-featured artists and master rights owners. There are key distinctions between the three entities:

  • Featured artists are the key individuals on a sound recording, such as main vocalists or guitarists. As such, they are directly paid by the organization.
  • Non-featured artists are the opposite. These are typically backup vocalists and session musicians who do not receive SoundExchange royalty payments from a sound recording, or who receive a small portion of the artist’s share through AFM.
  • Master rights owners are typically record labels or independent artists who own the sound recordings. They are paid the “copyright owner’s share” of royalties through SoundExchange.

Benefits of SoundExchange

The advantage of the organization is that it pays directly and divides royalties fairly to artists and right holders on sound recordings. Specifically, the performance royalties are 50 percent for master rights owners, 45 percent for featured artists and 5 percent for non-featured artists (this “non-featured” portion is not paid directly by SoundExchange, but paid through AFM).

For featured recording artists and master owners who may not realize they have royalty payments owed to them, they should consider registering with SoundExchange. According to Billboard, the organization paid out $803 million in 2015, and has made a total of $3.5 billion in payments. In fact, SoundExchange has accounted for 16 percent of all royalty collections in the U.S.

In the Billboard report, president and CEO, Mike Huppe, explained that SoundExchange is leading the music business in advocating for the “Fair Play Fair Pay” legislation. This could be a potentially massive shift in the current royalty payment structure, since it would call for all radio stations to pay master owners, featured recording artists and non-featured recording artists for all performances of their sound recordings.

For more information about artist classification, royalties or copyright ownership of a sound recording, contact SoundExchange or the attorneys of Scarinci Hollenbeck.

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ill A. Michael is an accomplished intellectual property attorney who focuses her practice on corporate and entertainment law. She has over twenty five years of experience in drafting, reviewing and negotiating all types of contracts, including entertainment related documents such as recording, distribution, production, music publishing, producer, management, agency, merchandising, and live touring/performance agreements, and master use, synchronization and mechanical licenses.
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