SoundExchange - what does it really do?

I recently had the opportunity to review and comment on two producer contracts. One was a full length document from a mid-level Nashville producer, while the other was a shorter deal-memo on behalf of a Grammy Award winner.  In both instances the producer demanded a share of the revenue stream generated by SoundExchange; and for both artists, my first task was to explain what SoundExchange actually does.

Most of us are familiar with the basic Performing Rights Organizations (PROs), BMI, ASCAP and SESAC. SoundExchange is yet another PRO, but unlike BMI/ASCAP/SESAC which pay the owner of the composition, SoundExchange is linked to the sound recording. In more technical terms, it collects for the digital public performance of sound recordings, as provided for by the Digital Performance Right in Sound Recording Act of 1995 and the Digital Millennium Copyright Act of 1998.

Therefore, SoundExchange’s licensing collection, and member distribution, is limited not only to the sound recording,  but to the digital broadcast use of that sound recording, distinct from typical terrestrial radio. Examples include fees paid to play sound recordings over XM-Sirius satellite radio, internet radio like Pandora, and internet streaming sites such as Spotify. The digital statutory license fees are paid out by SoundExchange to the copyright owner/record label (50%), the featured artist (45%) and non-featured session players (5%).

The co-existence of BMI/ASCAP/SESAC and SoundExchange can be confusing. It’s important to remember that terrestrial radio stations pay fees to the owner of the composition copyright, but not for use of the sound recording. Digital streamers and broadcasters, however, pay for both use of the composition (BMI/ASCAP/SESAC) and the sound recording (SoundExchange). An artist may share in more than one of these revenue streams depending on the specifics of his/her business arrangements. Imagine an artist-owned record label that owns the sound recording (SoundExchange 50%), a song written by the artist (BMI/ASCAP/SESAC), and performed by the artist him or herself (SoundExchange 45%).

Concerning producer/artist contracts, it’s not uncommon for the producer  to seek a flat fee, paid in scheduled installments; a royalty on units sold; and a percentage of the artist’s SoundExchange Featured Artist income. A typical agreement might have the artist execute and deliver to SoundExchange a letter of direction, allowing the producer to receive his/her cut directly.

Above all, it’s necessary that a sound recording owner is properly registered with SoundExchange, and that a schedule is submitted itemizing the applicable masters. Businesses should be able to complete this task themselves, or they may elect to delegate the process to legal counsel. Naturally, this article is intended as general information, only, and not specific legal advice. If you have questions, please feel  free to contact me at (419) 243-6148 or lmeyer@mpdwlaw.com.  Of course, more information is available at www.soundexchange.com.