Sound Exchange

October 2011: SoundExchange Statement on Sirius XM Direct Licenses and the Statutory License

SoundExchange recently received questions from artists and independent labels about Sirius XM’s requests for direct licenses.  Those offers are apparently being delivered by Music Reports Inc. (MRI), a company that represents the services who use music rather than the people and companies that make music. Indeed, MRI’s website states that it strives to license music from music creators “at the lowest possible cost.”

We are not privy to the discussions MRI is having about these direct licenses.  We can, however, provide some background about the statutory license for satellite radio, and what we do on behalf of the thousands of record labels and recording artists that we represent.

SoundExchange fights for artists and copyright owners

Unlike Sirius XM and MRI, we fight for royalty structures that recognize the vital role that the creators of music play for digital services.  We represent everyone in the creative process – record labels and recording artists – and we spend countless hours and millions of dollars fighting for their rights.  In the last satellite radio proceeding, we obtained a 300 percent increase in the rate paid by Sirius XM.  MRI, by contrast, works with services, and in past rate proceedings has closely coordinated with digital music services that sought to lower rates for creators’ music.     

SoundExchange manages the statutory license on behalf of the industry, and believes the current rates for satellite radio are below-market.

The statutory rates for satellite radio are set in proceedings before the Copyright Royalty Board (“CRB”) every five years.  SoundExchange represents artists and rights owners in those proceedings and advocates for rates that give proper weight to the value of music, and proper compensation to rights holders.  We’ve achieved dramatic increases in the statutory rates for webcasting and satellite radio in the past, and will always advocate to ensure the artist is paid rates that properly reflect the value of his or her music.

The current rates for satellite radio are based on a percentage of Sirius XM’s gross revenues, as defined in the regulations. For 2011, the rate is 7.5 percent, and will go up to 8 percent next year.  The proceeding to set rates for the next term is currently underway.  Importantly, Sirius XM also owes separate royalties for its other platforms, such as webcasting.  Those streams are not included in the 8 percent royalty rate described above.

As we’ve previously explained, SoundExchange believes the current rates are artificially low and will seek a substantial increase in the next term.  In the last rate setting proceeding, the CRB acknowledged that the evidence pointed to a market rate in the range of 13 percent, but then reduced the rate because of Sirius XM’s financial condition at the time.  We believe that it is no longer appropriate for musicians to be subsidizing Sirius XM. 

Currently, artists participate directly and immediately in the royalties paid to SoundExchange under the statutory license. With direct licenses, they will not.

SoundExchange administers a statutory license designed by Congress to ensure that artists participate directly in the stream of royalties generated by the digital performance right.  Under the statutory license, 45 percent of the performance royalties are paid directly to featured artists, whether or not they are “recouped” – or still owe money to their record labels. Recouped or not, the statutory license ensures artists are able to receive royalty payments from SoundExchange. In addition, through SoundExchange, 5 percent of performance royalties are paid to a fund for distribution to non-featured artists – again, without passing through a record label.  The ability of artists to participate directly and immediately in this new and growing stream of revenue is a core policy of the statutory license. 

SoundExchange is a non-profit organization with a passion for music

SoundExchange represents thousands of artists and labels, and is governed by a Board comprised of varying interests in the industry – half representing artists and half representing labels. As a non-profit organization, we are not overseen by any particular commercial interest. Instead, we advocate the interests of all creators. Our incentive is to ensure that artists receive their proper compensation, and our goal is to keep our operating costs as low as we reasonably can to maximize the royalties that we pay out to the creators and owners of music. We’ve been successful, paying more than $800 million in performance rights royalties to date.

The statutory license, as administered by SoundExchange, is transparent and efficient for rights owners as well as artists

The statutory license is an extremely efficient tool for rights owners and artists as well as services, and generates value for everyone in the creative process, not just record labels.  SoundExchange distributes tens of millions of dollars every quarter to artists and rights owners who owe nothing to SoundExchange other than keeping their paperwork up to date. 

In addition, SoundExchange has one of the lowest administrative rates in the industry – if not the lowest.  For 2010, our administrative rate was 6.9 percent – which covers rate settings, royalty accounting, oversight, enforcement and audits on behalf of all or our members and other activities that labels otherwise might have to undertake themselves. All of this is covered by our 6.9 percent admin rate.

We strive to be transparent, efficient and accurate in everything that we do. The way we distribute royalties is spelled out by statute and regulations – under rules that we advocate – and we’ve always sought the maximum degree of precision from services that we can get.  Whenever possible, we distribute royalties according to exactly what a service played.  We devote substantial resources to registering labels and artists to ensuring that every penny is distributed to its rightful owner, and we continue to dedicate resources to correcting the insufficient data we receive from services. Our mission is representing the creators of music, and it’s a mission that we embrace with passion.