Home > artist rights, performance rights act, performing rights societies, soundexchange > A Guide To Music Performance Royalties, Part 3: An Interview with Mike Huppe of SoundExchange

A Guide To Music Performance Royalties, Part 3: An Interview with Mike Huppe of SoundExchange

February 11, 2014

[Editor Charlie sez:  This interview first appeared in a 2 part series in the Huffington Post .  It is also available as a podcast.  This series continues the Guide to Music Performance Royalties Part 1 and Part 2.]

Background: As we developed in Parts 1 and 2 of this series, there is an important distinction between songs and recordings that is frequently lost on the public.  When you hear a recording of a song, there are actually two distinct copyrights involved, the song (also called a “musical work”) and the recording of the song.

When recordings are played on terrestrial radio, the writer of the song gets a royalty and the performer of the song on the recording gets nothing (neither does the record company). Almost every other country in the world besides the U.S. recognizes a performance right for recordings so that the artist does get paid for radio or internet airplay.  (See the “I respect music” campaign and petition and our interview of campaigner, recording artist and entrepreneur, Blake Morgan.)

U.S. law changed in 1995 to pay a royalty for digital transmissions of certain kinds (satellite and Internet radio), and SoundExchange collects those royalties. If you are a featured artist or sound recording owner you can register at www.soundexchange.com.

The following chart extends the chart we started developing in this series and adds the “post digital” column and digital royalty column.

Note that the term “LOD” in the Record Producer box refers to the “Letter Of Direction” that artists sometimes send to SoundExchange authorizing the organization to pay a share of the featured artist’s performance royalties to a producer.  While individual producer rates will vary, the LOD is pretty typical “custom and practice”; the law only requires that performance royalties are paid to featured artists, non-featured artists and sound recording copyright owners.  The producer’s share percentage is negotiated by the producer as part of the producer’s engagement by the artist and is usually expressed as the producer’s royalty (say 4%) divided by the artist’s royalty, including the producer’s royalty (say 16%).  In this example, the producer’s LOD would provide for the producer to get 4/16ths or 25% of the artist 45% share of royalties collected by SoundExchange.  (Engineers, mixers or remixers who receive a royalty can also negotiate for a share of the featured artist performance royalties.)  The rate in the SoundExchange LOD typically tracks the producer’s share of flat fee income (e.g., master use fees).  See Record Producer Agreements: Accountings and Producer Letters of Direction.

Just to be clear, this chart and explanatory material does not come from SoundExchange.  It is something I created to help explain the high level division of royalties.

Post-digital income (Post 1995/1998)

Digital (non-interactive webcast, Simulcast)

Physical (CD, Vinyl)

US Radio/TV (OTA)

Ex US Radio/TV (OTA) For US Writer/Artist

MP/TV/Commercial

Songwriter Yes, PRO Yes, mechanical from publisher Yes, PRO Yes, PRO Yes, sync license from publisher
Music Publisher of Song Yes, PRO Yes, mechanical Yes, PRO Yes, PRO Yes, sync license
Recording Artist (“Featured”) Yes, SoundExchange Yes, from record company No No (unless qualified see PPL) Yes, master use from label
Featured Recording Artist if Sound Recording Owner Yes, SoundExchange Yes, from aggregator or distributor No No, unless qualified (see PPL) Yes, master use (often all-in fee)
Session Musician/Vocalist Yes, SoundExchange Yes, from union No No (unless qualified see PPL) Yes from union
Record Producer Yes, artist share from SoundExchange (if LOD) Yes from artist No No (unless qualified see PPL) Yes from artist
Record Company Yes, SoundExchange Yes from sales or license No No (unless qualified see PPL) Yes, from master use

To help you understand more about the performance royalty for sound recordings and the role of SoundExchange in collecting and paying , we were able to interview Mike Huppe, the President of SoundExchange.

MTP:  Tell us a little about SoundExchange.  I think a lot of artists and musicians are unclear about what SoundExchange does, so perhaps you can explain how the digital performance royalty for sound recordings in the U.S. came to exist and what is involved.

Huppe: SoundExchange has been collecting performance royalties for sound recordings since 1995. To give a little background, most people in the U.S. are aware of entities like ASCAP, BMI and SESAC. For decades those groups have collected performance royalties for musical works [or songs] — the actual musical notes and lyrics that a songwriter creates. Until 1995, the sound recording side of the business, meaning the recording most people would recognize on the radio or on the internet, did not have performance rights in this country.

In 1995, for the first time ever in the U.S., the Congress established a performance royalty and a statutory license for the sound recording for certain types of digital transmissions. SoundExchange was entrusted with the collection and payment of those performance royalties. We administer a statutory license under the U.S. Copyright law, which means if a service like Pandora or iHeart Radio wants to stream a sound recording digitally, they can either obtain individual licenses from 5,000 rights owners or take advantage of a government license. According to federal law, that service would then simply file a two-page paper with the Copyright Office, meet the terms of the statutes, and then send their royalties and data every month to SoundExchange.

MTP:  Just to give some perspective, how much money has SoundExchange distributed?

Huppe: To date, SoundExchange has distributed more than $2 billion in total. In 2013, SoundExchange distributed approximately $590.4 million in royalties — that’s enormous growth since our distribution of $20 million in 2005.

We’ve had tremendous growth over the past 3-4 years as a result of a variety of factors which include an increase in the rates in 2006-2007 and a radical shift in the way people consume music. More and more people are accessing music through digital devices, mobile devices and through streaming content rather than downloading it. We’ve seen explosive growth–comparing 2005 to 2013, total payments increased over 2000%.

MTP:  I still run into artists who have never heard of SoundExchange, what do you do to encourage artists and sound recording owners to register?

Huppe: That’s a great question and you are absolutely right. SoundExchange’s name recognition and brand is certainly more recognizable now than it was 10 years ago, but you are correct there are people who don’t know who we are or confuse us with some of the other performance rights organizations, not recognizing that these other groups collect for a completely different right — for the song instead of the actual sound recording.

We do a lot in our effort to reach artists and rights owners. Every month, we get reports from people that we’ve never heard of, and who have never heard of us. Outreach is an ongoing effort, but the money comes to us, and it’s our job to find and ensure these individuals to sign up.

On first impression, we sometimes hear from those that haven’t registered that SoundExchange royalties “sound too good to be true.” Understandable, but we have a dedicated team of staff who are focused solely on tracking down performers and labels to get them to claim their money. We try to track and contact them through a variety of methods to get them to register, including: regularly placing ads in print and online news outlets; targeting individuals via social media channels like Twitter, Facebook and YouTube; speaking on panels; sponsoring events or exhibiting at tradeshows. We host regular “how to register” webinars; and have even coordinated with music conferences, like at SXSW, where we put up large banners and hand out flyers with band names asking them to register.

In addition, we’ve partnered with various industry organizations such as AFM, SAG-AFTRA, MySpace, CD Baby, HFA, among others to match their lists against ours and conduct email, mail campaigns — all with the message: “Do any of you know these people? If so, can you please contact them?” We are perfectly open to those third-parties doing the branding and getting the benefit of finding money — we just want to ensure the creative community gets paid for their work. We executed over 150 matches in the past few years resulting in tens of thousands of emails to various folks sharing that SoundExchange has money for them. We are quite confident that we are doing more than our fair share of reaching out and contacting those we owe money to, because it’s the right thing to do.

The real reward is when we register that individual or band where the money truly makes a difference. Approximately 80% of the checks SoundExchange sends out are for less than $5,000. We often hear from artists who express gratitude that we found them or those who might have registered with us, and forgot until they receive a check in their mailbox.

MTP: How many services use the statutory license and how many people does SoundExchange pay royalties to?

Huppe: Currently, we collect digital performance royalties from more than 2,000 services that send SoundExchange monthly reporting logs and payments. We take the data from all those services, clean it up, match it across various algorithms, sort it across numerous payees and then every quarter send out anywhere from 18,000-25,000 checks to all the registrants who come through SoundExchange to collect their money. As of today, we have more than 100,000 artist and record label accounts. When the money comes in, 50 percent of money goes to record labels or whomever owns the master and the other 50 percent goes to the performer — 45 percent goes to the feature performer and 5 percent to non-featured. We pay performers directly, regardless if they are recouped through their record label.

[MTP: That last point is very important because artists, particularly artists who are no longer signed, can be unrecouped and might not be entitled to royalties under their recording agreements. SoundExchange pays the statutory royalty to these artists without regard to whether they are recouped under their old or current record deals.]

MTP:  Where do you see SoundExchange in the next 5 years?

Huppe: I am very excited about where SoundExchange is going. We are a very interesting and unique organization — certainly unlike any other in this country. We’re optimistic about where the music industry is headed and see opportunity for SoundExchange to help digital music services thrive.

SoundExchange is currently one of the top digital revenue sources for most record labels in the U.S. We are growing fast because of all the ways music usage is changing. What we do is increasingly being relied on as a revenue stream for performers and record labels alike. SoundExchange checks have become a very real source of income, and it’s exciting to hear from those who are grateful for what we do.

Although we squabble over royalty rates with the service providers, we view ourselves as partners that enable music service to do what they do best — creating new ways to listen and discover music. In the long run, we want them to succeed. It’s in their best interest, our best interest and the best interest of the consumer to have a very full and vibrant webcasting market. We want them to create new business models, new ways of listening to music and we feel that SoundExchange enables all of that. We are the back office to a lot of these new business models emerging on the web.

In the next five years, we see ourselves growing, providing an important role in some of these business models and we hope to continue to increasing digital royalty payments (remember we went from $20M in 2005 to $590 million in 2013). One of our main responsibilities is fighting for the long-term value of content — a battle we will never shy from. We believe that content is critically important, it is the backbone of many music services and what they provide. Content is the blood and sweat of the performers and the investment of the record labels. We are constantly fighting to maximize the value of content so that those folks can get paid for all the revenue they bring to services.

We will also have an authoritative repertoire database in place that will not only be a resource to the industry so that people can go and find out about the ownership of sound recordings, but also to improve the tracking of collections and more timely payments. We are also in the process of rebuilding our technology and distribution platform in order to scale better and handle the explosive growth. Once we complete that platform I believe there are many other services SoundExchange can provide to the industry beyond processing this license. The possibilities are endless.

We are very excited about where we are headed and what we can do for the industry. And again, the fact that we are a non-profit, the fact that our board represents artists, unions, independent labels and major labels really makes us uniquely positioned to do these things for the greater good of the industry.

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