[Dixielandjazz] Sirius XM Radio wants to bypass Sound Exchange in royalty payments

[Stephen G Barbone]

Those of us who now get Sirius royalties via Sound Exchange should be  
interested in this article.

Cheers,
Steve Barbone
www.myspace.com/barbonestreetjazzband

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

By Ben Sisario - NY Times - Nov 7, 2011


The flow of royalty payments, counted in pennies and nickels, may be  
the least glamorous part of the music industry. But because those  
royalties are the foundation of almost everyone’s paycheck, any change  
to the system can be controversial.

Sirius XM Radio set off a flurry of complaints from trade groups and  
labor unions late last month. It was trying to bypass the standard  
method of paying for digital streams — through a royalty clearinghouse  
called SoundExchange — and negotiate directly with record labels.

Sirius’s move was only the latest example of a gradual shift in the  
financial infrastructure of music. Many companies, from major labels  
to providers of background music, have been trying to reduce costs and  
gain control by circumventing the large organizations that have  
historically processed licenses and royalties.

Such direct deals are perfectly legal. But opponents of the move by  
Sirius say that it could result in less money and more complications  
for artists.

Mel Karmazin, the chief executive of Sirius, said in a statement  
Friday that direct agreements with labels offer more flexibility than  
is available through the basic compulsory licenses processed by  
SoundExchange.

“We think rights holders should benefit from a more competitive and  
open environment created by inviting individual labels to set their  
own value on their content rather than having to follow the industry  
collective,” Mr. Karmazin said. “We are giving rights holders a choice  
and, if they are not interested, we will continue to work with them  
through SoundExchange.”

Michael J. Huppe, the president of SoundExchange, said it was clear  
that Sirius was also seeking to pay less than the rates set by federal  
statute. “At the end of the day, what they’re trying to do is get  
content for less money,” Mr. Huppe said Thursday in an interview. “Our  
mission is to maximize the value of the content.”

The issue is vital for Sound-Exchange because Sirius is by far its  
largest contributor of royalties, with about $150 million in annual  
payments. Sirius pays 7.5 percent of its gross revenue to  
SoundExchange. That will rise to 8 percent next year by statute. It  
also pays royalties to other agencies. At the end of November a panel  
of judges in Washington will begin proceedings to negotiate rates for  
2013 and beyond.

SoundExchange, a nonprofit group, was founded in 2000 and is  
authorized by the United States Copyright Office to collect one kind  
of royalty for digital music. The royalty, the performance right for  
sound recordings, pays performers and record companies when their  
songs are played on digital streams like satellite radio and Pandora.  
(In a rule that has annoyed record companies and musicians for  
decades, terrestrial radio pays only songwriters and publishers.)

SoundExchange paid artists and labels almost $250 million in royalties  
last year. But it has been criticized for its slow progress in  
tracking down and paying artists. In 2009, it held $154 million that  
it had called “unpayable,” including $66 million for bad or missing  
data and $43 million for artists who had not filed paperwork.

The organization, which last year charged a 6.7 percent administrative  
fee effectively paid by artists and record labels, has also had  
difficulty getting artists to sign up to receive royalties. A  
spokeswoman said it has lists of “tens of thousands of artists” who  
are owed money.

Les Watkins, an executive at Music Reports Inc., a music licensing  
service that is working with Sirius in its licensing deals, said his  
company can process the data better, allowing it to reduce expenses.  
“There are inefficiencies at SoundExchange which result in money going  
in which does not come out,” he said.

In recent years other major music companies have sought alternatives  
to the large licensing agencies. EMI now licenses some of its digital  
rights directly instead of going through ASCAP. And DMX, which  
provides background music to restaurants and shops, has won federal  
court cases allowing it to make exceptions to blanket license  
agreements with ASCAP and BMI.

Proponents of direct deals say that by cutting out the middleman they  
can realize lower costs and improved information all around.

“This is about transparency and access to information that was not  
readily available before,” said Patrick Sullivan, whose company,  
RightsFlow, competes with the Harry Fox Agency in processing  
mechanical licenses, which pay songwriters and publishers for record  
sales.

But some worry that the weakening of such centralized organizations  
could hurt artists. That concern is especially acute in the case of  
SoundExchange, which pays artists the digital performance right income  
directly, instead of routing that money through a record company or  
other third party, as is typical.

In coordinated statements last month, the American Federation of  
Television and Radio Artists, the American Federation of Musicians and  
the National Academy of Recording Arts and Sciences (the group behind  
the Grammy Awards) warned musicians that if their labels sign direct  
deals with Sirius, the payments they now receive directly from  
SoundExchange could instead be sent to the labels, and therefore be  
subject to deductions.

“Even a cursory read of American music business history will tell you  
that oftentimes these deals were fairly onerous, and the deck was  
stacked against the artists,” said Casey Rae-Hunter, deputy director  
of the Future of Music Coalition, an artists’ advocacy group.

Mr. Watkins said that artists’ contracts with their labels would  
determine how they are paid. “What’s offensive about the industry  
group arguments that this is bad for artists is that they essentially  
assume that all labels are dishonest or corrupt,” he said.

Mr. Huppe said that SoundExchange would continue to push for higher  
statutory rates for satellite radio, which would cover all music that  
Sirius cannot license directly.

“We believe that content is already undervalued,” he said. “We just  
want to make sure that our constituents get their fair share.”