Will Artists Lose Royalties From Satellite Radio?

Ed Christman and Billboard broke the news today that Music Reports, Inc. (MRI) — a music rights administration service — is attempting to directly license music from record labels to be used on Sirius/XM satellite radio.
Currently, Sirius/XM pays digital public performance royalties to SoundExchange for the music it plays; SoundExchange then distributes this money to sound copyright owners (usually the labels) and performers — simultaneously and directly. How much Sirius/XM pays SoundExchange is based on a rate set by the Copyright Royalty Board with input from stakeholders, in compliance with federal statute. Currently, Sirius/XM pays 7.5 percent of its gross revenue. The rates are currently set through 2013, after which they will be revisited to cover a period from 2013-2018.
So why is this move by MRI potentially a big deal? To answer that question, we need to quickly go over some history.
In 1995, Congress passed the Digital Performance Right in Sound Recordings Act, which granted a performance right for the digital transmission of sound recordings (like Sirius/XM and webcast plays). Previously, US copyright law contained no provisions for a performance right in sound recordings. Ultimately, SoundExchange was designated as the non-profit organization that collects the license fees and distributes royalties to those whose recordings were played digitally.
SoundExchange receives the licensing fees and playlists from Sirius/XM, Pandora and other digital webcasters. Then, royalties are distributed to the sound recording copyright owner – which gets 50 percent — and the performer — who gets 45 percent. The non-featured performers receive the remaining 5 percent. The money doesn’t pass through the record labels first; the payments are made directly and simultaneously, which means the performer gets his/her money for the digital performances whether they’ve recouped or not. And in some cases, performers are receiving checks with four or five figures on it, and the money keeps growing with each distribution.
Here’s why the MRI scheme raises three red flags. As Billboard reports:
As part of its move to direct licensing, SiriusXM will pay the full royalty rate directly to the labels, as opposed to the way SoundExchange makes payments, splitting royalties evenly between the artist, which it pays directly, and the label. So labels that directly license their masters to Sirius would then be responsible for paying the artist royalty. MRI would provide a full accounting on a per song basis to labels. [emphasis added]
In plain language, SiriusXM and MRI are proposing to have all the money flow through the record label, instead of paying performers their share directly. FMC knows and loves many record label people, but history has demonstrated that these passthroughs are subject to money being diverted to pay for album costs, or lack the same level of transparency that’s available to artists when receiving a check directly from SoundExchange. Having heard many stories about clever accounting practices in which even successful artists never “recoup,” we worry about whether performers will recieve their share of a growing revenue stream.
Then there’s this. Billboard reports:
The question arises if the labels will pay the artist half the royalty, or 50 percent, they receive for each time a song is played, or will some labels choose to pay them their artists the regular royalty rate, which typically ranges between 15 percent and 20 percent.
Yep. There’s also a chance that, under this direct licensing arrangement, performers would see their royalty rates reduced.
And finally, this move is also an attempt to expand what Sirius/XM is allowed to do with these licenses. According to Billboard:
In moving to directly license masters, the company is seeking expanded licenses that will allow for more functionality. For example, it wants to allow subscribers to record programming blocks and be able to rewind and fast-forward that segment. It also is seeking to allow music to be cached locally on devices and applications that have that capability. In seeking the former, it is in effect asking for a waiver from the sound recording performance complement of the Digital Millennium Copyright Act, which limits how many times songs from an artist can be played within an hour.
That would make satellite radio much closer to on-demand services like Rhapsody, MOG or Spotify, which operate under an entirely different licensing structure. Even non-interactive services like Pandora currently pay a different rate than satellite radio. By bypassing SoundExchange, Sirius/XM could up paying an even lower fee for expanded offerings.
Here at FMC, we want artists to get the money they’re owed for the use of their music on any platform. The statutory rate for digital performance plus direct payment via SoundExchange is an important piece of the compensation puzzle for creators. Bypassing it might benefit the bottom lines of major corporations in the short run, but it’s a dangerous thing for performing artists. And in the long run, we wonder whether bypassing the benefits of collective licensing through SoundExchange, with its ability to fight for good rates and to keep the administrative costs low, might actually be harmful to the bottom line of labels considering the Sirius/XM offer. We’ll be keeping an eye on how this shakes out.
Comments
2 comments postedWow! Where do we start? I'm
Submitted by Shawn Brock (not verified) on August 18, 2011 - 3:33pm.Wow! Where do we start? I'm not one for fueling the roomer mill, but this morning I spoke with a long time ally at Serious-XM. This fellow is a program director over there and is always a good source of information. He stated to me "off the record", that they would no longer be spinning records which they didn't have a direct deal for through the labels. He said that this would be the new protocol in short order, and that I could "take that to the bank".
Before the merger it seemed easier to get music added on both Serious and XM. Now its a little more of a challenge. Lots of singles are on the Billboard charts that are never added over there... That's frustrating to me not only as a musician, but as a listener and subscriber. I have noticed over the last year or so that the repetition of the playlist is getting a little redundant, and somewhat reminiscent of today's FM.
I'm sure that like me a lot of you depend on income from Sound Exchange to help you provide for your families. It seems that we will be suffering a large hit soon.
This news is sure to spark a lot of questions about the past. You may start thinking about those records you put out years ago on other labels, you know, the ones you never got paid a dime for? When Sound Exchange came in, you started seeing money from those old records. Wasn't that great? Now all of that money will go to that old record company, the one which you probably don't have an agreement with in regards to digital streaming. So what will happen there? What will happen with those records which were released on labels which went out of business? We all have questions, and it will take some time to get answers I'm sure. You can count on one thing though, the money will be cut off long before we get answers.
After being in this business all of my life, I'm considering a change. At some point an artist has to sit down and think about it. We sell fewer records now, get fewer bookings, and the ones we get we are under priced. I can't say that I'm making more money per show now than I was 10 years ago... When you add it all up, it almost don't seem worth it. Just when the independent artist was starting to be excepted into that snobby society of Serious-XM, Soundscan and all the others, someone comes along and starts to pull the plug. Its a dark and gloomy day!
When all is said and done we must remember that this is what we do. Its easy to quit, but in the end we know we won't. We'll struggle and complain, and itch to put out another record and play another show. Its in our blood, and nothing changes that. We do need to think about how we are going to move forward though, and come up with new ideas for the future. Perhaps $3000 and up for radio promotion isn't worth it anymore?
The language of the 1995
Submitted by Anon (not verified) on September 8, 2011 - 7:03pm.The language of the 1995 statute creating a performance right in digital sound recordings specifically sets the percentage of income to each recipient: 50% to the owner of the sound recording copyright (usually the label), 45% to the featured artist, 2.5% to AFM musicians, and 2.5% to AFTRA recipients; thus, a label cannot reduce the artist's share of this income to something closer to the artist's record royalty rate without contravening the statute. In addition, the statute has always provided that the licensee (in this case, Sirius XM) is to pay the owner of the sound recording copyright (usually the label) and the "featured recording artist ...shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist's contract." In other words, whether Sirius licenses the sound recording through SoundExchange or directly from the label, this has no effect on the statutory rights of the record company and the artist to share in resulting income under the Digital Performance Rights in Sound Recordings Act or the amount of those shares. If the record company can validly recoup recording costs against the artist's share of digital performance income in the absence of SoundExchange, it could equally have recouped those costs against artist income flowing through SoundExchange...by simply requiring that the artist's share be directed and paid to the label. The point is, the record companies HAVEN'T insisted on receiving the artist's share, but instead agreed to appoint SoundExchange as the universal collection agent and that both artist and record company should each receive their respective shares directly. If the labels now reverse this decision in the absence of SoundExchange, it won't be because any artist rights disappeared or label rights have been magically increased. It will only come to pass because this provides a convenient opportunity to change the current custom, re-examine the statute against the label's right of recoupment, and, at a minimum, earn some additional interest by holding the artist's share for some period. In the era of the 360 deal, this kind of move wouldn't even be surprising.
The real danger in eliminating SoundExchange, however, is the significant loss of bargaining power in the ongoing conversation with Sirius, which will work against both the record companies and the artists. A record company that negotiates directly and on behalf of only itself is vulnerable in a way that a collective bargaining agency is not and may soon find its income reduced by virtue of all the "promotional benefits" generated when a sound recording is played on satellite radio. Given Sirius's added administrative burden in negotiating all these direct deals, one has to assume that it's counting on some big pay-off down the line. Unfortunately, the cost of that pay-off to the record company will likely outweigh any small benefits it gains from direct collection. If the labels imagine that a direct deal with Sirius will increase the size of their slice of pie, they need to look again. What good is a bigger piece of a quickly shrinking pie?
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