I had a chance to talk to Mike Huppe, President of SoundExchange, about how artists get paid for the public performance of their recordings. (See Part 1 for the backgrounder). If you are a featured artist or sound recording owner, you can register at www.soundexchange.com This interview is available as a podcast at Arts+Labs Innovation Central.
How many services use the compulsory license and how many people does SoundExchange pay royalties to?
Huppe: Currently, we collect digital performance royalties from about 1,600 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 15,000-20,000 checks to all the registrants who come through SoundExchange to collect their money. As of today, we have more than 20,000 rights owner accounts and over 48,000 artist accounts. When the money comes in, we basically split it 50/50. 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.
[That last point is very important because artists, particularly artists who are no longer signed, can be unrecouped and will not be entitled to royalties. SoundExchange pays the statutory royalty to these artists without regard to whether they are recouped under their old or current record deals.]
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 the #2 digital revenue source behind iTunes 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 $292 million in 2011). 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.