By Jeff Price

Here’s the New York Times article headline that ran on November 6, 2011:

“Sirius’s Move to Bypass a Royalty Payment Clearinghouse Causes an Uproar”

Umm, not really, it’s causing an uproar for artists who have transferred their copyrights to labels (i.e. artists “signed” to a label), not for the millions of artists that are their own record labels.  It all depends on which side of the coin you’re on.

Under the current law, an artist who is also the record label (which the hundred of thousands of TuneCore Artists are) could make less money (and get paid less often) if their Sirius satellite radio payments go to SoundExchange.

Here’s the background:

When a song is played on AM/FM radio, only the person who wrote the song gets paid.

When a song is played as a non-interactive DMCA compliant “Digital Transmission” – in other words, digital radio like Sirius, Pandora, AM/FM radio stations simulcast on the Net, or streaming radio on Cable – the law states that four entities get paid:

This first one is the songwriter.

The songwriter’s royalty gets paid to the Performing Rights Organization for the public performance of the song.  In the U.S. there are three Performing Rights Organizations: BMI, ASCAP and SESAC. None will tell you how much they get paid, what their rates are, and how much the songwriter should be paid.

The next payments are made to a U.S. government authorized entity called SoundExchange (side note, we like SoundExchange).

SoundExchange then pays a portion of the money they collect to:

– the entity that owns the recording of the song (i.e. the “label”)
– the lead performer of the song
– pre-approved musician unions

Here’s a working example: Paul Anka wrote the song “My Way.”  Capitol Records hires Frank Sinatra to sing it.  By law, when the song gets played on AM/FM radio, Paul Anka gets paid for the public performance of the song; Frank and Capitol Records get nothing.

Now onto the digital age: The law states that when the song “My Way” is played on Sirius satellite radio (a non-interactive digital format), Paul Anka gets paid for the public performance (again, no one knows how much, as ASAP/BMI/SESAC will not reveal the rates). In addition, Frank Sinatra, as the lead performer, gets paid 45% of the royalty rate set by the government, Capitol Records, as the owner of the recording of the song, gets paid 50% of the royalty rate for the public performance of the recording of the song as set by the government, and the stipulated musician union gets paid 5% of the government set royalty rate.  You can see the rates Frank, Capitol Records, and the musician unions get paid here.

The angle the New York Times article is taking has more to do with artists signed to old school labels.

Here’s how the money flow and numbers break down:

SoundExchange collects other peoples’ and entities’ money, and, provided a label or performer registers with them, and they can match the money up, SoundExchange disperses their royalties.

This is a good thing.  A very, very good thing (for those of you not registered with SoundExchange, you should do it as soon as you have a moment.  It’s free and they may be sitting on money owed to you).

For this service, SoundExchange takes around 6.7% of the money it collects to cover its administrative costs (they need to pay people to do this). This comes off the top of the amount owed.

After SoundExchange takes its around 6.7% from the money it collects, 50% goes to the “label,” 45% goes to the lead performer, and 5% goes to musician unions.

I cannot speak to who gets the money from the unions or how they figure it out.

I also cannot speak to how many labels and performers register with SoundExchange; if they don’t register, they don’t get their money.

Now, here’s what Sirius is attempting to do: Sirius wants to license the rights to the recordings to play on Sirius radio directly from the record labels. This means that Sirius will pay the labels directly and will not pay SoundExchange.

But there is one catch: If the label gets the money directly from Sirius, the label is NOT required by law to pay the lead performer or the musician unions. BUT the label IS still responsible for getting the money and using it toward recoupment, or paying the band its percentage as dictated by the artist contract.

The upside for the label: If Sirius pays the label directly, the label will make a LOT more money if the amount Sirius is paying the label is not significantly less than what it would have to legally pay SoundExchange, as 45% of the money is not going to a performer, 5% is not going to a union, and 6.7% is not going to SoundExchange.  In other words, Sirius could pay less to the label than what it pays to SoundExchange, and the label will most likely still make 50% – 55% more money off of a play of its song on digital radio.  In addition, I suspect the label will get paid more frequently, and the label will most likely get paid all money due as the data matches up more cleanly (i.e. the label supplies Sirius its data and Sirius reports back to it on its own data vs. Sirius sends data to SoundExchange and then SoundExchange has to figure out what goes where).

Of course this assumes the amount Sirius pays the label does not dip so low as compared to what it has to pay under law, so the label ends up with more money (which is most likely the case as why would the label do it if it made less?).

Sirius paying the label directly could suck hard if you are an artist signed to a label and you are the lead performer, as you wouldn’t get 45% of the money after SoundExchange takes its around 6.7%

HOWEVER – what happens if you are both the lead performer AND the record label (like 95% of all TuneCore Artists)?

For the sake of conversation, assume an entity like TuneCore enters into a deal with Sirius to go direct (we have not, but bear with me so I can make the point), and the rates Sirius pays are not so low that the artist/label would make more money, not less, by getting paid directly.

As the artist is both the label and the lead performer, the artist gets MORE money then he/she would if he/she went via SoundExchange, as 5% of their money is not being given to unions.  I have no idea if this TuneCore-like entity would charge an administrative fee like SoundExchange (never thought about it), but if it did, and it was less than 6.7%, the artist would make even more money.  In addition, the artist would most likely get paid more quickly and more accurately then if the money went through SoundExchange.

The slant of the New York Times article and the “industry” reaction has to do with legacy artists or artists signed to old school labels.  If an artist is signed to a label, critics have a valid point.  If the artist is his or her own record label (like those using TuneCore) then critics’ position would make the artist less money, not more, and have it take longer for the artist to get paid; not a good thing.

(On a side note, don’t forget, if you are also the songwriter you make an additional amount of money for the public performance of the “composition,” the lyrics and melody).

Thus the reason why it’s so important to have all the information before reaching a conclusion as to what position you would like to support.

My two cents, one size does not fit all and the media needs to start taking a more balanced position in reporting these stories.

All that make sense?

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