SoundExchange

SoundExchange is a non-profit performance rights organization that collects royalties on the behalf of sound recording copyright owners (SRCOs) and featured artists for non-interactive digital transmissions, including satellite and internet radio. The organization has attracted criticism for applying to the Copyright Office to raise royalty rates on internet radio to the point of making the services shut down due to the royalty fees.

History

Prior to 1995, SRCOs in the United States did not have a performance right. This meant that, unlike their counterparts in most of Europe and other nations around the world, recording companies and performing artists were not entitled to receive payment for the public performance of their works. Users of music, the digital music service providers, freely performed these works at will, without paying the owners of those recordings or the featured artists who performed the songs.

The Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 changed that practice by granting a performance right in 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 digital transmissions.

SoundExchange was created in 2000 as an unincorporated division of the RIAA. In September 2003, SoundExchange was spun off as an independent and non-profit organization. [http://www.soundexchange.com/faq.html#a3 - SoundExchange's FAQ] Beginning on January 1, 2003, SoundExchange became the only collective designated by the Copyright Office to distribute statutory royalties to copyright owners and performers entitled under 17 U.S.C. 5 114(g)(2). [http://www.copyright.gov/carp/notice-designation-collective.pdf - Notice of Designation As Collective Under Statutory License filed with the Licensing Division of the Copyright Office]

Purpose

SoundExchange's purpose is as the principal administrator of the statutory licenses under Sections 112 and 114 of the Copyright Act. SoundExchange, along with other interested parties, participates in each periodic rate making proceeding under the Section 112 and 114 licenses to establish rates that appropriately 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.

SoundExchange is also a membership organization, currently representing over 30,000 featured artists and copyright owners. Members of SoundExchange, among other benefits, are able to be awarded royalties from other countries that have reciprocal agreements with SoundExchange for eligible international performances.

In summary, SoundExchange handles the following duties with respect to the statutory license:

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;

Makes distribution of the featured artist's share directly to the artist;

Makes distribution of the Sound Recording Copyright Owners's share directly to the copyright owner;

Makes distribution of the non-featured artist's share to AFTRA and AFM's Intellectual Property Rights Distribution Fund (for more info, go to: www.raroyalties.org); and

Provides detailed reports summarizing the titles, featured artists and royalty amounts for each of the sound recordings performed by the statutory licensees.

Oversight

The SoundExchange Board of Directors oversees all operations of SoundExchange. This board approves such things as the distribution methodology and administrative expenses. The board is composed of 18 members. [http://www.soundexchange.com/faq.html#a9 - SoundExchange's FAQ] [cite web | title= The ongoing debate over SoundExchange's independence from the RIAA | author = Rusty Hodge | date = 2007-08-02 | accessdate=2007-08-17 | url=http://somafm.com/blogs/rusty/2007/08/ongoing-debate-over-soundexchanges.html ]

Major record labels
* Alasdair McMullan, EMI Music Group
* Andrea Finkelstein, Sony BMG Music Entertainment
* Michael Ostroff, Universal Music Group
* Paul Robinson, Warner Music Group
Independent labels
* Tom Silverman, Tommy Boy Records
* Dick Huey, Matador Records
* Richard Bengloff, American Association of Independent Music
Artist representatives
* Jay L. Cooper, Esq., Recording Artists' Coalition
* Kim Roberts Hedgpeth, AFTRA
* Patricia Polach, AFM
* Daryl P. Friedman - The Recording Academy
* Perry Resnick, Music Manager's Forum
* Walter F. McDonough, Esq., Future of Music Coalition
* Michael Hausman, Artist Management
* Patrick Rains, PRA ManagementOthers
* Larry Kenswil, Recording Industry Association of America
* Mitch Bainwol, Recording Industry Association of America
* Kendall Minter, Entertainment industry attorney

Activities

The United States Copyright Office designated SoundExchange to collect and distribute to all nonmembers as well as its members. The Copyright Royalty Board issued its most recent decision on May 1, 2007, with regard to rates and terms to govern the compulsory license for webcasters (Internet-only radio) and simulcastors (retransmissions). SoundExchange collects royalties for artists and copyright owners whose work is used under the statutory license. Membership with SoundExchange is not required for artists to collect royalties, [http://www.soundexchange.com/faq.html#b4 - SoundExchange's FAQ] but when artists and copyright owners register with SoundExchange in order to receive their statutory royalties, they may choose to become a member if they wish. A small 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. [http://www.soundexchange.com/faq.html#b6 - SoundExchange's FAQ] 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. [cite web | title=Thoughts on the Internet Radio Equality Act (RoyaltyWeek, 7-11-07) | author = Ben Newhouse | date = 2007-07-11 | accessdate=2007-08-08 | url=http://www.royaltyweek.com/subscribe/back_issues.html ] [cite web | title=Senators to SoundExchange: Don't use negotiations to demand DRM | author = Nate Anderson | date = 2007-08-06 | accessdate=2007-08-07 | url=http://arstechnica.com/news.ars/post/20070806-senators-to-soundexchange-dont-use-negotiations-to-demand-drm.html ] At one time, they were accused of violating the laws that created the nonprofit collective by contributing to musicFIRST, which is lobbying to creating a performance royalty for terrestrial radio. [cite web | title=SoundExchange, Caught Lobbying, Says Lobbying Bar Does Not Apply | author = Eliot Van Buskirk | work=Wired Magazine | date = 2007-08-06 | accessdate=2007-08-17 | url=http://www.wired.com/entertainment/music/commentary/listeningpost/2007/08/listening_post_0806 ] Currently, terrestrial radio only pays a musical work royalty (usually to composers and songwriters). SoundExchange maintained that its contributions to musicFIRST are a legal function of the membership agreements signed by its members, and that and no money is being deducted from the non-member royalties. The SoundExchange Designation and Authorization Agreement (which only members sign) [cite web | title=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"| url=http://www.soundexchange.com ] authorizes any costs to be deducted from member royalties as authorized by the SoundExchange Board of Directors on their behalf. [cite web | title=Wired gets it wrong: The facts on SoundExchange | work=Orbitcast.com | date = 2007-08-10 | accessdate=2007-08-17 | url=http://www.orbitcast.com/archives/wired-gets-it-wrong-the-facts-on-soundexchange.html ]

Criticism

SoundExchange recently came to an agreement with certain large webcasters regarding the minimum fees that were modified by the recent determination of the Copyright Royalty Board on May 1, 2007. While their 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. [cite web | title=Webcasters and SoundExchange Shake Hands | work=BusinessWeek.com | date = 2007-08-23 | accessdate=2007-08-24 | url=http://www.businessweek.com/the_thread/techbeat/archives/2007/08/web_radio_and_m.html ]

SoundExchange also recently offered alternative rates and terms to certain eligible small webcasters, that allows them to calculate their royalties as a percentage of their revenue or expenses, instead of at a per performance rate. [cite web | title=SoundExchange Offers Discounted Music Rates To Small Webcasters | work=DigitalMediaWire.com | date = 2007-08-22 | accessdate=2007-08-24 | url=http://www.dmwmedia.com/news/2007/08/22/soundexchange-offers-discounted-music-royalties-to-small-webcasters ] 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. [cite web | title=SoundExchange Reaches Royalty Deal With 24 Small Webcasters | work=DigitalMediaWire.com | date = 2007-09-19 | accessdate=2007-10-11 | url=http://www.dmwmedia.com/news/2007/09/19/soundexchange-reaches-royalty-deal-with-24-small-webcasters ]

On August 16 2008, popular Internet broadcaster Pandora announced that they may have to cease operations, citing SoundExchange's much higher royalty fee on Internet compared to satellite broadcast. [cite web | title=Pandora can't make money, may pull the plug | work=ArsTechnica.com | date = 2008-08-16 | accessdate=2008-08-16 | url=http://arstechnica.com/news.ars/post/20080818-pandora-cant-make-money-may-pull-the-plug.html ] 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 profit model, the fees which SoundExchange levy would amount to 70 percent of their revenue making the service unprofitable. In comparison, satellite radio pays about nine percent of its revenue, as defined by their contract with SoundExchange. [cite web | title=Giant of Internet Radio Nears Its "Last Stand" | work=WashingtonPost.com | date = 2008-08-16 | accessdate=2008-08-16 | url=http://www.washingtonpost.com/wp-dyn/content/article/2008/08/15/AR2008081503367.html?hpid=topnews&at=u%3Dravensfan20008%26t%3D1218987039%26e%3Dravensfan20008%40yahoo.com%26h%3Dp%2FD0qf%2FU16JtobGpaBrGFQ%3D%3D ]

References

ee also

*Performance rights organization
*Copyright Royalty Board

External links

* [http://www.soundexchange.com/ Official website]