Business Matters: Inside SoundExchange's 2010 and 2011 Numbers
Business Matters: Inside SoundExchange's 2010 and 2011 Numbers

SoundExchange announced Monday it has paid out $1 billion in digital performance royalties to record labels and recently topped $100 million in a single quarter for the first time. The organization paid out $108.6 million in the first quarter of 2012 and credited the record quarter to "data cleanup and technology overhaul efforts." Payouts were $292 million in 2011 and about $250 million in 2010.

Established in 2000, SoundExchange collects and distributes royalties for the non-interactive digital performances on behalf of sound recording copyright owners and performing artists. It receives royalties from satellite radio company Sirius XM as well as Internet radio giant Pandora and many other companies that operate under a compulsory license for non-interactive webcasters.

Business Matters: Pandora Accounts for a Huge Share of SoundExchange Collections

On-demand services such as Spotify negotiate directly with labels and do not pay royalties to SoundExchange.

But SoundExchange has been under attack recently. In March, Sirius XM filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM) that alleges the two organizations have interfered with its efforts to obtain less expensive direct licenses. Direct negotiations with labels would mean Sirius XM would circumvent the statutory royalty rate and its royalties would bypass SoundExhange.

SiriusXM Files Lawsuit Against SoundExchange and A2IM, Alleging Licensing Interference

Labels may negotiate directly with terrestrial radio companies in an effort to consolidate the terrestrial and digital performance royalties. Two weeks ago, Big Machine Label Group announced a landmark agreement with Clear Channel in which the broadcaster will pay Big Machine a percent of revenue for both terrestrial and digital performances. The deal marks the first time a radio company has paid a record label for terrestrial performances and could set the stage for more direct negotiations that bypass SoundExchange. Labels, seeing the difficulty in getting Congress to pass performance royalties legislation, could cut deals similar to the one reached by Clear Channel and Big Machine.

Exclusive: Clear Channel, Big Machine Strike Deal to Pay Sound-Recording Performance Royalties To Label, Artists

In any case, these gains, and the passing of the $1 billion threshold, are evidence of the diversified nature of today's record business. Although digital tracks and albums accounted for roughly 71% of digital revenue of RIAA member labels in 2011, other revenue streams are growing. Subscription revenue accounted for 6.6% of member labels' revenue while digital performance royalties - paid out by SoundExchange - represented 8.1% of revenue. Synchronization royalties provided another 5.4% of digital royalties.