Recording artists and indie labels: there’s a movement afoot to change the way that you would receive your digital public performance royalties, and it’s not a good one, especially for recording artists.

Back in August, we blogged about the news that Sirius/XM was considering doing a direct licensing deal, expressing our serious displeasure with the move.

In recent days, the artist community — including AFTRA, AFM, The Recording Academy, A2IM and SoundExchange — has been broadcasting the message to their members about the negative consequences of direct licensing deals for digital performance royalties.  We applaud our artist colleagues for urging their members signed to indie labels (or self-released artists) to not accept these direct licensing deals.

We here at FMC wanted to join in the chorus and explain to musicians and labels why the current statutory licensing structure is better for all stakeholders.

1. Direct payments to artists put at risk

Currently, Sirius/XM pays digital public performance royalties to SoundExchange for the music it plays; SoundExchange then distributes 50 percent of the royalties to the sound recording copyright owner (usually a label) and 45 percent to the featured performer. The non-featured performers receive the remaining 5 percent.

Under the current structure, the money doesn’t pass through the record labels first; payments to performers 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.

If labels start to license to Sirius/XM directly, guess who gets all the money? The labels. Artists will no longer be paid directly and simultaneously via SoundExchange. Instead, their money would be passed through their label. 

FMC has always argued that direct and simultaneous payments to artists is a good thing. We have lots of upstanding label friends, but history has shown that these passthroughs can lead to money being diverted to pay for album costs or other things. This arrangement lacks the same level of transparency that’s available to artists when receiving a check directly from SoundExchange. 

Even though it presents a huge logistical challenge to SoundExchange to seek out all the performers who are owed money, FMC thinks artists being paid directly is absolutely critical. 

 2. Artists and labels are paid more under the current structure

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 2012, after which they will be revisited to cover a period from 2013-2018.

Direct licensing deals means that Sirius/XM might pay a little bit less. While this might generate some savings for Sirius/XM, it’s clearly not good for labels OR artists. 

Then there’s this. Billboard reported in August:

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. FMC cannot support such efforts to devalue the price of music.

3. Direct licensing deals leave musicians without a voice

SoundExchange is governed by an 18-person board that includes 9 artist reps and 9 label reps.  That means that musicians and labels have an equal say in how SoundExchange operates. (Remember, this is an organization that just paid out $88 MILLION in one quarter, so we’re not talking about chump change). 

SoundExchange also has the power to audit licensees like Sirius/XM on behalf of everyone and make sure that they are paying correctly. If labels start to direct license, any errors made by Sirius/XM during playlist reporting would be much harder to discover, and only the biggest labels would have the resources to audit. We are more powerful collectively than we are separately. 

If labels start direct licensing, artists will lose a voice in the discussions about licensing rates and payments because all the payments will be routed around SoundExchange — it’ll just become a direct negotiation between two parties, and artists will be left out of the conversation completely. FMC was one of the artist-focused organizations that fought hard to ensure equal representation on the SoundExchange board, and artists and labels have benefited greatly from this power-sharing deal.  We cannot support any effort that reduces our value in the stakeholder process.

4. Direct license deals might expand the rights

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. 

• If you are a musician, we urge you to tell your labels you’d oppose any effort to re-direct your digital performance royalties through your label.  In the interest of fairness and transparency, your label should continue to license through SoundExchange.
    
• If you are a label, we urge you to look closely at these deals, and remember that the statutory rate-setting process represents an opportunity for labels to work together to get the best rate possible.