SoundExchange paid out $161 million to performing artists and rights holders in the second quarter, an 8-percent increase from the same period last year. The number of royalty recipients -- both performing artists and record labels -- increased 34 percent to 22,343. The quarterly distributions put non-interactive digital radio services, which pay digital performance royalties to SoundExchange, on track to nearly match other digital revenue streams.
Even though services like Pandora, SiriusXM and iHeartRadio become a major revenue stream, their growth rate has slowed considerably. Second quarter distributions were down slightly from the $162.6 million distributed in the first quarter of 2014. Second quarter payouts were also lower than the $170 million paid out in the fourth quarter of 2013.
Royalties paid this year should easily top the $590.4 million paid in 2013. Recipients have been paid royalties of $323.6 million in the first half of 2014, an increase of almost 22 percent. If SoundExchange simply pays an equal amount in the second half of the year, annual distributions will rise 9.6 percent to $647 million.
SoundExchange's digital performance royalties are on par with other digital revenue streams. At their current paces -- which could worsen later in the year -- digital tracks and albums are on track to generate revenue this year of $1.35 billion and $1.1 billion, respectively. Accounting for the 30 percent of revenue retained by retailers, digital tracks and albums would return $944 million and $770 million to rights holders, respectively.
Paid subscription services like Spotify, Rhapsody and Beats Music aren't far behind digital tracks and albums. If subscription services can match last year's 57-percent growth rate, they will generate $987 million and, assuming a 70/30 split for rights holders/services, will return $690 million to rights holders.
There's reason to believe digital radio services will continue to grow well into the future. Services are slowly making inroads in the automobile and taking away listening time from AM/FM radio. As of June, Pandora was integrated with over 145 vehicle models and 270 aftermarket audio systems. Google's acquisition of Songza should also help Internet radio grow in the coming years. (Apple's iTunes Radio and Amazon's Prime Music will also help Internet radio, but neither pay royalties to SoundExchange and thus reside in a different category.) Greater access to mobile broadband should also help drive growth of Internet radio.