Proof of the record industry’s life after near-death can be seen in the trend of payouts from SoundExchange, the Washington D.C.-based not-for-profit that collects and distributes digital performance royalties from noninteractive webcasters and satellite and cable radio broadcasters. From almost nothing, new digital platforms have grown to become a vital part of the new music business.
It started with a trickle. SoundExchange paid out just $3 million to rights owners and performers in 2003, the same year the iTunes store launched in the United States. But as music lovers shifted to digital platforms, distributions grew nearly 12-fold to $36 million in 2007 and exploded to $100 million the following year. SoundExchange forecast distributions will reach $500 million in 2013, a seemingly conservative estimate that implies an 8% increase from last year.
SoundExchange collects statutory digital performance royalties from such services as Pandora, SiriusXM and Music Choice, and distributes them to labels and performers. After SoundExchange takes its administrative fee — 4.9% in 2012 — 50% of the royalties go to owners of the sound recordings, 45% is paid directly to the performing artist, and 5% goes to non-featured performing artists through a fund administered by AFM and SAF-AFTRA.
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There are some important dates to keep in mind when looking at the growth in annual distributions. Two such events were the launch of Pandora in 2005 and the debut of Pandora’s iPhone app in 2008, which was instrumental in Pandora’s growth. It was an instant hit, beating out Facebook, Shazam and “Tap Tap Revenge” to become the top free iPhone app of the year. Clear Channel, the No. 2 webcaster behind Pandora, launched iHeartRadio in 2008.
“There’s been a sea change in how people consume music,” SoundExchange president/CEO Michael Huppe says. “The shift to digital platforms has been one reason the numbers have gone up. People are streaming more than ever and turning to platforms that pay performers.”
SoundExchange can take some credit for the growth in distributions. The organization presided over rate increases that factor into that growth. Huppe uses the word “protect” when talking about representing sound recording owners and performers in rate proceedings before the Copyright Royalty Board and in negotiations with digital services. Webcasting rates increased in 2007 and 2010, while satellite rates rose in 2006 and in 2013.
There were ordinary growing pains in the early years. SoundExchange has improved its systems for cleaning up data and distributing royalties. Huppe says 80%-90% of royalties are distributed within four to six months of their receipt. “Money is getting out the door a lot quicker than it used to,” he says.
