Record labels and artists were paid $204 million in digital radio royalties in the third quarter, SoundExchange revealed Wednesday -- the same day that the Copyright Royalty Board will hand down new royalty rates to the very services that SoundExchange collects from. That third-quarter figure isn't a record, but the number shows the importance of non-interactive services like Pandora, SiriusXM and Music Choice.
SoundExchange, the collection agency tasked with receiving and distributing those non-interactive digital radio royalties, paid out $267 million in the third quarter of 2014, $63 million more than last quarter's payout. Third quarter distributions look better when viewed sequentially. In that sense, last quarter was an improvement from first and second quarters by $10 to $11 million.
The larger story here is the loss of momentum. At the current pace, SoundExchange will distribute roughly $800 million in 2015, a 3.5 percent gain over the $773 million paid out in 2014. Annual growth in the low single digits would be a sharp decline from growth rates of 45.9 percent, 38.5 percent and 31.0 percent recorded in the last three years.
But a slowdown isn't necessarily a concern for artists and labels. Because there is overall growth in streaming services, a sharp slowdown in SoundExchange distributions is likely a sign that on-demand services like Spotify and Apple Music are gaining listening hours at the expense of Pandora, iHeartRadio and other non-interactive services. This explanation becomes all the more plausible considering Pandora's weak listener growth in the third quarter that was partially attributed to the June 30 launch of Apple Music. In this scenario, some royalty payments are shifted from non-interactive webcasters to on-demand services, like Spotify, that pay labels rather than SoundExchange.