Guide to Sound Exchange and how they help independent artists get paid

An introduction to Sound Exchange and what they have to offer independent recording artists.

by Scott McCormick of Disc Makers Blog

You’ve written and recorded original songs and maybe even signed up with a digital distributor like CD Baby, Distrokid, or Tunecore. That’s a great start, and you may be forgiven for thinking you’ve covered all your bases when it comes to collecting the royalties you are owed for the use of your music.

However, your distributor will only pay you one slice of the total amount of royalties you are owed. You still need to collect your performance royalties. “No problem,” you say, “I’ll just sign up for ASCAP or BMI. Those are Performance Rights Organizations. They’ll collect all my performance rights.” Well, no. They’ll collect some of them, but not all of them. That’s where SoundExchange comes in if you’re a recording artist.

Introduction to SoundExchange

The Recording Industry Association of America (RIAA) established SoundExchange in 2000, and it became an independent, nonprofit organization in 2003. It is the only organization designated by Congress to collect and distribute digital performance royalties for sound recordings.

If you are an artist covering someone else’s song, or if you are a sessions musician, SoundExchange is especially important for you, as it’s the only organization that can collect music royalties on your behalf.

Understanding SoundExchange in the digital music era

SoundExchange was formed in the wake of the Digital Millennium Copyright Act of 1998, which granted webcasters (e.g. Pandora) an automatic license to play copyrighted music as long as a royalty was paid. SoundExchange has paid over $5 billion in digital royalties since its creation.

Copyrights

To understand what exactly SoundExchange does and how SoundExchange royalties can help you, you first need to understand a few important industry terms. Every recorded song has two copyrights attached to it: the songwriting copyright and the sound recording copyright.

• Songwriting copyright. The songwriter is the initial copyright owner of the songwriting copyright (also known as the composition copyright), though they can sell that copyright or sign it away to another party, by signing a publishing deal, for instance. The songwriter also controls the publishing rights.
• Sound recording copyright. Also known as master rights. Master rights usually belong to whoever financed the recording. This is typically the record label, though if you are an independent artist, then you own the master rights.

Understanding who owns the two copyrights for each song is important, because that will determine who is owed what royalties.

• If you are an indie musician and you write and record your own songs, then you own both the songwriting and sound recording copyrights.
• If someone else records a cover of your song, you will still own the songwriting copyright, and they (or their label) will own the sound recording copyright (a.k.a. master rights).

Copyright protection

The moment you create a song in the United States, you are immediately granted something called a natural copyright, but if you want your music to have full copyright protection, you must register that song with the US Copyright Office.

Understanding interactive vs non-interactive streaming

The music industry recognizes two kinds of streaming services: interactive and non-interactive.

Interactive streaming, also known as on-demand streaming, is where the listener actively chooses which specific songs they want to listen to. Think Spotify, Apple Music, TIDAL, Prime, etc.

Non-interactive streaming is where the listener may choose a channel to listen to, but otherwise has no control over which specific songs are being played. This includes services like Pandora as well as XM satellite radio.

Understanding the four different kinds of royalties

There are actually more than four kinds of music royalties in the music industry, but we’re going to focus on the four most important to this article.

Streaming royalties

These are the fees paid by interactive streaming services every time a song is streamed on their platform. These fees are collected by distributors and paid to the owner of the master rights. So, if your recording is played on Spotify, your distributor will pay you whatever rate they agreed to in your contract. (Note: A small percentage of streaming royalties are also collected by Performance Rights Organizations, so as the owner of the songwriting copyright, you are owed some money, even if the master recording is owned by someone else.)

Mechanical royalties

These are fees paid to the owner of the songwriting copyright whenever a song is reproduced and distributed. For every CD, vinyl record, digital download, or stream, a small fee is paid to the songwriter and publisher. These fees are not collected by the distributor, but by a company like the Harry Fox Agency.

Songwriting performance royalties

A performance royalty is generated whenever a song is performed, recorded, played, or streamed in public. The word “performance” is a bit misleading, as it doesn’t just reference live performances. It includes any time a song is played in public, like on AM/FM radio, TV, clubs, restaurants, etc. This fee is paid to the owner of the songwriting copyright and is collected by PROs like ASCAP and BMI.

Digital performance royalties

Also known as non-interactive streaming royalties, this fee is generated any time a song is played on internet radio platforms like Pandora, satellite radio, and cable TV Channels. This is the fee collected by SoundExchange, and SoundExchange alone.

How SoundExchange administers royalties

So, who gets paid? SoundExchange benefits performers and master rights holders. SoundExchange royalties are split three ways:

• 50 percent goes to the owner of the sound recording copyright (master rights holders)
• 45 percent goes to the featured artist
• 5 percent goes to non-featured artists (sessions musicians, backup singers, etc.)

(Note: Non-interactive streaming also generates royalties for the owner of the songwriting copyright, but those fees are collected by ACSAP and BMI.)

Signing up for SoundExchange

It’s free to join SoundExchange, though they charge a 4.6 percent administrative fee.

Even though it’s free to sign up, the process isn’t all that simple and it can feel a bit invasive. You are asked to provide basic contact information, as well as bank info (routing and account numbers, plus an image of a voided check), an image of your driver’s license, and your social security number. After doing all of this, it takes about a week before you get approved, and only then can you create an account to check to see what money is already owed to you.

However, if you are willing to do all of that, the benefits may be immense, especially if you have recordings that have been in the wild for years.

Again, if you are a cover artist or a session musician, SoundExchange is the only way in which you will get any royalties from non-interactive streaming.

If you are a recording artist, you should join SoundExchange. This is true whether you are a featured artist or a session musician or background singer. SoundExchange is the only way to collect money from exploitation of master rights on non-interactive streaming services.

If you are a songwriter who does not also record music, then SoundExchange will not benefit you. Instead, you will want to focus on joining PROs like ASCAP and BMI, as well as a mechanical collection society like the Harry Fox Agency.

Scott McCormick is a musician and the author the Audible bestselling Rivals! series and the hit fantasy novel The Dragon Squisher. Scott can be reached at storybookediting@gmail.com.