SoundExchange Payout Confusion: What you need to know

There has been a lot of speculation about how much the performing rights collection agency, SoundExchange has actually paid out to their member artists. Long story short, numbers were reported, then adjusted (repeatedly) and now don’t look like they are adding up. Payments to artists have been much slower than expected.

Why this is important:

• If you are signed up with a collection society such as SoundExchange and have songs playing regularly on a service such as Pandora, then you are potentially owed royalties
• If you aren’t a member of SoundExchange and are getting heavy exposure on a Pandora-like service, then you are leaving money on the table.

Even if you aren’t getting heavy rotation on Pandora or Slacker, you still ought to be a member of ALL the types of Performing Rights Organizations. ASCAP, BMI or SESAC (for songwriters) and SoundExchange for the limited digital public performance right mentioned above. Basically, as a recording artist, you should already be signed up.

Here is a great video about how SoundExchange works:

Things to remember:

• This protection is for ONLY copyright owners of Sound Recordings, NOT the underlying composition (although, in many cases they are one and the same).
• The royalties collected are only for DIGITAL streams of the songs (i.e from platforms like satellite radio (such as SIRIUS XM), internet radio (Pandora, and online-only webcasters), and cable TV music channels (such as MusicChoice).

While I am a strong proponent for performing rights collection societies and, in full disclosure, a major advocate for non-profit organizations such as SoundExchange, there has been some confusion as of late regarding the “huge” payouts recording artists are actually receiving.

According to the SoundExchange website, Q2 2010 was the highest quarterly payout to date, a reported $54.8 million, which for their 45,619 artist members is certainly nothing to sneeze at. However, over the last few weeks there has been conflicting reports about the accuracy of these dollar figures.

In Q1 2010, Digital Music News reported a little “inconsistency” between the payouts reported by SoundExchange and records from the IRS (see article).

Back in May, SoundExchange reported an outstanding balance of $200 million in unpaid royalties, then after some backlash over SoundExchange’s failure to distribute them, the number was suddenly adjusted to $39 million.

So why the switch? Looks like a little “creative accounting”. Perhaps it’s time for an investigation so that artists can utilize this service and expect to be compensated fairly.

Direct from Digital Music News (5/24):

Does this revision make any sense? According to publicly-available IRS documents (included in this report below), the year-end, unpaid balance in 2008 was actually approaching $260 million ($259.7 million). Presented with that $260 million figure earlier this month, SoundExchange immediately shaved the balance down to $200 million for early 2009 based on ongoing payouts.

During the multi-week investigation, the group declined to offer a more revised, up-to-date figure, citing auditing confidentialities. SoundExchange executive Laura Williams noted that “’stuck’ or delayed funds in 2007 were around $101 million and a little over $200 million at the start of 2009,” while acknowledging a “110 percent” increase in just two years.

It gets worse. The updated math seems more than just fuzzy, and suggests a broader transparency issue. In an indirect retort to Wired and other outlets unwilling to ask tough questions, Calhoun noted that $39 million remains reserved for ‘artists and copyright holders who haven’t yet registered,’ and led with that figure. But the same SoundExchange breakdown also includes a roughly $40 million outstanding balance from ‘bad data,’ ‘no data,’ or money locked in foreign PROs. That alone adds up to about $79 million in unpaid royalties.

Then, about $100 million of the $200 million, according to new figures from Calhoun, is ‘flow-through’ that has already been paid out. The rest is being held pending court resolutions on various royalty rates.

The flow-through figure raises even more questions. Flow-through is certainly present, though according to an earlier breakdown from Williams, year-2008 payouts were already more than $100 million. Still, the IRS filings show an end-of-year balance of $260 million, suggesting a far greater figure in 2010 by simple extrapolation.

Perhaps Calhoun is engaged in a bit of balance ‘time-shifting,’ a practice that seems to ignore incoming – and unpaid – royalty amounts while focusing heavily on subtraction. Here are the outstanding ‘fund balances’ (end-of-year) as confirmed by the available federal filings (documents below). So far, the only documented balances have come from the IRS.

Something is definitely not right here. For me, this is really an issue of transparency. A lot could have been done to simply report a mistake rather than shove it under the rug with inaccurate figures and focus only their quarterly payout figures. For a look at the currently available IRS documents, they are currently uploaded via Digital Music News.

See Line 34 of the document below:
IRS report – 2008

You’ll know more as I do. Keep checking back as this story develops.

UPDATE: SoundExchange Executive Director John Simson to Step Down

Not meant to fuel the fire, but to add urgency to the problem.

From Hypebot:

SoundExchange annnounced late today that Executive Director John Simson will be leaving the organization by the end of the year. He will remain until a successor is found according to the statement. As a manager in the 1990’s, Simson had lobbied to pass the Digital Performance Rights in Sound Recording Act of 1995. He was SoundExhange’s first full-time employee and launched the new collecting society in 2000.

A desire to return to his “creative roots” was given as the reason for his departure, but SE has been criticized in some sectors of the industry for a lack of transparency and allegedly slower than needed payments to artists. A recent campaign spearheaded by SoundExchange VP Brian Calhoun has aggressively sought out artists, managers and record labels; and worked to improve communications and provide better service. [emphasis added]

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